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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-K

|           |  |                                                                                                 
|---------- |  | ------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                 
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended March 30,
    2002,                                                   
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from          to          .                                       

Commission file number: 0-22594



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Alliance Semiconductor Corporation

(Exact name of Registrant as specified in its
charter)


|                                                                   |  |                                            
|------------------------------------------------------------------ |  | -------------------------------------------
|Delaware                                                           |  | 77-0057842                                 
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification Number)

2575 Augustine Drive

Santa Clara, California 95054-2914


(Address of principal executive
offices)


Registrants telephone number, including
area code is (408) 855-4900

Registrants website address is
http://www.alsc.com



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Securities registered pursuant to
Section 12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:

|                              |  |                                          
|----------------------------- |  | -----------------------------------------
|Title of each class           |  | Name of each exchange on which registered
|                              |  |                                          
|Common Stock, par value $0.01 |  | Nasdaq                                   

Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.    Yes þ        No o

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

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

As of June 21, 2002, there were 38,410,639
shares of Registrants Common Stock outstanding. The
aggregate market value of the voting stock held by
non-affiliates of the registrant on June 21, 2002, based
upon the closing price of the Common Stock on the Nasdaq
National Market for such date, was approximately $257,350,000.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrants definitive Proxy
Statement for its 2002 Annual Meeting of Stockholders
(Proxy Statement) to be filed pursuant to
Regulation 14A of the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended, which is
anticipated to be filed within 120 days after the end of
Registrants fiscal year ended March 30, 2002, are
incorporated by reference into Part III hereof.

Exhibit Index on page 40



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TABLE OF CONTENTS



|              |                                                                                                                         |                                                                   |  |  |  |  |  | 
|------------- | ----------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- |  |  |  |  |  | 
|PART I       
|              | Item 1 Business                                                                                                        
|              | Item 2 Facilities                                                                                                      
|              | Item 3 Legal Proceedings                                                                                               
|              | Item 4 Submission of Matters to a Vote of Security Holders                                                             
|PART II      
|              | Item 5 Market for Registrants Common Equity and Related Stockholder Matters                                           
|              | Item 6 Selected Consolidated Financial Data                                                                            
|              | Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations                           
|              | Item 7A Quantitative and Qualitative Disclosures About Market Risk                                                     
|              | Item 8 Consolidated Financial Statements and Supplementary Data                                                        
|              | Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            
|PART III     
|              | Item 10 Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act
|              | Item 11 Executive Compensation                                                                                         
|              | Item 12 Security Ownership of Certain Beneficial Owners and Management                                                 
|              | Item 13 Certain Relationships and Related Transactions                                                                 
|              | Item 14 Exhibits, Financial Statements, Financial Statement Schedules and Reports on Form 8-K                          
|EXHIBIT INDEX
|SIGNATURES   
|              |                                                                                                                         | REPORT OF INDEPENDENT ACCOUNTANTS                                
|              |                                                                                                                         | CONSOLIDATED BALANCE SHEETS                                      
|              |                                                                                                                         | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                       
|              |                                                                                                                         | REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
|              |                                                                                                                         | SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS                   
|EXHIBIT 10.51
|EXHIBIT 21.01
|EXHIBIT 23.01



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PART I

Forward Looking Statements

This Report contains certain 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, including, but not
limited to statements as to future operating results and plans
that involve risks and uncertainties. We use words such as
expects, anticipates,
believes, estimates and similar
expressions to identify forward looking statements. Such
forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to differ
materially from any future results, performance or achievements
expressed or implied by those projected in the forward-looking
statements for any reason, including the risks and uncertainties
set forth in Item 1 of Part I hereof (entitled
Business) and in Item 7 of Part II hereof
(entitled Factors Affecting Future Results) and
elsewhere in this report.




Item 1     Business

Overview

Alliance Semiconductor Corporation was
incorporated in California on February 4, 1985 and
reincorporated in Delaware on October 26, 1993. Market
trends, such an increased emphasis on high-throughput
applications, including networking, graphics, multimedia,
computer, consumer, and telecommunications products, have
created opportunities for high performance memory products. The
Company addresses these opportunities with its families of
static random access memories (SRAMs) and dynamic
random access memories (DRAMs), characterized by
high storage capacity (density), fast access times and low power
consumption. The Company designs, develops and markets high
performance memory and memory intensive logic products to the
personal computer, networking, telecommunications,
instrumentation and consumer markets. With headquarters in Santa
Clara, California, and a major design center in Bangalore,
India, we also serve customers from international offices in
Asia, Japan, and Europe.

The Companys strategy of addressing market
opportunities with its SRAM and DRAM products has recently been
severely impacted by declines in average selling prices and end
user demand. To offset the effects of declining selling prices
and its impact on revenue, the Company began to modify its
strategy and diversify its product mix to focus on additional,
value added products outside of the high performance memory
product area. In furtherance of this strategy, on
January 17, 2002, the Company completed its acquisition of
PulseCore, Inc. (PulseCore). PulseCore is a fabless
semiconductor company specializing in high speed and low power
mixed signal design. PulseCore currently provides
electromagnetic interference (EMI) suppression
integrated circuits to manufacturers of computer peripherals and
digital consumer products. The acquisition cost was
$5.1 million, including directly related expenses of the
acquisition of $270,000. Net revenues from sales of PulseCore
products were an immaterial portion of the Companys net
revenues during fiscal 2002.

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 undercapacity, and accelerated erosion of
selling prices. The market for the Companys DRAM and SRAM
devices continues to experience excess supply relative to
demand, which resulted in a significant downward trend in
average selling prices. Although the Company is unable to
predict future trends in average selling prices, historically
the semiconductor industry has experienced significant 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. In fiscal 2002,
the Company experienced (as it did in previous years) rapid
erosion in product pricing which is not within the control of
the Company and which will continue to have an adverse material
effect on the Companys results of operations. The Company
is unable to predict the future prices for its products.

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Throughout this report, the Company has indicated
its fiscal years as ending on March 31, whereas the
Companys fiscal year actually ends on the Saturday nearest
the end of March. The fiscal years ended March 31, 2002,
2001 and 2000 all contained 52 weeks.

Technology

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

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

In addition to having small die sizes, many of
the Companys products are designed to be manufactured
using a CMOS process with fewer steps than required for some
competitive memory products. The Companys competitors
often require a greater number of mask steps and/or more complex
manufacturing processes to achieve similar performance of such
products. Because yields typically decline as manufacturing
complexity and the number of process steps increase, the simpler
manufacturing process utilized by the Company has contributed to
its generally high manufacturing yields. The Company also
believes that a simpler manufacturing process leads to faster
time to market and shorter manufacturing cycle times.

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

Products



| |                                                          
| | ---------------------------------------------------------
| | High Speed CMOS Dynamic Random Access
    Memory (DRAM)

DRAMs are high density, low-cost-per-bit, random
access memory components that store digital information and
provide high-speed storage and retrieval of data. DRAMs are the
most widely used semiconductor memory component in computer
systems. Sales of the Companys DRAM products accounted for
48% of the Companys net revenues in fiscal 2002. During
fiscal years 2001 and 2000, DRAM products accounted for 57% and
56%, respectively, to the Companys net revenues. The
Companys primary DRAM products are 4-Mbit and 16-Mbit
densities in various configurations



| |                                                         
| | --------------------------------------------------------
| | High Speed CMOS Static Random Access Memory
    (SRAM)

SRAMs are semiconductor devices that perform
memory functions similar to DRAMs. SRAMs utilize a more complex
memory cell and do not require the memory array to be
periodically refreshed. This simplifies system design for memory
applications utilizing SRAM and allows SRAM to operate faster
than DRAM, although SRAM has a higher cost-per-bit than DRAM.
The Company produces SRAMs for the high-performance or
high-bandwidth applications that require a buffer or
cache of high-speed memory to provide data access
and data routing quickly. SRAMs are a key component in
leading-edge

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telecommunications and networking applications
where bandwidth is a critical system parameter. Sales of the
Companys SRAM products accounted for 50% of the
Companys net revenues in fiscal 2002. During fiscal year
2001 and 2000, SRAM products contributed approximately 43% and
43% respectively, to the Companys net revenues. Focused on
the telecommunications, networking and wireless markets, the
Company currently offers SRAM products in broad range densities,
packages, speed grades and low-power ranges from 64 Kbit to
8 Mbit with speeds as fast as 8ns and stand by power as low
as 20uA. Currently the Companys SRAM products are
manufactured using 0.35 and 0.25 micron technology, with
development to 0.13 micron technology underway.




| |                                     
| | ------------------------------------
| | Mixed Signal Integrated
    Circuits

The Companys PulseCore products are
designed to provide a diverse mixed-signal product line built
around its low EMI frequency timing technology.
PulseCore devices implement spread spectrum modulation
techniques for EMI reduction, in conjunction with propriety
direct digital synthesis. This serves as a base for many
application specific standard products. Features include
selectable frequencies (10-166MHz) and modulation
characteristics (frequency deviation, modulation rate), low
jitter, and up to 15dB of system attenuation. PulseCores
EMI suppression ICs have been designed to provide extensive
programmability and features in the smallest, lowest-cost
packages available. PulseCores software program
EMI-latorTM, is designed to enable the user to
resolve EMI compliance issues at the very beginning of the
design phase. This provides greater predictability and improved
time-to-market over the traditional
trial-and-error approach where EMI issues are
addressed at the end of the engineering cycle. The Company
currently offers for sale over 10 different PulseCore
products.



| |                                     
| | ------------------------------------
| | Interconnect Integrated
    Circuits

The Company is in the process of developing
integrated circuits that are designed to provide solutions that
accelerate the transmission and switching of data, video and
voice in performance and bandwidth-intensive networking, storage
and server markets. The product portfolio is planned to include
a family of high-speed and high-bandwidth chip-to-chip
interconnects including HT-to-Peripheral Component Interface
(PCI) bridges and HT-to-HT switches. The family of
interconnects will expand the possibilities for todays
system architects and designers by providing them with design
options based on HT, PCI and industry standard networking and
Input/ Output interconnect technologies. The Company believes
the chip-to-chip interconnect family will be a key building
block in a number of different systems including storage systems
and switches, imaging and graphics systems, LAN switches,
servers, access and edge routers. These solutions are currently
planned to include a complete eco-system that
integrates IC devices with software drivers, protocol stacks,
reference designs, evaluation kits and an extensive set of
documentation to speed customer time to market. The Company
expects that its initial chip-to-chip interconnect product will
begin shipments to customers in the first half of fiscal 2003.



| |                             
| | ----------------------------
| | High Speed CMOS Flash Memory

During fiscal 2001, the Company changed its focus
from 5V to 3V flash memory products (which use a single nominal,
3-volt power supply for read and programming functions). The
Company has available the 8-Mbit product with access times as
fast as 80ns, and has achieved functional silicon on 4-Mbit
product. To date, the Company has not derived significant
revenue from flash memory products and has discontinued
development of flash memory products.



| |                              
| | -----------------------------
| | Network Hardware Accelerators

During fiscal 2001 and 2000, the Company spent
development efforts on a family of Internet Protocol Routing
Processors. In fiscal 2002, the Company discontinued development
of these products.

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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 has 107 development personnel (46 in
the United States and 61 in India) as of March 31, 2002.
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 2002, 2001, and 2000, the Company
spent approximately $10.4 million, $13.8 million, and
$14.6 million, respectively, on product development
activities. The Company plans to continue to invest substantial
amounts in development to design additional products.

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

The markets for the Companys products are
volatile and subject to rapid technological and price change.
Any inventory of products for those markets may be subject to
obsolescence and price erosion, which could materially and
adversely affect the Companys results of operations.

Customers

The Companys primary customers are major
domestic and international manufacturers of personal computer
and computer peripherals, consumer, networking,
telecommunications and wireless products, including; 3Com, Pace
Micro Technology, Lucent, Sony, IBM, Toshiba, Acer, Alcatel,
Nokia, Solectron, Jabil, Efficient Networks, General
Instruments, Seagate, Brother and Pioneer. A decline in demand
in these industries or lack of success in developing new markets
or new products has had and may continue to have a material
adverse effect on the Companys results of operations.

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
fiscal 2002 and 2001, no customers accounted for more than 10%
of the Companys net revenues. For the fiscal 2000, one
customer accounted for approximately 10% of the Companys
net revenues.

Historically, the semiconductor industry in
general, and the semiconductor memory business in particular,
have experienced cyclical downturns in business every few years.
The industry experienced such a downturn in the mid 1990s
and had been recovering over the last few years, as had the
Company. Beginning in the fourth fiscal quarter of fiscal 2001,
the industry and the Company experienced a significant downturn.
The Company cannot predict when the current downturn will end.
Even after the end of the current downturn, the Company fully
expects that other downturns will occur. It

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is difficult to predict when such downturns will
occur, and when customers will start canceling orders. There can
be no assurance that the Company will be able to manage its
business in a manner so as to prepare for downturns, when they
occur. Additionally, even if the Company is able to prepare for
downturns, any such downturns would have a significant and
material negative impact on the Companys ability to sell
products and results of operations, and such a negative impact
on the Company may last several years.


Sales and Marketing

The Company markets and distributes its products
through a network of sales offices, manufacturers
representatives and distributors throughout North America,
Europe, Asia and the rest of the world.

The Company uses manufacturers
representatives and distributors who are not subject to minimum
purchase requirements and who can discontinue marketing the
Companys products at any time. Many of the Companys
distributors are permitted to return a limited amount of product
purchased in exchange for future orders. The loss of one or more
manufacturers representatives or distributors could have a
material adverse effect on the Companys results of
operations. The Company believes that its relations with its
manufacturers representatives and distributors generally
are good.

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

International revenues accounted for
approximately 74%, 63%, and 60% of net revenues in fiscal 2002,
2001 and 2000, respectively. 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 North America, and
the Company has in the past, and intends in the future, to make
investments in certain foundries in Asia or elsewhere in order
to secure production capacity. Due to its international sales
and independent third party manufacturing, assembly and testing
operations, the Company is subject to the risks of conducting
business internationally. These risks include unexpected changes
in regulatory requirements, delay resulting from difficulty in
obtaining export licenses of certain technology, tariffs and
other barriers and restrictions, and the burdens of complying
with a variety of foreign laws. The Company is also subject to
general geopolitical risks in connection with its international
operations, such as political and economic instability and
changes in diplomatic and trade relationships. In addition,
because the Companys international sales generally are
denominated in U.S. dollars, fluctuations in the U.S.
dollar could increase the price in local currencies of the
Companys products in foreign markets and make the
Companys products relatively more expensive than
competitors products that are denominated in local
currencies. There can be no assurance that such regulatory,
geopolitical or other factors will not adversely impact the
Companys results of operations in the future or require
the Company to modify its current business practices.

Manufacturing

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

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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 and
Japan, Chartered Semiconductor Manufacturing Ltd.
(Chartered) in Singapore and National Semiconductor
Corporation (National) in the United States. The
Company has entered into foundry production agreements with all
of its major foundries. In fiscal 2001, the Company entered into
a foundry production agreement with Tower Semiconductor, Ltd.
(Tower), in connection with an investment in a new
fabrication facility being constructed by Tower in Israel. To
date the Company has not used the Tower facility for production
purposes. Although the Company believes it currently has
adequate capacity to address market requirements, there can be
no assurance that in the future the Companys current
foundries, together with any additional sources, would be
willing or able to satisfy all of the Companys
requirements on a timely basis. The Company has encountered
delays in the qualification process and production ramp-up in
the past, and qualification 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 addition, some of UMCs foundries are
located in the Science-Based Industrial Park in Hsin-Chu City,
Taiwan. The Company currently expects these foundries to supply
the substantial portion of the Companys products in fiscal
2003. The Company has in the past experienced disruption of the
operations at its foundries, and any future disruptions for any
reason, including work stoppages, fire, and earthquakes, or
other natural disasters, could cause delays in shipments of the
Companys products, and could have a material adverse
effect on the Companys results of operations. In 1997, a
fire caused extensive damage to one of UMCs foundries, not
used by the Company, which is located in the Hsin-Chu
Science-Based Industrial Park. There have been at least two
other fires at semiconductor manufacturing facilities in the
Hsin-Chu Science-Based Industrial Park. There can be no
assurance that fires or other disasters will not have a material
adverse effect on UMC in the future. In addition, as a result of
the rapid growth of the semiconductor industry based in the
Hsin-Chu Science-Based Industrial Park, severe constraints have
been placed on the water and electricity supply in that region.
Any shortages of water or electricity could adversely affect the
Companys foundries ability to supply the
Companys products, which could have a material adverse
effect on the Companys results of operations.

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

The Company purchases semiconductor wafers from
these foundries pursuant to various agreements. The Company
believes that its relationship with each of these foundries is
good; however, UMC and Chartered manufacture similar products
which are sold to the Companys competitors and customers.

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

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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
results of operations. There can be no assurance that problems
affecting manufacturing yields of the Companys products
will not occur in the future.


The Company uses offshore subcontractors, which
are located primarily in Taiwan and Singapore for die assembly
and testing. In the assembly process, the silicon wafers are
separated into individual dies that are then assembled into
packages and tested in accordance with procedures developed by
the Company. Following assembly, the packaged devices are
further tested and inspected pursuant to the Companys
quality assurance program before shipment to customers. While
the timeliness, yield and quality of product deliveries from the
Companys suppliers of assembly and test services have been
acceptable to date, there can be no assurance that problems will
not occur in the future. Any significant disruption in adequate
supplies from these subcontractors, or any other circumstances
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 results
of operations. Most of the Companys wafer foundries,
assembly and testing facilities comply with the requirements of
ISO 9000.

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

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 results
of operations. 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 results of operations.

Competition

The semiconductor industry is intensely
competitive and is characterized by price erosion, rapid
technological change, product obsolescence and heightened
international competition in many markets. Many of the
Companys customers may be purchasing products from both
the Company and the Companys competitors. The
Companys principal competitors include Cypress
Semiconductor Corporation, Integrated Device Technology, Inc.,
Integrated Silicon Solutions, Inc., Micron Technology, Inc.,
NEC, Samsung, Toshiba, and other U.S., Japanese, Korean, and
Taiwanese manufacturers. Most 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. During an industry downturn such as the
current downturn and as occurred previously 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, the Company
has entered into new markets, therefore the Company faces
additional competition. Markets for most of the Companys
products are characterized by intense price competition. The
Companys future success will be highly dependent upon the
successful development and timely

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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, sources of raw materials, efficiency of
production, timing of new product introductions by competitors,
protection of Company products by effective utilization of
intellectual property laws and general market and economic
conditions. There can be no assurance that the Company will be
able to compete successfully in the future.


Licenses, Patents and Maskwork
Protection

The Company seeks to protect its proprietary
technology by filing patent applications in the United States
and registering its circuit designs pursuant to the
Semiconductor Chip Protection Act of 1984. As of June 21,
2002, the Company holds 73 United States patents covering
certain aspects of its product designs or manufacturing
technology, which patents expire between 2009 and 2020. The
Company also has 26 pending United States patent
applications, six of which have been allowed and are expected to
be issued as patents. No assurance can be given that the claims
allowed on any patents held by the Company will be sufficiently
broad to protect the Companys technology. In addition, no
assurance can be given that any patents issued to the Company
will not be challenged, invalidated or circumvented or that the
rights granted thereunder will provide competitive advantages to
the Company. The loss of patent protection on the Companys
technology or the circumvention of its patents by competitors
could have a material adverse effect on the Companys
ability to compete successfully in its products business. There
can be no assurance that any existing or future patent
applications by the Company will result in issued patents with
the scope of the claims sought by the Company, or at all, that
any current or future issued or licensed patents, trade secrets
or know-how will afford sufficient protection against
competitors with similar technologies or processes, or that any
patents issued will not be infringed upon or designed around by
others. In addition, there can be no assurance that others will
not independently develop proprietary technologies and
processes, which are the same as or substantially, equivalent or
superior to those of the Company.

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
Company is in discussions with three companies who have made
claims that some of the Companys products and/or processes
infringe patents held by such companies. If the Company
determines that the Company possibly infringes a patent and the
patent appears valid, the Company will negotiate a license, if
possible. The ultimate conclusion with respect to any alleged
infringement must be determined by a court or administrative
agency in the event of litigation, and there can be no assurance
that a court or administrative agency would determine that the
Companys products do not infringe the patents in question.
Patent litigation is inherently uncertain and the Company cannot
predict the result of any such litigation or the level of
damages that could be imposed if it were determined that certain
of the Companys products or processes infringe any of the
patents in question.

Copyrights and maskwork protection are also key
elements in the conduct of the Companys business. The
Company also relies on trade secrets and proprietary know-how,
which it seeks to protect by confidentiality agreements with its
employees and consultants, and with third parties. There can be
no assurance that these agreements will not be breached, that
the Company will have adequate remedies for any breach, or that
its trade secrets and proprietary know-how will not otherwise
become known or be independently discovered by others.

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

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


Investments

In the last nine months of fiscal 2001,
marketable securities held by the Company experienced
significant declines in their market value primary due to the
downturn in the semiconductor sector and general market
conditions. As a result, the Company recorded a pre-tax,
non-operating loss of approximately $506.8 million during
the fourth quarter of fiscal 2001 based on the quoted price of
the respective marketable securities at March 31, 2001.

During the first six months of fiscal 2002,
marketable securities held by the Company continued to
experience further significant declines in their market value.
Management determined that another write down was necessary as
of September 30, 2001. As a result, the Company recorded a
pre-tax loss of $288.5 million during the second quarter of
fiscal 2002, based on the quoted market price of the respective
marketable securities at September 30, 2001.



| |                                        
| | ---------------------------------------
| | United Microelectronics
    Corporation

At March 31, 2002, the Company owned
approximately 313.1 million shares of UMC common stock,
representing approximately less than a 1% ownership interest in
UMC. During fiscal 2000, the Company recognized a
$907.5 million pre-tax gain as a result of the merger
between UMC and the four wafer foundry units: USC, USIC, United
Integrated Circuit Corporation and UTEK Semiconductor
Corporation. According to Taiwanese laws and regulations, 50% of
the 283.3 million UMC shares the Company initially received
are subject to a lock-up or no trade period. Of this
50% or 141.6 million shares, approximately
28.3 million shares have become eligible for sale
commencing on January 2001 and will continue to become eligible
for sale every six months through 2004. In May 2000, the Company
received an additional 20% or 56.6 million shares of UMC by
way of a stock dividend. In January 2002, the Company received
an additional 15% or 51.0 million shares of UMC by way of
stock dividend. These dividend shares are not subject to a
lock-up.

The portion of the investment in UMC which is
restricted for sale for more than twelve months (approximately
18% of the Companys holdings at March 31, 2002), is
accounted for under the cost method and is presented as a
long-term investment. As the portion of the investment subject
to restriction becomes current over time, the investment will be
transferred to short-term investments and will be accounted for
as an available-for-sale marketable security in accordance with
Statement of Financial Accounting Standards No. 115
(SFAS 115). At the end of the fourth quarter of
fiscal 2001, the Company wrote down its investment in UMC and
recognized a pre-tax, non-operating loss of approximately
$460.0 million. In fiscal 2002, the Company sold
77.8 million shares of UMC stock and recorded a pre-tax
non-operating loss of $20.8 million. The majority of the
stock sold by the Company was in order to comply with the
restrictions as part of its loan agreement with Citibank as a
result of the decline in the stock price of UMC in the second
and third quarters of fiscal 2002. At the end of the second
quarter of fiscal 2002, the Company wrote down its investment in
UMC and recognized a pre-tax, non-operating loss of
approximately $250.9 million.

At March 31, 2002, the Company owned
256.5 million shares of UMC that were available-for-sale
and recorded an unrealized gain of approximately
$135.2 million, net of deferred taxes of approximately
$91.3 million as part of Accumulated Other
Comprehensive Income in the Stockholders Equity
section of the Balance Sheet. Also at March 31, 2002, the
Company owned 56.7 million shares of UMC that are recorded
at cost.

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Given the market risk for securities, if these
shares are ultimately sold, it is possible that additional gain
or loss will be reported in connection with the sale. If the
Company sells more that 50% of its original holdings of UMC, the
Company will start to lose a proportionate share of its wafer
production capacity rights, which could materially affect its
ability to conduct its business.



| |                                                      
| | -----------------------------------------------------
| | Chartered Semiconductor Manufacturing
    Corporation

At March 31, 2002, the Company owned
approximately 16.4 million ordinary shares or
1.64 million American Depository Shares (ADSs)
of Semiconductor Manufacturing Corporation
(Chartered). The Company does not own a material
percentage of the equity of Chartered. The Company accounts for
its investment in Chartered as an available-for-sale security in
accordance with SFAS 115. During the second quarter of fiscal
2002, the Company wrote down its investment in Chartered and
recognized a pre-tax, non-operating loss of approximately of
$12.2 million. At March 31, 2002, the Company recorded
an unrealized gain of approximately $10.1 million, net of
taxes of approximately $5.8 million as part of
Accumulated Other Comprehensive Income in the
Stockholders Equity Section of the Balance Sheet, included
in Item 8  Financial Statements and
Supplemental Data. During fiscal 2001, the Company sold
500,000 shares of Chartered and recognized a pre-tax gain of
approximately $33.5 million.

Given the market risk for securities, when these
shares are ultimately sold, it is possible that additional gain
or loss will be reported in connection with any such sale. If
the Company sells more than 50% of its original holdings of
Chartered, the Company will start to lose a proportionate share
of its wafer production capacity rights, which could materially
affect its ability to conduct its business.



| |                     
| | --------------------
| | Broadcom Corporation

At March 31, 2002, the Company owned 75,000
shares of Common Stock of Broadcom Corporation
(Broadcom). The Company accounts for its investment
in Broadcom as an available-for-sale marketable security in
accordance with SFAS 115. In fiscal 2002, the Company sold
125,000 shares of Broadcom Common Stock, recognizing a pre-tax,
non-operating gain of approximately $1.6 million. In fiscal
2002, the Company also entered into a cashless collar
arrangement with a brokerage firm with respect to 75,000 shares
of Broadcom Common Stock. The collar arrangement consists of a
written call option to buy 75,000 shares of Broadcom Common
Stock at a price of $64.72 and a purchased put option to sell
75,000 shares at a price of $36.72 through August 2002. At the
end of the fourth quarter of fiscal 2001, the Company wrote down
its investment in Broadcom and recognized a pre-tax,
non-operating loss of approximately $3.8 million.

At March 31, 2002, the Company recorded an
unrealized gain of approximately $810,000, net of taxes of
approximately $548,000, as part of Accumulated Other
Comprehensive Income in the Stockholders Equity
section of the Balance Sheet.

Broadcoms stock, like many other high
technology stocks, has historically experienced material and
significant fluctuations in market value, and will probably
continue to do so in the future. Additionally, because it is
common that high technology stocks, like Broadcoms and the
Companys, move as a group, it is likely that
Broadcoms stock and the Companys stock would suffer
significant loss in value at the same time. This occurred in
fiscal 2002 and 2001. Therefore, there can be no assurance that
the Companys investment in Broadcom will maintain its
value.



| |                                      
| | -------------------------------------
| | Vitesse Semiconductor
    Corporation

At March 31, 2002, the Company owned 728,000
shares of Common Stock of Vitesse Semiconductor Corporation
(Vitesse). The Company accounts for its investment
in Vitesse as an available-for-sale marketable security in
accordance with SFAS 115. In January 2001, the Company
entered into two derivative contracts (Derivative
Agreements) with a brokerage firm and received aggregate
cash proceeds of approximately $31.0 million. The
Derivative Agreements have repayment provisions that incorporate
a collar arrangement with respect to 490,000 shares of Vitesse
Semiconductor common stock. The Company, at its option, may
settle the contracts by either delivering Vitesse shares or
making

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a cash payment to the brokerage firm in January
2003, the maturity date of the Derivative Agreements. The number
of Vitesse shares to be delivered or the amount of cash to be
paid is determined by a formula in the Derivative Agreements
based upon the market price of the Vitesse shares on the
settlement date. Under the Derivative Agreements, if the stock
price of Vitesse exceeds the ceiling of the collar, then the
settlement amount also increases by an amount determined by a
formula included in the Derivative Agreements (generally equal
to the excess of the value of the stock over the ceiling of the
collar.) If the stock price of Vitesse declines below the floor
of the collar, then the settlement amount also decreases by an
amount determined by a formula included in the Derivative
Agreements (generally equal to the excess of the floor of the
collar over the value of the stock.) During the second quarter
of fiscal 2002, the Company wrote down its investment in Vitesse
and recognized a pre-tax non-operating loss of approximately
$3.8 million. At the end of the fourth quarter of fiscal
2001, the Company wrote-down its investment in Vitesse and
recognized a pre-tax non-operating loss of approximately
$52.9 million. This loss was offset by a $20.6 million
gain on the Vitesse derivative contract.


At March 31, 2002, the Company recorded an
unrealized gain of approximately $292,000, net of taxes of
$197,000 as part of Accumulated Other Comprehensive Income in
the Stockholders Equity section of the Balance Sheet.

Vitesses stock, like many other high
technology stocks, has historically experienced material and
significant fluctuations in market value, and will probably
continue to do so in the future. Additionally, because it is
common that high technology stocks, like Vitesses and the
Companys, move as a group, it is likely that
Vitesses stock and the Companys stock would both
suffer significant loss in value at the same time. This occurred
in fiscal 2002 and 2001. Therefore, there can be no assurance
that the Companys investment in Vitesse will maintain its
value.



| |                       
| | ----------------------
| | PMC-Sierra Corporation

At March 31, 2002, the Company held 68,152
shares of PMC-Sierra Corporation (PMC) common stock.
The Company records its investment in PMC as an
available-for-sale marketable security in accordance with SFAS
115. In the second fiscal quarter of 2002, the Company wrote
down its investment in PMC recognizing a pre-tax, non-operating
loss of approximately $1.0 million. At the end of the
fourth quarter of fiscal 2001, the Company wrote down its
investment in PMC and recognized a pre-tax, non-operating loss
of approximately $10.8 million. At March 31, 2002, The
Company recorded an unrealized gain of approximately $271,000
net of taxes of approximately $130,000, as part of Accumulated
Other Comprehensive Income in the stockholders equity
section of the balance sheet.

PMCs stock, like many other high technology
stocks, has historically experienced material and significant
fluctuations in market value, and will probably continue to do
so in the future. Additionally, because it is common that high
technology stocks, like PMCs and the Companys, move
as a group, it is likely that PMCs stock and the
Companys stock would both suffer significant loss in value
at the same time. This occurred in fiscal 2002 and 2001.
Therefore, there can be no assurance that the Companys
investment in PMC will maintain its value.



| |              
| | -------------
| | Adaptec, Inc.

In June 2000, the Company through its venture arm
Alliance Venture Management, LLC, made an investment in Platys
Communications, Inc. (Platys), a developer and
marketer of advanced storage networking products. On
August 25, 2001, Adaptec, Inc. (Adaptec)
acquired Platys. In connection with the acquisition, the Company
received 1,540,961 shares of Adaptec common stock and
$15.9 million in cash, of which $4.5 million is held
in an escrow account and is classified as part of restricted
cash on the Balance Sheet, and recorded a pre-tax, non-operating
gain of approximately $28.6 million. In the third fiscal
quarter of fiscal 2002, the Company sold 100,000 shares of
Adaptec and recorded a pre-tax, non-operating gain of
approximately $403,000.

In December 2001, the Company entered into a
derivative contract with a brokerage firm and received aggregate
cash proceeds of $5.0 million. The contract has repayment
provisions that incorpo-

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rate a collar arrangement with respect to
362,173 shares of Adaptec common stock. The Company has to
deliver a certain number of shares of Adaptec Common Stock in
June 2003, the maturity date of the contract. The number of
Adaptec shares to be delivered is determined by a formula based
upon the market price of the Adaptec shares on the settlement
date. Under the contract, if the stock price of Adaptec is
outside of the collar (the floor of which is $16.26 and the
ceiling of which is $21.99), the Company would be obligated to
deliver 362,173 shares of Adaptec Common Stock. If the
stock price of Adaptec is within the collar, the Company will be
obilgated to deliver that number of Adaptec shares having total
value of $5.9 million.


At March 31, 2002, the Company held
1,440,961 shares of Adaptec. The Company records its investment
in Adaptec as an available-for-sale marketable security in
accordance with SFAS 115. In fiscal 2002, the Company recorded
an unrealized gain of approximately $2.5 million, net of
tax of approximately $1.7 million, as part of
Accumulated Other Comprehensive Income in the
Stockholders Equity section of the Balance Sheet.
Adaptecs stock, like many other high technology stocks,
has historically experienced material and significant
fluctuations in market value, and will probably continue to do
so in the future. Additionally, because it is common that high
technology stocks, like Adaptecs and the Companys,
move as a group, it is likely that Adaptecs stock and the
Companys stock would both suffer significant loss in value
at the same time. This occurred in fiscal 2002. Therefore, there
can be no assurance that the Companys investment in
Adaptec will maintain its value.



| |                        
| | -----------------------
| | Magma Design Automation

In December 1999, the Company, through its
venture arm Alliance Venture Management, LLC, made an investment
in Magma Design Automation (Magma). On
November 20, 2001, Magma successfully completed its initial
public offering. The Company accounts for its investment in
Magma as an available-for-sale marketable security in accordance
with SFAS 115. At March 31, 2002, the Company held
360,244 shares of Magma and recorded an unrealized gain of
approximately $1.3 million, net of taxes of $893,000, as
part of Accumulated Other Comprehensive Income in the
Stockholders Equity section of the Balance Sheet.



| |                         
| | ------------------------
| | Tower Semiconductor Ltd.

In August 2000, the Company entered into a share
purchase agreement with Tower Semiconductor Ltd.
(Tower) under which Alliance committed to make a
$75.0 million strategic investment in Tower as part of
Towers plan to build its new fab. In return for its
investment, Alliance received equity, corresponding
representation on Towers Board of Directors and committed
production capacity in the advanced fab, which Tower intended to
build. Pursuant to the agreement, the Company purchased
1,233,241 Ordinary Shares of Tower for an aggregate purchase
price of $31 million in the fourth quarter of fiscal 2001.
The Company has an obligation to purchase an additional
1,466,760 Ordinary Shares in four equal increments upon
occurrence of events relating to Towers construction of
the new fab as specified in the agreement.

In the first quarter of fiscal 2002, the Company
purchased 366,690 Ordinary Shares of Tower and future wafer
purchase credits for an aggregate purchase price of
$11.0 million, a portion of the $75 million initial
commitment. At September 30, 2001, due to an
other-than-temporary decline in the value of
Towers Ordinary Shares, the Company wrote down its
investment in Tower, recording a pre-tax, non-operating loss of
$20.6 million. In August 2001, Tower issued an additional
1,255,848 of its ordinary shares to Alliance in connection with
the conversion of wafer credits in the amount of
$9.6 million to equity.

In conjunction with the share purchase agreement,
the Company entered into a foundry agreement under which the
Company is entitled to a certain amount of credits towards
future wafer purchases from Tower. The amount of credits is
determined upon each share purchase transaction by Alliance and
is calculated based on the difference between Towers
average stock price for 30 days preceding a purchase
transaction and Alliances share purchase exercise price.
The wafer credits will be utilized as

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the Company purchases wafers from Tower in the
future where 15% of order value will be applied against the
wafer credits. Under the terms of the foundry agreement, the
Company is guaranteed a capacity of up to 15% of available wafer
starts but not to exceed 5,000 wafers starts per month. The
guaranteed capacity may be reduced if the Company elects not to
exercise its additional share purchase obligation.


At March 31, 2002, the Company owned
2,855,779 shares of Tower and wafer credits totaling
$5.1 million. The Company accounts for its investment in
Tower under the cost method based on the Companys
inability to exercise significant influence over Towers
operations and restrictions to sell Tower stock.



| |                                     
| | ------------------------------------
| | Alliance Venture Management,
    LLC

In October 1999, the Company formed Alliance
Venture Management LLC, (Alliance Venture
Management), a California limited liability corporation,
to manage and act as the general partner in the investment funds
the Company intended to form. Alliance Venture Management does
not directly invest in the investment funds with the Company,
but is entitled to a management fee out of the net profits of
the investment funds. This management company structure was
created to provide incentives to the individuals who participate
in the management of the investment funds, by allowing them
limited participation in the profits of the various investment
funds, through the management fees paid by the investment funds.

In November 1999, the Company formed Alliance
Ventures I, LP (Alliance Ventures I) and
Alliance Ventures II, LP (Alliance
Ventures II), both California limited partnerships.
The Company, as the sole limited partner, owns 100% of limited
partnership interests in each partnership. Alliance Venture
Management acts as the general partner of these partnerships and
receives a management fee of 15% of the profits from these
partnerships for its managerial efforts.

At Alliance Venture Managements inception
in November 1999, Series A member units and Series B
member units in Alliance Venture Management were created. The
holders of Series A units and Series B units receive
management fees of 15% of investment gains realized by Alliance
Ventures I and Alliance Ventures II,
respectively. In February 2000, upon the creation of
Alliance Ventures III, LP (Alliance
Ventures III), the management agreement for Alliance
Venture Management was amended to create Series C member
units which are entitled to receive a management fee of 16% of
investment gains realized by Alliance Ventures III. In
January 2001, upon the creation of Alliance Ventures IV, LP
(Alliance Ventures IV) and Alliance
Ventures V, LP (Alliance Ventures V), the
management agreement for Alliance Venture Management was amended
to create Series D and E member units which are entitled to
receive a management fee of 15% of investment gains realized by
Alliance Ventures IV and Alliance Ventures V,
respectively.

Each of the owners of the Series A, B, C, D
and E member units paid the initial carrying value for their
shares of the member units. While the Company owns 100% of the
common units in Alliance Venture Management, it does not hold
any Series A, B, C, D or E member units and does not
participate in the management fees generated by the management
of the investment funds. Several of the Companys senior
management hold the majority of the Series A, B, C, D or E
member units of Alliance Venture Management.

After Alliance Ventures I was formed, the
Company contributed all its then current investments, except
Chartered, UMC and Broadcom, to Alliance Ventures I to
allow Alliance Venture Management to manage these investments.
As of March 31, 2002, Alliance Ventures I, the focus
of which is investing in networking and communication start-up
companies, has invested $20.0 million in nine companies,
with a fund allocation of $20.0 million. Alliance
Ventures II, the focus of which is in investing in internet
start-up ventures has invested approximately $9.1 million
in ten companies, with a total fund allocation of
$15.0 million. As of March 31, 2002, Alliance
Ventures III, the focus of which is investing in emerging
companies in the networking and communication market areas, has
invested $42.4 million in 13 companies, with a total
fund allocation of $100.0 million. As of March 31,
2002, Alliance Ventures IV, the focus of which is investing
in emerging companies in the semiconductor market areas, has
invested $19.9 million

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in six companies, with a total fund allocation of
$40.0 million. As of March 31, 2002, Alliance
Ventures V, the focus of which is investing in emerging
companies in the networking and communication market areas, has
invested $14.5 million in eight companies, with a total
fund allocation of $60.0 million.


In fiscal 2002 and 2001, the Company wrote-down
certain of its investments in Alliance Ventures and recognized
pre-tax, non-operating losses of approximately $7.6 million
and $2.6 million, respectively. Also, several of the
Alliance Venture investments are accounted for under the equity
method due to the Companys ability to exercise significant
influence on the operations of investees resulting primarily
from ownership interest and/or board representation. The total
equity in the net losses of Alliance Ventures investee companies
was approximately $8.4 million and $5.7 million,
respectively, for fiscal 2002 and 2001, respectively.

Certain of the Companys officers have
formed private venture funds, which invest in some of the same
investments as the Company. See Part III 
Item 13  Certain Relationships and Related
Transactions.

Alliance Venture Management generally directs the
individual Alliance funds to invest in startup, pre-IPO (initial
public offering) companies. These types of investments are
inherently risky and many venture funds have a large percentage
of investments decrease in value or fail. Most of these startup
companies fail, and the investors lose their entire investment.
Successful investing relies on the skill of the investment
managers, but also on market and other factors outside the
control of the managers. The market for these types of
investments has, in the past, been successful and many venture
capital funds have been profitable, and while the Company has
been successful in certain of its past investments, there can be
no assurance as to any future or continued success. It is
possible there will be a downturn in the success of these types
of investments in the future, and the Company will suffer
significant diminished success in these investments. It is
possible that many or most, and maybe all of the Companys
venture type investments may fail, resulting in the complete
loss of most or all the money the Company has invested in these
types of investments.



| |                           
| | --------------------------
| | Solar Venture Partners, LP

Through March 31, 2002, the Company has
invested $12.5 million in Solar Venture Partners, LP
(Solar), a venture capital partnership that focuses
on investing in early stage companies in the areas of
networking, telecommunications, wireless, software
infrastructure enabling efficiencies of the Web and e-commerce,
semiconductors for emerging markets and design automation.

Due to the Companys majority interest in
Solar, the Company accounts for Solar under the consolidation
method. Some of the investments Solar has made are accounted for
under the equity method due to the Companys ability to
exercise significant influence on the operations of the
investees resulting primarily from ownership interest and/or
board representation. In fiscal 2002, the Company recorded an
equity in the loss of investees of approximately
$1.1 million, net of minority interest, and wrote down
certain Solar investments by $731,000, net of minority interest.

Certain of the Companys directors and
officers are the general partners of Solar and run the
day-to-day operations. Furthermore, certain of the
Companys officers and employees have also invested in
Solar. Solar has made investments in some of the same companies
as Alliance Ventures I, II, III, IV, and V. See
Part III  Item 13  Certain
Relationships and Related Transactions.

The Investment Company Act of 1940

Following a special study after the stock market
crash of 1929 and the ensuing Depression, Congress enacted the
Investment Company Act of 1940 (the Act). The Act
was primarily meant to regulate investment
companies, which generally include families of mutual
funds of the type offered by the Fidelity and Vanguard
organizations (to pick two of many), closed-end investment
companies that are traded on the public stock markets, and
certain non-managed pooled investment vehicles such as unit
investment trusts. In those cases, the entities in question
describe themselves as being in the

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business of investing, reinvesting and trading in
securities and generally own relatively diversified portfolios
of publicly traded securities that are issued by companies not
controlled by these entities. The fundamental intent of the Act
is to protect the interests of public investors from fraud and
manipulation by the people who establish and operate investment
companies, which constitute large pools of liquid assets that
could be used improperly, or not be properly safeguarded, by the
persons in control of them.


When the Act was written, its drafters (and
Congress) concluded that a company could, either deliberately or
inadvertently, come to have the defining characteristics of an
investment company within the meaning of the Act without
proclaiming that fact or being willing to voluntarily submit
itself to regulation as an acknowledged investment company, and
that investors in such a company could be just as much in need
of protection as are investors in companies that are openly and
deliberately established as investment companies. In order to
deal with this perceived potential abuse, the Act and rules
under it contain provisions and set forth principles that are
designed to differentiate true operating companies
from companies that may be considered to have sufficient
investment-company-like characteristics to require regulation by
the Acts complex procedural and substantive requirements.
These provisions apply to companies that own or hold securities,
as well as companies that invest, reinvest and trade in
securities, and particularly focus on determining the primary
nature of a companys activities, including whether an
investing company controls and does business through the
entities in which it invests or, instead, holds its securities
investments passively and not as part of an operating business.
For instance, under what is, for most purposes, the most liberal
of the relevant tests, a company may become subject to the
Acts registration requirements if it either holds more
than 45% of its assets in, or derives more than 45% of its
income from, investments in companies that the investor does not
primarily control or through which it does not actively do
business. In making these determinations the Act generally
requires that a companys assets be valued on a current
fair market value basis, determined on the basis of
securities public trading price or, in the case of
illiquid securities and other assets, in good faith by the
companys board of directors.

The Company views its investments in Chartered,
USC, and USIC, as operating investments primarily intended to
secure adequate wafer manufacturing capacity; as previously
noted, the Companys access to the manufacturing resources
that it obtained in conjunction with those investments will
decrease if the Company ceases to own at least 50% of its
original investments in the enterprises, as modified, in the
cases of USC and USIC, by their merger into UMC. In addition,
the Company believes that, before USCs merger into UMC,
the Companys investment in USC constituted a joint venture
interest that the staff of the Securities and Exchange
Commission (the SEC) would not regard as a security
for purposes of determining the proportion of the Companys
assets that might be viewed as having been held in passive
investment securities. Because of the success over the past few
years of the Companys investments, including its strategic
wafer manufacturing investments, however, at least from the time
of the completion of the merger of USC and USIC into UMC in
January 2000 the Company believes that it could be viewed as
holding a much larger portion of its assets in investment
securities than is presumptively permitted by the Act for a
company that is not registered under it.

On the other hand, the Company also believes that
the investments that it currently holds in Chartered, Tower and
UMC, even though in companies that the Company does not control,
should be regarded as strategic deployments of Company assets
for the purpose of furthering the Companys memory chip
business, rather than as the kind of financial investments that
generally are considered to constitute investment securities.
Applying certain other tests that the SEC utilizes in
determining investment company status, the Company has never
held itself out as an investment company; its historical
development has focused almost exclusively on the memory chip
business; the activities of its officers and employees have been
overwhelmingly addressed to achieving success in the memory chip
business; and prior to the past two and one-half years, its
income (and losses) have been derived almost exclusively from
the memory chip business. Accordingly, the Company believes that
it should be regarded as being primarily engaged in a business
other than investing, reinvesting, owning, holding or trading in
securities. In August 2000, the Company applied to the SEC for
an order under section 3(b)(2) of the Act confirming its
non-investment-company status. In March 2002, the staff of the

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SEC informed the Company that the staff could not
support the granting of the requested exemption. Since that
time, the Company has been working diligently to resolve its
status under the Act. Most recently, the Company recommenced
informal discussions with the staff of the SEC to assess various
means to achieve that goal. The Company anticipates in
particular raising with the staff in the near future the
possibility of seeking exemptive relief under the Act different
from that applied for in 2000. No assurances can be given that
the staff and the SEC would act favorably upon such a request,
or that the SEC will agree that the Company is not currently
deemed to be an unregistered investment company in violation of
the Act. If the SEC takes the view that the Company has been
operating and continues to operate as an unregistered investment
company in violation of the Act, and does not provide the
Company with a sufficient period to either register as an
investment company or divest itself of investment securities
and/or acquire non-investment securities, the Company may be
subject to significant potential penalties.


In the absence of exemptions granted by the SEC
(if it determines to do so in its discretion after an assessment
of the public interest), the Company would be required either to
register as a closed-end investment company under the Act, or,
in the alternative, to divest itself of sufficient investment
securities and/or to acquire sufficient non-investment assets so
as not to be regarded as an investment company under the Act.

If the Company elects to register as a closed-end
investment company under the Act, a number of significant
requirements will be imposed upon the Company. These would
include, but not be limited to, a requirement that at least 40%
of the Companys board of directors not be interested
persons of the Company as defined in the Act and that
those directors be granted certain special rights with respect
to the approval of certain kinds of transactions (particularly
those that pose a possibility of giving rise to conflicts of
interest); prohibitions on the grant of stock options that would
be outstanding for more than 120 days and upon the use of
stock for compensation (which could be highly detrimental to the
Company in view of the competitive circumstances in which it
seeks to attract and retain qualified employees); and broad
prohibitions on affiliate transactions, such as the compensation
arrangements applicable to the management of Alliance Venture
Management, many kinds of incentive compensation arrangements
for management employees and joint investment by persons who
control the Company in entities in which the Company is also
investing (which could require the Company to abandon or
significantly restructure its management arrangements,
particularly with respect to its investment activities). While
the Company could apply for individual exemptions from these
restrictions, there could be no guarantee that such exemptions
would be granted, or granted on terms that the Company would
deem practical. Additionally, the Company would be required to
report its financial results in a different form from that
currently used by the Company, which would have the effect of
turning the Companys Statement of Operations upside
down by requiring that the Company report its investment
income and the results of its investment activities, instead of
its operations, as its primary sources of revenue.

If the Company elects to divest itself of
sufficient investment securities and/or to acquire sufficient
non-investment assets so as not to be regarded as an investment
company under the Act. The Company would need to ensure that the
value of investment securities (excluding the value of U.S.
Government securities and securities of certain majority-owned
subsidiaries) does not exceed forty percent (40%) of the
Companys total assets (excluding the value of U.S.
Government securities and cash items) on an unconsolidated
basis. In seeking to meet this requirement, the Company might
choose to divest itself of assets that it considers
strategically significant for the conduct of its operations or
to acquire additional operating assets that would have a
material effect on the Companys operations. There can be
no assurance that the Company could identify such operating
assets to acquire or could successfully acquire such assets. Any
such acquisition could result in the Company issuing additional
shares that may dilute the equity of the Companys existing
stockholders, and/or result in the Company incurring additional
indebtedness, which could have a material impact on the
Companys balance sheet and results of operations. Were the
Company to acquire any additional businesses, there would the
additional risk that the Companys acquired and
previously-existing businesses could be disrupted while the
Company attempted to integrate the acquired business, as well as
risks associated with the Company

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attempting to manage a new business with which it
was not familiar. Any of the above risks could result in a
material adverse effect on the Companys results of
operations and financial condition.


Employees

As of March 31, 2002, the Company had 210
full-time employees, consisting of 107 in research and
development, 7 in marketing, 16 in sales, 39 in administration
and 41 in operations. Of the 107 research and development
employees (46 in the US and 61 in India), 27 have advanced
degrees. The Company believes that the Companys 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. 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 results of operations.

The Company depends to a large extent on the
continued contributions of its founders, N. Damodar Reddy,
Chairman of the Board, Chief Executive Officer and President of
the Company, and his brother C.N. Reddy, Executive Vice
President for Investments and Director 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. In the last few years, a number of
officers and design personnel left the Company to pursue various
other opportunities. As a result of these departures, some
projects have been delayed. The future success of the Company
will depend on its ability to attract and retain qualified
technical and management personnel, particularly highly-skilled
design engineers involved in new product development, for whom
competition is intense. The loss of either of the Reddys or key
design personnel could delay product development cycles or
otherwise have a material adverse effect on the Companys
business. The Company is not insured against the loss of any of
its key employees, nor can the Company assure the successful
recruitment of new and replacement personnel.




Item 2     Facilities

The Companys executive offices and its
principal marketing, sales and product development operations
are located in a 56,600 square foot leased facility in Santa
Clara, California under a lease which expires in June 2006. The
Company has an option to extend the lease for a term of five
years. The Company also leases office space in Hsin-Chu, Taiwan
to manage the logistics of the wafer fabrication, assembly and
testing of the Companys products in Taiwan. The Company
leases a design center in Bangalore, India, and has purchased a
parcel of land in an office park under development in Hyderabad,
India, for product development. Additionally, the Company leases
sales offices in Natick, Massachusetts; Garner, North Carolina;
San Diego, California; Berkshire, United Kingdom; Taipei,
Taiwan; and Tokyo, Japan.




Item 3     Legal
Proceedings

In July 1998, the Company learned that a default
judgment was entered against the Company in Canada, in the
amount of approximately $170 million (USD), in a case filed
in 1985 captioned Prabhakara Chowdary Ballaand
TritTek Research Ltd. v. Fitch Research Corporation, et al.,British Columbia Supreme Court No. 85-2805 (Victoria
Registry). The Company, which had previously not participated in
the case, believes that it never was properly served with
process in this action, and that the Canadian court lacks
jurisdiction over the Company in this matter. In addition to
jurisdictional and

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procedural arguments, the Company also believes
it may have grounds to argue that the claims against the Company
should be deemed discharged by the Companys bankruptcy in
1991. In February 1999, the court set aside the default judgment
against the Company. In April 1999, the plaintiffs were granted
leave by the Court to appeal this judgment. Oral arguments were
made before the Court of Appeals in June 2000. In July 2000, the
Court of Appeals instructed the lower Court to allow the parties
to take depositions regarding the issue of service of process,
while also setting aside the default judgment against the
Company. The plaintiffs appealed the setting aside of the
default judgment against the Company to the Canadian Supreme
Court. In June 2001, the Canadian Supreme Court refused to hear
the appeal of the setting aside of the default judgment against
the Company. The Company believes the resolution of this matter
will not have a material adverse effect on its financial
conditions and its results of operations.


In November 2001, Amstrad plc
(Amstrad) filed suit against the Company in England
in the amount of approximately $1.5 million. This claim is
based on allegations that a batch of 15,000 parts supplied by
the Company, and which were incorporated into Amstrad products,
were defective. The Company has investigated whether there are
sufficient grounds to dispute the jurisdiction of the English
Court to hear this case. In November 2001, the Company had filed
suit in the California Superior Court for $45,000 owed for the
parts sold to Amstrad that were not paid for. In January 2002,
the California Superior Court granted Amstrads motion to
quash the Companys California action for lack of
jurisdiction. As a consequence, there are no grounds to dispute
the jurisdiction of the English Court to hear Amstrads
suit. The Company has prepared a detailed defense to
Amstrads suit, which was filed in February 2002. The
Company believes the resolution of this matter will not have a
material adverse effect on its financial conditions and its
results of operations

In February 1997, Micron Technology, Inc. filed
an antidumping petition with the United States International
Trade Commission (ITC) and United States Department
of Commerce (DOC), alleging that SRAMs fabricated in
Taiwan were being sold in the United States at less than fair
value, and that the United States industry producing SRAMs was
materially injured or threatened with material injury by reason
of imports of SRAMs fabricated in Taiwan. After a final
affirmative DOC determination of dumping and a final affirmative
ITC determination of injury, DOC issued an antidumping duty
order in April 1998. Under that order, the Companys
imports into the United States on or after approximately
April 16, 1998 of SRAMs fabricated in Taiwan were subject
to a cash deposit in the amount of 50.15% (the Antidumping
Margin) of the entered value of such SRAMs. (The Company
posted a bond in the amount of 59.06% (the preliminary margin)
with respect to its importation, between approximately October
1997 and April 1998, of SRAMs fabricated in Taiwan.) In May
1998, the Company and others filed an appeal in the United
States Court of International Trade (the CIT),
challenging the determination by the ITC that imports of
Taiwan-fabricated SRAMs were causing material injury to the U.S.
industry. Following two remands from the CIT, the ITC, on
June 12, 2000, reversed its original determination that
Taiwan-fabricated SRAMs were causing material injury to the U.S.
industry. The CIT affirmed the ITCs negative determination
on August 29, 2000, and Micron appealed to the U.S. Court
of Appeals for the Federal Circuit (CAFC). On
September 21, 2001, the CAFC affirmed the ITCs
negative injury determination. The Company had made cash
deposits in the amount of $1.7 million and had posted a
bond secured by a letter of credit in the amount of
approximately $1.7 million relating to the Companys
importation of Taiwan-manufactured SRAMs. The balances remained
unchanged at December 31, 2001. In January 2002, the
decision of the CIT was made final and the DOC revoked the order
and instructed the U.S. Customs Service to refund the
Companys cash deposits with interest. The Company received
a refund of $2.6 million, including interest of
approximately $515,000 from its deposits during the quarter
ended March 31, 2002. In the first quarter of fiscal 2003,
the Company received approximately $262,000, including interest
of approximately $56,000; also, the cash deposit of
$1.7 million at March 31, 2002 has been released and
became unrestricted in April 2002.

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|       |                                                        
|------ | -------------------------------------------------------
|Item 4 | Submission of Matters to a Vote of Security
    Holders

Not applicable.

Executive Officers of the Registrant

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

|                  |  |     |    |          |  |                                                                            
|----------------- |  | --- | -- | -------- |  | ---------------------------------------------------------------------------
|Name              |  | Age |    | Position
|                  |  |     |    |         
|N. Damodar Reddy  |  |     | 63 |          |  | Chairman, President and Chief Executive Officer                            
|C.N. Reddy        |  |     | 46 |          |  | Executive Vice President for Investments, Director                         
|Ronald K. Shelton |  |     | 41 |          |  | Vice President, Finance and Administration, and
    Chief Financial Officer
|Ritu Shrivastava  |  |     | 51 |          |  | Vice President, Technology Development                                     

N. Damodar Reddy is the co-founder of the
Company and has served as the Companys Chairman of the
Board, Chief Executive Officer and President from its inception
in February 1985. Mr. Reddy also served as the
Companys Chief Financial Officer from June 1998 until
January 1999. From September 1983 to February 1985,
Mr. Reddy served as President and Chief Executive Officer
of Modular Semiconductor, Inc., and from 1980 to 1983, he served
as manager of Advanced CMOS Technology Development at Synertek,
Inc., a subsidiary of Honeywell, Inc. Prior to that time,
Mr. Reddy held various research and development and
management positions at Four Phase Systems, a subsidiary of
Motorola, Inc., Fairchild Semiconductor and RCA Technology
Center. Mr. Reddy is a member of the board of directors of
two publicly traded companies, Sage, Inc. and eMagin
Corporation. 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 a director of the Company since its inception in
February 1985. Mr. Reddy served as Secretary to the Company
from February 1985 to October 2000. Beginning in February 1985,
Mr. Reddy served as the Companys Vice
President  Engineering. In May 1993, he was appointed
Senior Vice-President  Engineering and Operations of
the Company. In December 1997, he was appointed Executive Vice
President and Chief Operating Officer. In October 2000,
Mr. Reddy resigned his positions as Chief Operating Officer
and Secretary, and was appointed Executive Vice President for
Investments. 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. Mr. Reddy is named inventor of over 15 patents
related to SRAM and DRAM designs. C.N. Reddy is the brother
of N. Damodar Reddy.

Ronald K. Shelton joined Alliance in April 2002,
and was appointed Vice President, Finance and Administration,
and CFO. Mr. Shelton was previously with empowerTel
Networks, a privately held company where he served as CFO from
1999 to 2002. From 1996 to 1999, Mr. Shelton served as CFO
of Cirrus Logic, Inc., a leading supplier of analog and DSP chip
solutions for the consumer entertainment electronics industry.
Mr. Shelton was Vice President, Finance and Administration,
and CFO of the Company from 1992 to 1996. Mr. Shelton
received his Bachelors degree in Economics from Stanford
University.

Ritu Shrivastava, joined the Company in November
1993, and was appointed Vice President of Technology Development
in August 1995. Dr. Shrivastava was designated as an
executive officer of the Company in July 1997. Prior to joining
the Company, Dr. Shrivastava worked at Cypress
Semiconductor Corporation for more than 10 years in various
technology management positions, the last one being Director of
Technology Development. Prior to that time, Dr. Shrivastava
was with Mostek Corporation for 3 years, responsible for
CMOS development. Dr. Shrivastava served on the Electrical
Engineering faculty at Louisiana State University where he also
received his Ph.D. Dr. Shrivastava completed his
Masters

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and Bachelors degrees in Electrical
Communication Engineering from Indian Institute of Science,
Bangalore, India and a Bachelors degree in Physics from
Jabalpur University, India. Dr. Shrivastava is named
inventor in 16 patents related to various technologies, and is a
Fellow of IEEE. He also serves on the editorial board of IEEE
Transactions on Electron Devices as a CMOS editor.





PART II






|       |                                                                          
|------ | -------------------------------------------------------------------------
|Item 5 | Market for Registrants Common Equity
    and Related Stockholder Matters

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

|            |                                        |      |   |       |  |  |   |       | 
|----------- | -------------------------------------- | ---- | - | ----- |  |  | - | ----- | 
|Fiscal Year |                                        | High |   | Low  
|            |                                        |      |   |      
|2001        |                                        |      |   |       |  |  |   |      
|            | 1stQuarter                             |      | $ | 29.38 |  |  | $ | 14.00 | 
|            | 2ndQuarter                             |      |   | 26.69 |  |  |   | 17.88 | 
|            | 3rdQuarter                             |      |   | 20.75 |  |  |   | 10.88 | 
|            | 4thQuarter                             |      |   | 16.19 |  |  |   | 10.69 | 
|2002        |                                        |      |   |       |  |  |   |      
|            | 1stQuarter                             |      | $ | 14.55 |  |  | $ | 10.00 | 
|            | 2ndQuarter                             |      |   | 12.51 |  |  |   | 6.69  | 
|            | 3rdQuarter                             |      |   | 13.00 |  |  |   | 6.66  | 
|            | 4thQuarter                             |      |   | 13.15 |  |  |   | 9.80  | 
|2003        |                                        |      |   |       |  |  |   |      
|            | 1stQuarter (through June 21,
    2002) |      | $ | 11.45 |  |  | $ | 6.70  | 

As of June 21, 2002, there were
approximately 124 holders of record of the Companys common
stock.

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

20



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Item
6     Selected Consolidated
Financial Data

The following table summarizes selected
consolidated financial information for each of the last five
fiscal years ended March 31, 2002 and should be read in
conjunction with Item 7-Managements Discussion
and Analysis of Financial Condition and Results of
Operations and Item 8-Financial Statements and
Supplementary Data.

|                                                                                                                |                               |                                       |          |        |   |      |          |        |   |      |           |        |  |   |         |        |   |   |         |        |  
|--------------------------------------------------------------------------------------------------------------- | ----------------------------- | ------------------------------------- | -------- | ------ | - | ---- | -------- | ------ | - | ---- | --------- | ------ |  | - | ------- | ------ | - | - | ------- | ------ | -
|                                                                                                                |                               |                                      
|                                                                                                                |                               | Year Ended March 31,                 
|                                                                                                                |                               |                                      
|                                                                                                                |                               | 2002                                  |          | 2001   |   | 2000 |          | 1999   |   | 1998
|                                                                                                                |                               |                                       |          |        |   |      |          |        |   |     
|                                                                                                                |                               |                                      
|                                                                                                                |                               | (in thousands, except per share data)
|Consolidated Statement of Operations
    Data:                                                                  |                               |                                       |          |        |   |      |          |        |   |      |           |        |  |   |         |        |   |   |         |       
|Net revenues                                                                                                    |                               | $                                     | 26,547   |        |   | $    | 208,678  |        |   | $    | 89,153    |        |  | $ | 47,783  |        |   | $ | 118,400 |       
|                                                                                                                |                               |                                       |          |        |   |      |          |        |   |      |           |        |  |   |         |        |   |   |         |       
|Income (loss) from operations                                                                                   |                               |                                       | (79,137  | )      |   |      | (12,692  | )      |   |      | 195       |        |  |   | (39,199 | )      |   |   | (32,920 | )     
|                                                                                                                |                               |                                       |          |        |   |      |          |        |   |      |           |        |  |   |         |        |   |   |         |       
|Gain on investments, write-down of marketable
    securities and other investments and other income (loss), net |                               |                                       | (297,356 | )      |   |      | (433,848 | )      |   |      | 1,049,159 |        |  |   | 14,697  |        |   |   | 287     |       
|                                                                                                                |                               |                                       |          |        |   |      |          |        |   |      |           |        |  |   |         |        |   |   |         |       
|Income (loss) before cumulative effect of change
    in accounting principle                                    |                               |                                       | (242,771 | )      |   |      | (272,321 | )      |   |      | 648,100   |        |  |   | (22,043 | )      |   |   | (5,737  | )     
|                                                                                                                |                               |                                       |          |        |   |      |          |        |   |      |           |        |  |   |         |        |   |   |         |       
|Net income (loss)                                                                                               |                               | $                                     | (240,716 | )      |   | $    | (272,321 | )      |   | $    | 648,100   |        |  | $ | (22,043 | )      |   | $ | (5,737  | )     
|                                                                                                                |                               |                                       |          |        |   |      |          |        |   |      |           |        |  |   |         |        |   |   |         |       
|Income (loss) per share before effect of change
    in accounting principle:                                    |                               |                                       |          |        |   |      |          |        |   |      |           |        |  |   |         |        |   |   |         |       
|                                                                                                                | Basic income (loss) per share |                                       | $        | (5.91  | ) |      | $        | (6.58  | ) |      | $         | 15.49  |  |   | $       | (0.53  | ) |   | $       | (0.15  | )
|                                                                                                                | Diluted                       |                                       | $        | (5.91  | ) |      | $        | (6.58  | ) |      | $         | 15.07  |  |   | $       | (0.53  | ) |   | $       | (0.15  | )
|Net income (loss) per share:                                                                                    |                               |                                       |          |        |   |      |          |        |   |      |           |        |  |   |         |        |   |   |         |       
|                                                                                                                | Basic income (loss) per share |                                       | $        | (5.86  | ) |      | $        | (6.58  | ) |      | $         | 15.49  |  |   | $       | (0.53  | ) |   | $       | (0.15  | )
|                                                                                                                |                               |                                       |          |        |   |      |          |        |   |      |           |        |  |   |         |        |   |   |         |       
|                                                                                                                | Diluted                       |                                       | $        | (5.86  | ) |      | $        | (6.58  | ) |      | $         | 15.07  |  |   | $       | (0.53  | ) |   | $       | (0.15  | )
|                                                                                                                |                               |                                       |          |        |   |      |          |        |   |      |           |        |  |   |         |        |   |   |         |       
|Weighted average number of common shares:                                                                       |                               |                                       |          |        |   |      |          |        |   |      |           |        |  |   |         |        |   |   |         |       
|                                                                                                                | Basic                         |                                       |          | 41,078 |   |      |          | 41,376 |   |      |           | 41,829 |  |   |         | 41,378 |   |   |         | 39,493 |  
|                                                                                                                | Diluted                       |                                       |          | 41,078 |   |      |          | 41,376 |   |      |           | 42,992 |  |   |         | 41,378 |   |   |         | 39,493 |  

|                                 |  |                |         |      |  |      |         |      |  |      |           |  |  |   |         |  |  |   |         | 
|-------------------------------- |  | -------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | --------- |  |  | - | ------- |  |  | - | ------- | 
|                                 |  |               
|                                 |  | March 31,     
|                                 |  |               
|                                 |  | 2002           |         | 2001 |  | 2000 |         | 1999 |  | 1998
|                                 |  |                |         |      |  |      |         |      |  |     
|                                 |  |               
|                                 |  | (in thousands)
|Consolidated Balance Sheet Data: |  |                |         |      |  |      |         |      |  |      |           |  |  |   |         |  |  |   |         | 
|Working capital                  |  | $              | 323,791 |      |  | $    | 319,289 |      |  | $    | 615,937   |  |  | $ | 22,102  |  |  | $ | 39,879  | 
|Total assets                     |  |                | 682,570 |      |  |      | 853,243 |      |  |      | 1,520,442 |  |  |   | 193,557 |  |  |   | 243,668 | 
|Stockholders equity             |  |                | 451,255 |      |  |      | 547,289 |      |  |      | 963,955   |  |  |   | 163,570 |  |  |   | 189,111 | 
|Long term obligations            |  |                | 4,808   |      |  |      | 12,568  |      |  |      | 2,714     |  |  |   | 578     |  |  |   | 1,276   | 

21



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##### Table of Contents



The following table summarizes selected
consolidated financial information (unaudited) for the
fiscal quarters for each of the last two fiscal years ended
March 31st :

|                                                                                                                |         |                                       |         |                  |   |         |         |         |   |         |          |         |   |         |         |         |   |   |          |        |   |   |        |        |  |   |        |        |  |   |        |        | 
|--------------------------------------------------------------------------------------------------------------- | ------- | ------------------------------------- | ------- | ---------------- | - | ------- | ------- | ------- | - | ------- | -------- | ------- | - | ------- | ------- | ------- | - | - | -------- | ------ | - | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                                                                                                |         |                                       |         |                 
|                                                                                                                |         | Fiscal Year 2002                      |         | Fiscal Year 2001
|                                                                                                                |         |                                       |         |                 
|                                                                                                                |         | 4thQtr.                               |         | 3rdQtr.          |   | 2ndQtr. |         | 1stQtr. |   | 4thQtr. |          | 3rdQtr. |   | 2ndQtr. |         | 1stQtr.
|                                                                                                                |         |                                       |         |                  |   |         |         |         |   |         |          |         |   |         |         |        
|                                                                                                                |         |                                      
|                                                                                                                |         | (In thousands, except per share data)
|Operating Summary:                                                                                              |         |                                       |         |                  |   |         |         |         |   |         |          |         |   |         |         |         |   |   |          |        |   |   |        |        |  |   |        |        |  |   |        |       
|Net revenues                                                                                                    |         | $                                     | 3,021   |                  |   | $       | 6,347   |         |   | $       | 5,111    |         |   | $       | 12,068  |         |   | $ | 32,993   |        |   | $ | 63,815 |        |  | $ | 64,466 |        |  | $ | 47,404 |       
|                                                                                                                |         |                                       |         |                  |   |         |         |         |   |         |          |         |   |         |         |         |   |   |          |        |   |   |        |        |  |   |        |        |  |   |        |       
|Gross profit                                                                                                    |         |                                       | (20,096 | )                |   |         | (4,695  | )       |   |         | (17,517  | )       |   |         | (5,112  | )       |   |   | (42,564  | )      |   |   | 21,285 |        |  |   | 24,523 |        |  |   | 17,512 |       
|                                                                                                                |         |                                       |         |                  |   |         |         |         |   |         |          |         |   |         |         |         |   |   |          |        |   |   |        |        |  |   |        |        |  |   |        |       
|Income (loss) from operations                                                                                   |         |                                       | (32,583 | )                |   |         | (10,315 | )       |   |         | (24,051  | )       |   |         | (12,188 | )       |   |   | (51,303  | )      |   |   | 13,399 |        |  |   | 15,796 |        |  |   | 9,416  |       
|                                                                                                                |         |                                       |         |                  |   |         |         |         |   |         |          |         |   |         |         |         |   |   |          |        |   |   |        |        |  |   |        |        |  |   |        |       
|Gain on investments, write-down of marketable
    securities and other investments and other income (loss), net |         |                                       | 10,678  |                  |   |         | (2,963  | )       |   |         | (300,488 | )       |   |         | (4,583  | )       |   |   | (500,581 | )      |   |   | 5,058  |        |  |   | 13,818 |        |  |   | 47,857 |       
|                                                                                                                |         |                                       |         |                  |   |         |         |         |   |         |          |         |   |         |         |         |   |   |          |        |   |   |        |        |  |   |        |        |  |   |        |       
|Income (loss) before cumulative effect of
    change in accounting principle                                    |         |                                       | (18,271 | )                |   |         | (11,019 | )       |   |         | (200,447 | )       |   |         | (13,034 | )       |   |   | (333,003 | )      |   |   | 10,949 |        |  |   | 16,468 |        |  |   | 33,265 |       
|                                                                                                                |         |                                       |         |                  |   |         |         |         |   |         |          |         |   |         |         |         |   |   |          |        |   |   |        |        |  |   |        |        |  |   |        |       
|Net income (loss)                                                                                               |         | $                                     | (18,271 | )                |   | $       | (11,019 | )       |   | $       | (200,447 | )       |   | $       | (10,979 | )       |   | $ | (333,003 | )      |   | $ | 10,949 |        |  | $ | 16,468 |        |  | $ | 33,265 |       
|                                                                                                                |         |                                       |         |                  |   |         |         |         |   |         |          |         |   |         |         |         |   |   |          |        |   |   |        |        |  |   |        |        |  |   |        |       
|Income (loss) before cumulative effect of
    change in accounting principle per share:                         |         |                                       |         |                  |   |         |         |         |   |         |          |         |   |         |         |         |   |   |          |        |   |   |        |        |  |   |        |        |  |   |        |       
|                                                                                                                | Basic   |                                       | $       | (0.44            | ) |         | $       | (0.27   | ) |         | $        | (4.85   | ) |         | $       | (0.31   | ) |   | $        | (8.05  | ) |   | $      | 0.27   |  |   | $      | 0.40   |  |   | $      | 0.80   | 
|                                                                                                                |         |                                       |         |                  |   |         |         |         |   |         |          |         |   |         |         |         |   |   |          |        |   |   |        |        |  |   |        |        |  |   |        |       
|                                                                                                                | Diluted |                                       | $       | (0.44            | ) |         | $       | (0.27   | ) |         | $        | (4.85   | ) |         | $       | (0.31   | ) |   | $        | (8.05  | ) |   | $      | 0.26   |  |   | $      | 0.39   |  |   | $      | 0.78   | 
|                                                                                                                |         |                                       |         |                  |   |         |         |         |   |         |          |         |   |         |         |         |   |   |          |        |   |   |        |        |  |   |        |        |  |   |        |       
|Net Income (loss) per share:                                                                                    |         |                                       |         |                  |   |         |         |         |   |         |          |         |   |         |         |         |   |   |          |        |   |   |        |        |  |   |        |        |  |   |        |       
|                                                                                                                | Basic   |                                       | $       | (0.44            | ) |         | $       | (0.27   | ) |         | $        | (4.85   | ) |         | $       | (0.26   | ) |   | $        | (8.05  | ) |   | $      | 0.27   |  |   | $      | 0.40   |  |   | $      | 0.80   | 
|                                                                                                                |         |                                       |         |                  |   |         |         |         |   |         |          |         |   |         |         |         |   |   |          |        |   |   |        |        |  |   |        |        |  |   |        |       
|                                                                                                                | Diluted |                                       | $       | (0.44            | ) |         | $       | (0.27   | ) |         | $        | (4.85   | ) |         | $       | (0.26   | ) |   | $        | (8.05  | ) |   | $      | 0.26   |  |   | $      | 0.39   |  |   | $      | 0.78   | 
|                                                                                                                |         |                                       |         |                  |   |         |         |         |   |         |          |         |   |         |         |         |   |   |          |        |   |   |        |        |  |   |        |        |  |   |        |       
|Weighted average number of common shares:                                                                       |         |                                       |         |                  |   |         |         |         |   |         |          |         |   |         |         |         |   |   |          |        |   |   |        |        |  |   |        |        |  |   |        |       
|                                                                                                                | Basic   |                                       |         | 41,321           |   |         |         | 41,311  |   |         |          | 41,293  |   |         |         | 41,483  |   |   |          | 41,383 |   |   |        | 41,296 |  |   |        | 41,326 |  |   |        | 41,543 | 
|                                                                                                                |         |                                       |         |                  |   |         |         |         |   |         |          |         |   |         |         |         |   |   |          |        |   |   |        |        |  |   |        |        |  |   |        |       
|                                                                                                                | Diluted |                                       |         | 41,321           |   |         |         | 41,311  |   |         |          | 41,293  |   |         |         | 41,483  |   |   |          | 41,383 |   |   |        | 42,221 |  |   |        | 42,537 |  |   |        | 42,778 | 
|                                                                                                                |         |                                       |         |                  |   |         |         |         |   |         |          |         |   |         |         |         |   |   |          |        |   |   |        |        |  |   |        |        |  |   |        |       

In fiscal 2002, due to an overall industry-wide
decline in average selling prices and demand, the Company
experienced significant product returns and price adjustments.
As a result net revenues decreased throughout fiscal 2002 and by
87.3% compared to fiscal 2001. In the fiscal first, second and
fourth quarters of fiscal 2002, the Company recorded pre-tax
charges of $6.0 million, $10.4 million and
$14.8 million for decline in market value of certain
inventory and to provide additional reserves for obsolete and
excess inventory, which are reflected in gross profit.

In the second quarter of fiscal 2002, the Company
recognized a pre-tax gain on its investment in Platys
Communications (Platys) when it was sold to Adaptec,
Inc. (Adaptec), for $25.5 million. Also, in the
second fiscal quarter, the Company sold 42 million shares
of UMC and recorded a pre-tax loss on this sale of
$34.7 million and sold 75,000 shares of Broadcom and
recorded a pre-tax gain of $1.6 million. In the second
quarter of fiscal 2002, the Company recorded a pre-tax charge of
$290.6 million for a write-down of its marketable
securities and other investments. In the third quarter of fiscal
2002, the Company sold 15.8 million shares of UMC and
recorded a pre-tax loss on this sale of $76,000 and sold
100,000 shares of Adaptec and recorded a pre-tax gain of
$403,000. In the fourth quarter of fiscal 2002, the Company sold
20 million shares of UMC and recorded a pre-tax gain of
$11.8 million. Also in the fourth quarter of fiscal 2002,
the Company received a pre-tax distribution of $305,000 for its
investment in Selby Venture Partners, an investee of Alliance
Ventures.

During the first and second quarters of fiscal
2001, the Company experienced an increase in the average selling
price and increased demand for DRAM and SRAM products. During
the third and fourth

22



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quarters of fiscal 2001, the Company experienced
significant order cancellations and reschedules. As a result,
the Company experienced a decrease in the average selling prices
and decrease in demand. In the third and fourth quarters of
fiscal 2001, the Company recorded pre-tax charges of
$53.9 million for decline in market value of certain
inventory and to provide additional reserves for obsolete and
excess inventory. In the first quarter of fiscal 2001, the
Company recognized a gain on its investment in Malleable
Technologies, Inc. when it was sold to PMC-Sierra, Inc., for
$11.0 million. Also in the first quarter of fiscal 2001,
the Company recognized a gain of $2.9 million on the sale
of Broadcom securities, and $33.5 million on the sale of
Chartered Semiconductor Corporation securities. In subsequent
quarters, the Company recognized gains of $28.5 million on
additional sales of Broadcom securities. In the fourth quarter
of fiscal 2001, the Company recorded a pre-tax charge of
$509.4 million for a write-down of its marketable
securities and other investments.







|       |                                                                                          
|------ | -----------------------------------------------------------------------------------------
|Item 7 | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following discussion should be read in
conjunction with the Consolidated Financial Statements,
including the related notes included in
Item 8-Financial Statements and Supplemental
Data. This discussion contains forward-looking statements
that involve risks and uncertainties. Our actual results may
differ materially from those anticipated in these
forward-looking statements as a result of certain factors,
including, but not limited to, those described in the section
entitled Factors Affecting Future Results. Readers
are cautioned not to place undue reliance on these
forward-looking statements, which reflect our present
expectations and analysis and are inherently susceptible to
uncertainty and changes in circumstances. We assume no
obligation to update these forward-looking statements to reflect
actual results or changes in factors or assumptions affecting
such forward-looking statements.

Overview

|                                    |  |                                       |          |      |  |      |          |   |  |   |         | 
|----------------------------------- |  | ------------------------------------- | -------- | ---- |  | ---- | -------- | - |  | - | ------- | 
|                                    |  |                                      
|                                    |  | Years Ended March 31,                
|                                    |  |                                      
|                                    |  | 2002                                  |          | 2001 |  | 2000
|                                    |  |                                       |          |      |  |     
|                                    |  |                                      
|                                    |  | (In thousands, except per share data)
|Net revenue                         |  | $                                     | 26,547   |      |  | $    | 208,678  |   |  | $ | 89,153  | 
|                                    |  |                                       |          |      |  |      |          |   |  |   |         | 
|Net income (loss)                   |  | $                                     | (240,716 | )    |  | $    | (272,321 | ) |  | $ | 648,100 | 
|                                    |  |                                       |          |      |  |      |          |   |  |   |         | 
|Net income (loss) per share-diluted |  | $                                     | (5.86    | )    |  | $    | (6.58    | ) |  | $ | 15.07   | 
|                                    |  |                                       |          |      |  |      |          |   |  |   |         | 

The Company designs and develops high performance
memory products, memory intensive logic products, mixed signal
products and interconnect products. These products are used in a
wide variety of electronic products, including desktop and
portable computers, networking, telecommunications,
instrumentation and consumer devices. The Companys
business strategy has been to be a supplier of these products,
operating on a fabless basis by utilizing independent
manufacturing facilities.

The Company recorded net revenues of
approximately $26.5 million for fiscal 2002, a decrease of
87.3% from fiscal 2001. Fiscal 2002 was a challenging year
characterized by a fundamental slowdown in end customer demand
in all the markets the Companys products serve. More
specifically, the Companys performance in fiscal 2002 was
adversely affected by severe declines in average selling prices
and end user demand of its memory products.

During fiscal 2002, DRAM products accounted for
approximately 48% of net revenues, SRAM products accounted for
approximately 50% of net revenues, and other products accounted
for approximately 2% of net revenues. This compares to
approximately 57%, 43% and less than 1% of net revenues,
respectively, for fiscal 2001. During the second quarter of
fiscal 2002, the Company evaluated all of its marketable
securities for potential other-than-temporary
declines in their fair value and recorded a write-down of
$288.5 million.

In January 2002, the Company completed its
acquisition of the assets of PulseCore. PulseCore is a fabless
semiconductor company specializing in high speed and low power
mixed signal design.

23



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##### Table of Contents



PulseCore currently provides electromagnetic
interference (EMI) suppression integrated circuits to
manufacturers of computer peripherals and digital consumer
products. In connection with this acquisition, the Company paid
$722,000 in cash and cash advances and executed a
$4.2 million note in exchange for PulseCores assets.
Direct transaction costs relating to the acquisition, consisting
primarily of legal and other professional service fees, were
$270,000.




| |                             
| | ----------------------------
| | Critical Accounting Policies

The U.S. Securities and Exchange Commission
(SEC) recently issued Financials Reporting Release
No. 60, Cautionary Advice Regarding Disclosure About
Critical Accounting Policies (FRR 60),
suggesting that companies provide additional disclosure and
commentary on their most critical accounting policies. In
FRR 60, the SEC defined the most critical accounting
policies as the ones that are most important to the portrayal of
a companys financial condition and operating results, and
require management to make its most difficult and subjective
judgments, often as a result of the need to make estimates of
matters that are inherently uncertain. On an ongoing basis, we
evaluate our judgments and estimates including those related to
inventory valuation, marketable securities, valuation of
Alliance Venture and Solar investments, and revenue recognition.
The methods, estimates, and judgments we use in applying these
most critical accounting policies have a significant impact on
the results we report in our financial statements.



| |                    
| | -------------------
| | Inventory Valuation

Our policy is to value inventory at the lower of
cost or market on a part-by-part basis. This policy requires us
to make estimates regarding the market value of our inventory,
including an assessment of excess or obsolete inventory. We
determine excess and obsolete inventory based on an estimate of
the future demand for our products within a specified time
horizon, generally 12 months. The estimates we use for
demand are also used for near-term capacity planning and
inventory purchasing and are consistent with our revenue
forecasts. If our demand forecast is greater than our actual
demand, we may be required to take additional excess inventory
charges, which will decrease gross margin and net operating
results in the future. The Company recorded charges relating to
inventory write-downs of $30.4 million and
$53.9 million in fiscal 2002 and 2001, respectively.



| |                      
| | ---------------------
| | Marketable Securities

Marketable securities held by the Company are
generally valued at market prices with unrealized gains or
losses recognized in other comprehensive income. However,
management evaluates the marketable securities for potential
other than temporary declines in their value. Such
evaluation includes researching commentary from industry
experts, analysts and other companies, current and forecasted
business conditions and any other information deemed necessary
in the evaluation process. The Company has recorded losses of
$288.5 million in fiscal 2002 and $506.8 million in
fiscal year 2001 as a result of such evaluation and may continue
to do so in the future.



| |                                                        
| | -------------------------------------------------------
| | Valuation of Alliance and Solar Venture
    Investments

We enter into certain equity investments for the
promotion of business and strategic objectives. Our policy is to
value these investments at our historical cost. In addition, our
policy requires us to periodically review these investments for
impairment. For these investments, an impairment analysis
requires significant judgment, including an assessment of the
investees financial condition, viability and valuation of
subsequent rounds of financing and the impact of any contractual
preferences, as well as the investees historical results,
projected results and prospects for additional financing. If the
actual outcomes for the investees are significantly different
from our estimates, our recorded impairments may be understated,
and we may incur additional charges in future periods.

24



---



##### Table of Contents





| |                    
| | -------------------
| | Revenue Recognition

We recognize revenue in accordance with SEC Staff
Accounting Bulletin No. 101 Revenue Recognition in
Financial Statements (SAB 101).
SAB 101 requires that four basic criteria be met before
revenue can be recognized: 1) evidence an arrangement
exists; 2) delivery has occurred; 3) the fee is fixed
or determinable; and 4) collectability is reasonably
assured. We recognize revenue upon determination that all
criteria for revenue recognition have been met. The criteria are
usually met at the time of product shipment. We record
reductions to revenue for estimated allowances such as returns
and competitive pricing programs. If actual returns or pricing
adjustments exceed our estimates, additional reductions to
revenue would result.



| |                      
| | ---------------------
| | 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 for Year Ended March 31,
|                                                                                                                                                                   |                                                  |                                                    
|                                                                                                                                                                   |                                                  | 2002                                                |          | 2001 |  | 2000
|                                                                                                                                                                   |                                                  |                                                     |          |      |  |     
|Net revenues                                                                                                                                                       |                                                  |                                                     | 100.0    | %    |  |      | 100.0  | %   |  |  | 100.0   | %   
|Cost of revenues                                                                                                                                                   |                                                  |                                                     | 278.6    |      |  |      | 90.1   |     |  |  | 65.5    |     
|                                                                                                                                                                   |                                                  |                                                     |          |      |  |      |        |     |  |  |         |     
|Gross profit (loss)                                                                                                                                                |                                                  |                                                     | (178.6   | )    |  |      | 9.9    |     |  |  | 34.5    |     
|Operating expenses:                                                                                                                                                |                                                  |                                                     |          |      |  |      |        |     |  |  |         |     
|                                                                                                                                                                   | Research and development                         |                                                     |          | 39.3 |  |      |        | 6.6 |  |  |         | 16.3 | 
|                                                                                                                                                                   | Selling, general and administrative              |                                                     |          | 76.8 |  |      |        | 9.4 |  |  |         | 17.9 | 
|                                                                                                                                                                   | Write-off of in-process research and development |                                                     |          | 3.4  |  |      |        |    |  |  |         |     | 
|                                                                                                                                                                   |                                                  |                                                     |          |      |  |      |        |     |  |  |         |     
|Income (loss) from operations                                                                                                                                      |                                                  |                                                     | (298.1   | )    |  |      | (6.1   | )   |  |  | 0.3     |     
|Gain on investments                                                                                                                                                |                                                  |                                                     | 18.0     |      |  |      | 36.3   |     |  |  | 1,176.8 |     
|Write-down of marketable securities and other
    investments                                                                                                      |                                                  |                                                     | (1,118.2 | )    |  |      | (244.1 | )   |  |  |        |     
|Other income (loss), net                                                                                                                                           |                                                  |                                                     | (19.9    | )    |  |      | (0.1   | )   |  |  | 0.0     |     
|                                                                                                                                                                   |                                                  |                                                     |          |      |  |      |        |     |  |  |         |     
|Income (loss) before income taxes                                                                                                                                  |                                                  |                                                     | (1,418.2 | )    |  |      | (214.0 | )   |  |  | 1,177.1 |     
|Provision (benefit) for income taxes                                                                                                                               |                                                  |                                                     | (537.5   | )    |  |      | (86.2  | )   |  |  | 460.3   |     
|                                                                                                                                                                   |                                                  |                                                     |          |      |  |      |        |     |  |  |         |     
|Income (loss) before minority interest in
    subsidiary company, equity in income (loss) of investees
    and cumulative effect of change in accounting principle |                                                  |                                                     | (880.7   | )    |  |      | (127.8 | )   |  |  | 716.8   |     
|Minority interest in subsidiary company                                                                                                                            |                                                  |                                                     | 2.0      |      |  |      |       |     |  |  |        |     
|Equity in income (loss) of investees                                                                                                                               |                                                  |                                                     | (35.8    | )    |  |      | (2.7   | )   |  |  | 10.2    |     
|Cumulative effect of change in accounting
    principle                                                                                                            |                                                  |                                                     | 7.7      |      |  |      |       |     |  |  |        |     
|                                                                                                                                                                   |                                                  |                                                     |          |      |  |      |        |     |  |  |         |     
|Net income (loss)                                                                                                                                                  |                                                  |                                                     | (906.8   | )%   |  |      | (130.5 | )%  |  |  | 727.0   | %   
|                                                                                                                                                                   |                                                  |                                                     |          |      |  |      |        |     |  |  |         |     



| |             
| | ------------
| | Net Revenues

|             |  |                      |        |                   |  |      |         |              |  |              |        |  |  |  |       |    |  |  |       |   
|------------ |  | -------------------- | ------ | ----------------- |  | ---- | ------- | ------------ |  | ------------ | ------ |  |  |  | ----- | -- |  |  | ----- | --
|             |  |                      |        |                  
|             |  | Year Ended March 31, |        | Percentage Change
|             |  |                      |        |                  
|             |  | 2002                 |        | 2001              |  | 2000 |         | 2001 to 2002 |  | 2000 to 2001
|             |  |                      |        |                   |  |      |         |              |  |             
|SRAM         |  | $                    | 13,356 |                   |  | $    | 90,549  |              |  | $            | 38,088 |  |  |  | (85.2 | )% |  |  | 137.7 | % 
|DRAM         |  |                      | 12,786 |                   |  |      | 117,938 |              |  |              | 50,235 |  |  |  | (89.2 | )% |  |  | 134.8 | % 
|Other        |  |                      | 405    |                   |  |      | 191     |              |  |              | 830    |  |  |  | 112.0 | %  |  |  | (77.0 | )%
|             |  |                      |        |                   |  |      |         |              |  |              |        |  |  |  |       |    |  |  |       |   
|Net Revenues |  | $                    | 26,547 |                   |  | $    | 208,678 |              |  | $            | 89,153 |  |  |  | (87.3 | )% |  |  | 134.1 | % 
|             |  |                      |        |                   |  |      |         |              |  |              |        |  |  |  |       |    |  |  |       |   

In fiscal 2002, the Companys net revenues
fell $182.1 million or 87.3% from fiscal 2001 to
$26.5 million. This decrease was due to a significant
decrease in product demand as unit sales fell 70.2% and a
significant decrease in average selling prices which fell to
$1.92 for fiscal 2002 from $2.94 for fiscal 2001. These
decreases were due to the overall slump in the economic
conditions of the memory chip

25



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markets. The Companys net revenues for
fiscal 2001 increased to $208.7 million, or approximately
134%, from $89.2 million in fiscal 2000. The increase in
net revenues in fiscal 2001 was primarily due to a combination
of sales of new products, overall increases in average selling
prices and an increase in unit sales of the Companys SRAM
and DRAM products during the first three quarters of fiscal
2001. During the fourth quarter of fiscal 2001, the
Companys net revenues fell, largely due to a decrease in
demand and to a lesser extent a decrease in average selling
prices.


Net revenues from the Companys DRAM product
family in fiscal 2002 represented approximately
$12.8 million or 48% of the Companys net revenues in
fiscal 2002, a decrease of $105.2 million or 89.2% from
approximately $117.9 million or approximately 57% of the
Companys net revenues for fiscal 2001. This decrease was
due to a significant decrease in product demand as unit sales
decreased 70.6% as compared to fiscal 2001 and a significant
decrease in average selling prices, which fell to $1.16 for
fiscal 2002 from $3.04 for fiscal 2001. DRAM net revenues for
fiscal 2000 were $50.2 million or approximately 56% of the
Companys net revenues in fiscal 2000. DRAM net revenues
increased $67.7 million or 135% in fiscal 2001 compared to
fiscal 2000.

Net revenues from the Companys SRAM product
family in fiscal 2002 represented approximately
$13.4 million or approximately 50% of the Companys
net revenues, a decrease of $77.2 million or 85.2% from
$90.5 million or approximately 43% for fiscal 2001. This
decrease was due to a significant decrease in product demand as
unit sales decreased 70.9% and a significant decrease in average
selling prices, which fell to $1.53 for fiscal 2002 from $2.83
for fiscal 2001. SRAM net revenues were $38.1 million or
approximately 43% of the Companys net revenues in fiscal
2000. SRAM net revenues increased $52.9 million or 138% in
fiscal 2001 compared to fiscal 2000.

The Company continues to focus its efforts in
selling to the non-PC market. Sales to non-PC segments of the
market, such as telecommunications, networking, datacom and
consumer in fiscal 2002 accounted for approximately 72% of the
Companys net revenues compared to approximately 73% during
fiscal 2001 and 56% in fiscal 2000. The trend away from the PC
market is due to the Companys customer and market
diversification efforts as well as continued weakness in the PC
markets.

International net revenues in fiscal 2002 were
$19.6 million or approximately 74% of net revenues. This
was a decrease of approximately 87% from fiscal 2001.
International net revenues in fiscal 2001 increased
approximately 148% over fiscal 2000. International net revenues
are derived mainly from customers in Europe, and Asia. Net
revenues to Asia accounted for approximately 40% and Europe
accounted for 33% of net revenues for the Company for fiscal
year 2002; however, all geographic segments fell significantly
from fiscal year 2001.

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



| |                 
| | ----------------
| | Cost of Revenues

Cost of revenues as a percent of net revenues
increased to 278.6% for fiscal 2002 from 90.1% for fiscal 2001
and 65.5% for fiscal 2000. This increase was caused by increased
inventory write-downs, a decrease in unit shipments and a
decrease in average selling prices. The increases in inventory
write-downs in fiscal 2002 and 2001 are due to the Company
taking charges in recognition of lower average selling prices
and declines in unit shipments throughout fiscal year 2002 and
during fiscal year 2001.

During fiscal 2002, the Company took pre-tax
charges of $30.4 million for inventory write-downs due to
the significant decrease in demand and decrease in average
selling prices for its DRAM and SRAM

26



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##### Table of Contents



products. The pre-tax charges had a 111.8% of net
revenues impact on cost of revenue for fiscal year 2002. During
fiscal 2001, the Company took pre-tax inventory charges of
$53.9 million in recognition of lower average selling
prices and inventory in excess of demand due to the decline in
unit shipments for the Companys DRAM and SRAM products.
The pre-tax charges had a 25.8% of net revenues impact on cost
of revenue for fiscal year 2001.


The Company is subject to a number of factors
that may have an adverse impact on gross profit, 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 need to be refined. There
can be no assurance that the commencement of such manufacturing
will not have a material adverse effect on the Companys
cost of revenues in future periods.



| |                         
| | ------------------------
| | Research and Development

|                                    |  |                       |        |                   |  |      |         |              |  |              |        |   |  |  |       |    |  |  |       |   
|----------------------------------- |  | --------------------- | ------ | ----------------- |  | ---- | ------- | ------------ |  | ------------ | ------ | - |  |  | ----- | -- |  |  | ----- | --
|                                    |  |                       |        |                  
|                                    |  | Years Ended March 31, |        | Percentage Change
|                                    |  |                       |        |                  
|                                    |  | 2002                  |        | 2001              |  | 2000 |         | 2001 to 2002 |  | 2000 to 2001
|                                    |  |                       |        |                   |  |      |         |              |  |             
|Net Revenues                        |  | $                     | 26,547 |                   |  | $    | 208,678 |              |  | $            | 89,153 |   |  |  | (87.3 | )% |  |  | 134.1 | % 
|                                    |  |                       |        |                   |  |      |         |              |  |              |        |   |  |  |       |    |  |  |       |   
|Research and development            |  | $                     | 10,435 |                   |  | $    | 13,766  |              |  | $            | 14,568 |   |  |  | (24.2 | )% |  |  | (5.5  | )%
|                                    |  |                       |        |                   |  |      |         |              |  |              |        |   |  |  |       |    |  |  |       |   
|R&D as a percentage of net revenues |  |                       | 39.3   | %                 |  |      | 6.6     | %            |  |              | 16.3   | % |  |  | 495.9 | %  |  |  | (59.6 | )%
|                                    |  |                       |        |                   |  |      |         |              |  |              |        |   |  |  |       |    |  |  |       |   

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

Research and development expenses were
approximately $10.4 million or approximately 39.3% of net
revenues for fiscal 2002 as compared to $13.8 million or
approximately 6.6% of net revenues for fiscal 2001, and
approximately $14.6 million or approximately 16.3% of net
revenues for fiscal 2000. The decrease in spending from fiscal
2001 to 2002 was due to a decrease in employee related
compensation expenses associated with temporary pay reductions,
lower mask and tooling charges and a reduction in depreciation
expenses. The small decrease in spending from fiscal 2000 to
2001 was due to lower depreciation expense for R&D equipment.

The Company believes that investments in research
and development are necessary to remain competitive in the
marketplace, and, accordingly, research and development expenses
may increase in absolute dollars in future periods due to an
increase in research and development personnel to the extent the
Company acquires new technologies to diversify its product bases.



| |                                    
| | -----------------------------------
| | Selling, General and Administrative

|                                     |  |                      |        |                   |  |      |         |              |  |              |        |   |  |  |       |    |  |  |       |   
|------------------------------------ |  | -------------------- | ------ | ----------------- |  | ---- | ------- | ------------ |  | ------------ | ------ | - |  |  | ----- | -- |  |  | ----- | --
|                                     |  |                      |        |                  
|                                     |  | Year Ended March 31, |        | Percentage Change
|                                     |  |                      |        |                  
|                                     |  | 2002                 |        | 2001              |  | 2000 |         | 2001 to 2002 |  | 2000 to 2001
|                                     |  |                      |        |                   |  |      |         |              |  |             
|Net Revenues                         |  | $                    | 26,547 |                   |  | $    | 208,678 |              |  | $            | 89,153 |   |  |  | (87.3 | )% |  |  | 134.1 | % 
|                                     |  |                      |        |                   |  |      |         |              |  |              |        |   |  |  |       |    |  |  |       |   
|Selling, general and administration  |  | $                    | 20,377 |                   |  | $    | 19,691  |              |  | $            | 15,962 |   |  |  | (3.5  | )% |  |  | 23.4  | % 
|                                     |  |                      |        |                   |  |      |         |              |  |              |        |   |  |  |       |    |  |  |       |   
|SG&A as a percentage of net revenues |  |                      | 76.8   | %                 |  |      | 9.4     | %            |  |              | 17.9   | % |  |  | 713.5 | %  |  |  | (47.3 | )%
|                                     |  |                      |        |                   |  |      |         |              |  |              |        |   |  |  |       |    |  |  |       |   

Selling, general and administrative expenses
include salaries and benefits associated with sales, sales
support, marketing and administrative personnel, as well as
sales commissions, outside marketing costs, travel, equipment
depreciation and software amortization, facilities costs, bad
debt expense, insurance and legal costs.

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Selling, general and administrative expenses in
fiscal 2002 were approximately $20.4 million or 76.8% of
net revenues as compared to approximately $19.7 million or
approximately 9.4% of net revenues for fiscal 2001 and
approximately $16.0 million or approximately 17.9% of net
revenues in fiscal 2000. Selling, general and administrative
expenses did not increase significantly in fiscal 2002 relative
to fiscal 2001 because higher legal fees associated with the
1940 Investment Company Act and higher tax and audit fees were
offset by lower commission expense as a result of decreased
revenues. The increase in spending between fiscal 2001 and 2000
was due to higher sales commissions principally resulting from a
134% growth in net revenues, higher travel expenses and an
increase in allowances for bad debts.

Selling, general and administrative expenses may
increase in absolute dollars, and may also fluctuate as a
percentage of net revenues in the future primarily as the result
of commissions, which are dependent on the level of revenues.



| |                    
| | -------------------
| | Gain on Investments

In fiscal 2002, the Company recognized a pre-tax
gain of $28.1 million on its investment in Platys when
Platys was sold to Adaptec. The Company sold 77.8 million
shares of UMC and recorded a pre-tax loss on this sale of
$20.8 million. The Company also sold 125,000 shares of
Common Stock of Broadcom and recorded a pre-tax gain of
$1.6 million as well as 100,000 shares of Common Stock of
Adaptec and recorded a pre-tax gain of $403,000. In fiscal 2002,
the Company recorded a pre-tax loss on hedged marketable
securities of $8.7 million, offset by a pre-tax gain of
$3.4 million on hedging instruments.

Gain on investments during fiscal 2001 was
largely attributed to the sale of Chartered and Broadcom
securities. The Company sold 500,000 shares of Chartered and
recorded a pre-tax gain of $33.5 million and sold
287,522 shares of Common Stock Broadcom and recorded a
pre-tax gain $31.3 million. Furthermore, Malleable
completed its merger with PMC-Sierra, resulting in the
Companys exchanging its ownership interest in Malleable
for 68,000 shares of PMC-Sierra Common Stock. Upon
completion of the transaction in June 2000, the Company recorded
a pre-tax gain of $11.0 million.

During fiscal 2000, the Company recognized a
$908.2 million pre-tax gain as a result of the merger
between UMC and four wafer foundry units: USC, USIC, United
Integrated Circuit Corporation and UTEK Semiconductor
Corporation. The Company also recorded gains of
$51.6 million and $68.7 million, respectively, in
conjunction with Broadcoms acquisition of Maverick and
Vitesses acquisition of Orologic. In addition, the Company
sold 275,600 shares of Broadcom Common Stock and realized an
additional pre-tax gain of approximately $20.6 million.



| |                                                              
| | -------------------------------------------------------------
| | Write-Down of Marketable Securities and Other
    Investments

Marketable securities held by the Company have
experienced significant declines in their market value primarily
due to the downturn in the semiconductor sector and general
market conditions. Management evaluates the marketable
securities for potential other-than-temporary
declines in their value. Such evaluation included researching
commentary from industry experts, analysts and other companies,
all of whom were not optimistic that the semiconductor sector
would recover in the short term. Based on the continuing
depression in the investments stock prices from those
originally used to record the investment, and the expectation
that the stock prices will not significantly recover in the next
6 to 9 months due to unfavorable business conditions
for the companies and in the semiconductor industry in general,
management determined that a write down was necessary at
September 30, 2001. As a result, the Company recorded a
pre-tax loss of $288.5 million during the second quarter of
fiscal 2002 based on the quoted market price of the respective
marketable securities at September 30, 2001. The Company
recorded a pre-tax loss of $506.8 million in the fourth
quarter of fiscal 2001, based on the market value of the
respective marketable securities at March 31, 2001.

The Company wrote down several of its Alliance
and Solar Ventures investments recognizing pre-tax,
non-operating losses of approximately $8.3 million and
$2.6 million for fiscal 2002 and 2001, respectively.

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| |                         
| | ------------------------
| | Other Income (Loss), Net

Other income (loss), net was $5.3 million
expense in fiscal 2002 compared to net expense of $200,000 in
fiscal 2001. The change from fiscal 2001 to fiscal 2002 was
attributable primarily to withholding tax of $3.0 million
on the UMC dividend and a $3.0 million increase in interest
expense due to additional borrowings in fiscal 2002.



| |                           
| | --------------------------
| | Provision for Income Taxes

The Companys effective tax rate for fiscal
2002, 2001, and 2000, was 37.9%, 40.3%, and 39.1%, respectively.

During fiscal 2002 and 2001, the Company recorded
a benefit for income taxes of approximately $142.7 million
and $180.0 million, respectively, primarily as a result of
the write-down of marketable securities and other investments of
$296.8 and $509.4 million, respectively.

During fiscal 2000, the Company recorded a
provision for income taxes of approximately $410.3 million,
primarily the result of the gains on investments in Broadcom,
UMC, and Vitesse.



| |                              
| | -----------------------------
| | Equity in Income of Investees

Several of the Alliance Venture and Solar Venture
investments are accounted for under the equity method due to the
Companys ability to exercise significant influence on the
operations of investees resulting primarily from ownership
interest and/or board representation. The equity in the losses
of the investees of Alliance and Solar Ventures was
approximately $9.5 million for fiscal 2002 and
$5.7 million for fiscal 2001.

Factors Affecting Future Results

In addition to the factors discussed elsewhere in
this Form 10K, the following are important factors which
could cause actual results or events to differ materially from
those contained in any forward looking statements made by or on
behalf of the Company.



| |                                                
| | -----------------------------------------------
| | Our future results are likely to
    fluctuate.

The Companys quarterly and annual results
of operations 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. Results of operations 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 continued 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 in order to create more sales opportunities and
increase sales levels, the Companys results of operations
will be adversely affected if such increased sales levels are
not achieved.



| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | We are exposed to the risks associated with
    the slowdown in the U.S. and world-wide economy.

Among other factors, concerns about inflation,
decreased consumer confidence and spending and reduced corporate
profits and capital spending have resulted in a downturn in the
U.S. economy

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generally and in the semiconductor industry in
particular. As a result of these unfavorable economic
conditions, we have experienced a significant slowdown in
customer orders across nearly all of our product lines during
fiscal 2002. In addition, we experienced corresponding decreases
in revenues and average selling prices during 2002 and expect
continued pressure on average selling prices in the future. If
the adverse economic conditions continue or worsen, additional
restructuring of operations may be required, and our business,
financial condition and results of operations may be seriously
harmed.




| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our results of operations and financial
    condition could be harmed by efforts to comply with, or
    penalties associated with, the Investment Company Act of
    1940.

In August 2000, the Company applied to the SEC
for an order under section 3(b)(2) of the Investment
Company Act of 1940 (the Act) confirming its
non-investment company status. In March 2002, the staff of the
SEC informed the Company that the staff could not support the
granting of the requested exemption. Since that time, the
Company has been working diligently to resolve its status under
the Act. Most recently, the Company recommenced informal
discussions with the staff of the SEC to assess various means to
achieve that goal. The Company anticipates in particular raising
with the staff in the near future the possibility of seeking
exemptive relief under the Act different from that applied for
in 2000. No assurances can be given that the staff and the SEC
would act favorably upon such a request, or that the SEC will
agree that the Company should be deemed an entity not required
to be registered as an investment company in violation of the
Act. If the SEC takes the view that the Company has operated and
continues to operate as an unregistered investment company in
violation of the Act, and does not provide the Company with a
sufficient period to either register as an investment company or
divest itself of investment securities and/or acquire
non-investment securities, the Company may be subject to
significant potential penalties.

In the absence of exemptions granted by the SEC,
the Company would be required either to register as a closed-end
investment company under the Act, or, in the alternative, to
divest itself of sufficient investment securities and/or to
acquire sufficient non-investment assets so as not to be
regarded as an investment company under the Act. Either
registering as a closed-end investment company under the Act, or
divesting itself of sufficient investment securities and/or
acquiring sufficient non-investment assets so as not to be
regarded as an investment company under the Act, could result in
a material adverse effect on the Companys results of
operations and financial condition. See
Item 1  Business  The
Investment Company Act of 1940.



| |                                                                                      
| | -------------------------------------------------------------------------------------
| | We face periods of industry-wide
    semiconductor over-supply that harm our results.

The semiconductor industry has historically been
characterized by wide fluctuations in the demand for, and supply
of, semiconductors. These fluctuations have helped produce many
occasions when supply and demand for semiconductors have not
been in balance. In the past, these industry-wide fluctuations
in demand have seriously harmed our operating results. In some
cases, industry downturns with these characteristics have lasted
more than a year. Prior experience has shown that a
restructuring of operations, resulting in significant
restructuring charges, may become necessary if an industry
downturn persists. When these cycles occur, they will likely
seriously harm our business, financial condition, and results of
operations and we may need to take further action to respond to
them.



| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | We are affected by a general pattern of
    product price decline and fluctuations, which can harm our
    business.

The markets for the Companys products are
characterized by rapid technological change, evolving industry
standards, product obsolescence, and significant price
competition and, as a result, are subject to decreases in
average selling prices. The Company had experienced significant
deterioration in the average selling prices for its SRAM and
DRAM products during the last two fiscal years. The Company is
unable to predict the future prices for its products.
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

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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 margin. For example,
in fiscal 2002 and 2001 the Companys financial results,
including gross margin, were materially, adversely affected by
declines in average selling prices and unit sales volume. There
can be no assurance that the Company will be able to increase
unit sales volumes of existing products, develop, introduce and
sell new products or significantly reduce its cost per unit.
There also can be no assurance that even if the Company were to
increase unit sales volumes and sufficiently reduce its costs
per unit, the Company would be able to maintain or increase
revenues or gross margin.




| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | Our financial results could be adversely
    impacted if we fail to develop, introduce, and sell new
    products.

Like many semiconductor companies, which
frequently operate in a highly competitive, quickly changing
environment marked by rapid obsolescence of existing products,
our future success depends on our ability to develop and
introduce new products that customers choose to buy. If we fail
to introduce new product designs in a timely manner or are
unable to manufacture products according to the requirements of
these designs, or if our customers do not successfully introduce
new systems or products incorporating ours, or market demand for
our new products does not exist as anticipated, our business,
financial condition and results of operations could be seriously
harmed.



| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | We must build products based on demand
    forecasts; if such forecasts are inaccurate, we may incur
    significant losses.

The cyclical nature of the semiconductor industry
periodically results in shortages of advanced process wafer
fabrication capacity such as the Company has experienced from
time to time. The Companys ability to maintain adequate
levels of inventory is primarily dependent upon the Company
obtaining sufficient supply of products to meet future demand,
and any inability of the Company to maintain adequate inventory
levels may adversely affect its relations with its customers. In
addition, the Company must order products and build inventory
substantially in advance of products shipments, and there is a
risk that because demand for the Companys products is
volatile and subject to rapid technology and price change, the
Company will forecast incorrectly and produce excess or
insufficient inventories of particular products. This inventory
risk is heightened because certain of the Companys key
customers place orders with short lead times. The Companys
customers ability to reschedule or cancel orders without
significant penalty could adversely affect the Companys
liquidity, as the Company may be unable to adjust its purchases
from its independent foundries to match such customer changes
and cancellations. The Company has in the past produced excess
quantities of certain products, which has had a material adverse
effect on the Companys results of operations. In fiscal
2002 and 2001, the Company recorded pre-tax charges totaling
approximately $30.4 and $53.9 million, respectively,
primarily to reflect a decline in market value of certain
inventory. There can be no assurance that the Company in the
future will not produce excess quantities of any of its
products. To the extent the Company produces excess or
insufficient inventories of particular products, the
Companys results of operations could be adversely affected.



| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | We face additional problems and
    uncertainties associated with international operations that
    could seriously harm us.

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. Current or potential customers
of the Company in Asia, for instance, may become unwilling or
unable to purchase the Companys products, and the
Companys Asian competitors may be able to become more
price-competitive relative to the Company due to declining
values of their national currencies. There can be no

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assurance that such factors will not adversely
impact the Companys results of operations in the future or
require the Company to modify its current business practices.




| |                                                                      
| | ---------------------------------------------------------------------
| | We may fail to integrate successfully
    businesses that we acquire.

The Company completed one acquisition in fiscal
2002 and may in the future acquire additional companies. If the
Company fails to integrate these businesses successfully, or
properly, its quarterly and annual results may be seriously
harmed. Integrating businesses is expensive, time-consuming and
a great strain on the Companys resources. Some specific
difficulties in the integration process may include failure to
successfully develop acquired in-process technology, the
difficulty of integrating acquired technology or products,
unanticipated expenses related to technology integration and the
potential unknown liabilities associated with acquired
businesses.



| |                                                                                 
| | --------------------------------------------------------------------------------
| | We may not be able to compete successfully
    in a highly competitive industry.

The Company faces intense competition, and many
of its principal competitors and potential competitors have
substantially greater financial, technical, marketing,
distribution and other resources, broader product lines and
longer-standing relationships with customers than does the
Company, any of which factors may place such competitors and
potential competitors in a stronger competitive position than
the Company.



| |                                                                        
| | -----------------------------------------------------------------------
| | Quarterly shipments are typically weighted
    to the end of a quarter.

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



| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | We rely on third parties to perform
    manufacturing; problems in their performance can seriously harm
    our financial results.

The Company currently relies on independent
foundries to manufacture all of the Companys products.
Reliance on these foundries involves several risks, including
constraints or delays in timely delivery of the Companys
products, reduced control over delivery schedules, quality
assurance and costs and loss of production due to seismic
activity, weather conditions and other factors. In addition, as
a result of the rapid growth of the semiconductor industry based
in the Hsin-Chu Science-Based Industrial Park, severe
constraints have been placed on the water and electricity supply
in that region. Any shortages of water or electricity could
adversely affect the Companys foundries ability to
supply the Companys products, which could have a material
adverse effect on the Companys results of operations or
financial condition. Although the Company continuously evaluates
sources of supply and may seek to add additional foundry
capacity, there can be no assurance that such additional
capacity can be obtained at acceptable prices, if at all. The
occurrence of any supply or other problem resulting from these
risks could have a material adverse effect on the Companys
results of operations. The Company also relies on domestic and
offshore subcontractors for die assembly and testing of
products, and is subject to risks of disruption in adequate
supply of such services and quality problems with such services.



| |                                                                          
| | -------------------------------------------------------------------------
| | Increases in raw materials prices may
    significantly harm our results.

Our semiconductor manufacturing operations
require raw materials that must meet exacting standards. We
generally have more than one source available for these
materials, but there are only a limited number of suppliers
capable of delivering certain raw materials that meet our
standards. There is

32



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




| |                                                                  
| | -----------------------------------------------------------------
| | Our operations could be severely harmed by
    natural disasters.

The Companys corporate headquarters are
located near major earthquake faults, and the Company is subject
to the risk of damage or disruption in the event of seismic
activity. There can be no assurance that any of the foregoing
factors will not materially adversely affect the Companys
results of operations. If a major earthquake or other natural
disaster occurs, we may require significant amounts of time and
money to resume operations and we could suffer damages that
could seriously harm our business and results of operation.



| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | We have invested in startup companies that
    are high risk, illiquid investments and may not recoup our
    investment.

The Company, through Alliance Venture Management
and Solar Ventures, invests in startup, pre-IPO (initial public
offering) companies. These types of investments are inherently
risky and many venture funds have a large percentage of
investments decrease in value or fail. Most of these startup
companies fail, and the investors lose their entire investment.
Successful investing relies on the skill of the investment
managers, but also on market and other factors outside the
control of the managers. It is possible that the downturn in the
success of these types of investments will continue in the
future and the Company will suffer significant diminished
success in these investments. There can be no assurance, and in
fact it is likely, that many or most, and maybe all of the
Companys venture type investments may fail, resulting in
the complete loss of most or all the money the Company invested.



| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | We may be unable to defend our intellectual
    property rights and may face significant expenses as a result of
    ongoing or future litigation.

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

33



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As a result of an antidumping proceeding
commenced in February 1997 by the Department of Commerce (DOC),
the Company was required to make a cash deposit equal to 50.15%
of the entered value of any SRAMs manufactured (wafer
fabrication) in Taiwan, in order to import such goods into the
U.S. In January 2002, the decision of the United States Court of
International Trade was finalized and the DOC revoked the order
and instructed the U.S. Customs Service to refund the
Companys cash deposits with interest. The Company received
a refund of $2.6 million, including interest of
approximately $515,000 from its deposits during the quarter
ended March 31, 2002. In the first quarter of fiscal 2003,
the Company received approximately $262,000, including interest
of approximately $56,000.

Liquidity and Capital Resources

At March 31, 2002, the Company had
approximately $23.6 million in cash and cash equivalents,
an increase of $17.5 million from March 31, 2001; and
approximately $323.8 million in net working capital, an
increase of approximately $4.5 million from approximately
$319.3 million at March 31, 2001.

Additionally, the Company had short-term
investments in marketable securities whose fair value at
March 31, 2002 was $467.0 million. A portion of these
short-term investments are used as collateral against the
Companys short-term borrowings. The Company has pledged
180 million shares of its UMC holdings with a value to 250%
of the outstanding balance against a loan and all of its
holdings in Chartered Semiconductor are pledged against another
short-term borrowing.

During fiscal year 2002, operating activities
used $69.3 million. This was primarily a result of net
loss, the impact of non-cash items such as depreciation and
amortization, non-cash tax benefit and the reduction in accounts
payable, off-set by the non-cash write-down of investments and
reduction in inventory. During fiscal year 2001, operating
activities used cash of approximately $57.4 million. This
was primarily the result of net loss, the impact of non-cash
items such as depreciation and amortization and the growth of
inventory offset by the write-down of investments, net of
deferred taxes and growth of accounts payable. Cash used in
operating activities of approximately $5.0 million in
fiscal year 2000 was primarily the result of net income, the
impact of non-cash items such as depreciation and amortization,
non-cash investment gains related primarily to the merger of
USC, USIC, United Integrated Circuit Corporation and UTEK
Semiconductor Corporation into UMC, Broadcoms acquisition
of Maverick and Vitesses acquisition of Orologic, offset
in part by growth in inventory and accounts receivable, accounts
payable and taxes payable.

In fiscal year 2002, investing activities
provided $55.3 million. This resulted primarily from
proceeds from sale of investments of $89.4 million, offset
by an additional investment made in Tower Semiconductor of
$11.0 million and additional investments of Alliance and
Solar Ventures of $21.5 million. Investing activities used
cash in the amount of approximately $16.9 million in fiscal
2001 as result of proceeds from sale of the Companys
holdings in Chartered in the amount of $45.5 million and
Broadcoms $39.0 million, offset in part, by the
Companys purchase of Alliance Ventures and other short
term investments of $66.0 million and investment in Tower
and related wafer credits of approximately $31.0 million.
Investing activities during fiscal 2000 provided cash in the
amount of approximately $38.9 million. This was the result
of the proceeds from the sale of a portion of the Companys
holdings in Broadcom of $48.9 million, additional proceeds
from the sale of UMC stock of $21.5 million, offset in
part, by investments made by Alliance Ventures of
$28.7 million.

In fiscal year 2002, financing activities
provided $31.5 million in cash. This was primarily a result
of an increase in short term borrowings of $118.5 million,
offset in part by purchase of treasury stock amounting to
$7.7 million and repayment of short-term borrowings of
$78.9 million. Net cash provided by financing activities in
fiscal 2001 was approximately $45.6 million as a result of
proceeds from long-term obligations of $31.0 million and
borrowings from the Companys credit line of
$22.2 million, offset in part, by the Company repurchasing
its shares of common stock of $10.3 million. Net cash used
in financing activities in fiscal 2000 was approximately
$5.3 million. The use of cash for financing activities in
fiscal 2000 was primarily the result of repurchase of
Companys common stock for $12.5 million offset by a

34



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decrease in restricted cash of approximately
$2.3 million, and proceeds from sale of common stock of
approximately $4.7 million.


At March 31, 2002, the Company had total
short-term borrowings of $66.2 million.

During fiscal 2001, the Company borrowed
approximately $22.2 million from a brokerage firm. The loan
is secured by 1.6 million shares of Chartered common stock.
The loan bears an interest at a rate determined by the
prevailing market interest rate. At March 31, 2002 and
2001, the applicable market rate for the loan was 2.75% and
6.5%, respectively. The outstanding balance on the loan at
March 31, 2002 and 2001 was approximately
$16.2 million and $22.2 million, respectively.

During the first quarter of fiscal 2002, the
Company entered into a secured loan agreement with Citibank,
N.A. to borrow up to $60.0 million. On November 16,
2001, the Company paid off its loan in full with Citibank for an
aggregate sum of $17.3 million, and the loan was terminated.

During the second quarter of fiscal 2002, the
Company converted an account payable of $14.4 million, to
UMC and a subsidiary of UMC, to a secured loan that was to
mature in August 2002. The loan accrued interest at a rate of
7.5%, and was collateralized by 16.7 million shares of UMC.
The Company paid off outstanding principal and interest on
February 6, 2002, for an aggregate sum of
$16.4 million.

In the third quarter of fiscal 2002, the Company
entered into a secured loan agreement with Chinatrust Commercial
Bank, Ltd, to borrow up to $30.0 million. In January 2002,
the Company increased the principal amount it could borrow under
the loan agreement to $46.0 million. The loan is secured by
UMC stock held by the Company with the aggregate value at least
250% of the outstanding loan balance. The loan bears interest at
LIBOR plus 2.5% and matures on December 7, 2002. The
principal and accrued interest are payable upon maturity. A
portion of this loan was used to pay off the Citibank loan. The
remaining was used for working capital. The loan required that
the Company set up an interest escrow deposit account with the
bank, which is collateral against any accrued interest. The
balance in the interest escrow account as of March 31, 2002
was $1.8 million, and is shown as restricted cash on the
balance sheet. The loan requires compliance with certain
restrictive covenants with which the Company was in compliance
at March 31, 2002. The outstanding balance on the
Chinatrust loan was $45.7 million at March 31, 2002.

In the fourth quarter of fiscal 2002, the Company
issued a $4.8 million promissory note in connection with
the acquisition of PulseCore. The note is non-interest bearing
and matures on March 29, 2003. Discount on the note of
$609,000 was calculated based on an imputed interest rate of
12%. The outstanding balance on the promissory note, net of
unamortized discount, was approximately $4.3 million at
March 31, 2002.

At March 31, 2002, the Company has no unused
line of credit.

The Company believes these sources of liquidity,
and financing opportunities available to it will be sufficient
to meet its projected working capital and other cash
requirements for the foreseeable future. However, it is possible
that we may need to raise additional funds to finance our
activities beyond the next year or to consummate acquisitions of
other businesses, products, wafer capacity or technologies. We
could raise such funds by selling some of our short-term
investments, selling more stock to the public or to selected
investors, or by borrowing money. We may not be able to obtain
additional funds on terms that would be favorable to our
stockholders and us, or at all. If we raise additional funds by
issuing additional equity, the ownership percentages of existing
stockholders would be reduced.

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, as was the case with Chartered Semiconductor,
UMC or Tower, 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

35



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equity or debt financing. There can be no
assurance that such additional financing, if required, will be
available when needed or, if available, will be on satisfactory
terms. Additionally, the Company has entered into and will
continue to enter into various transactions, including the
licensing of its integrated circuit designs in exchange for
royalties, fees or guarantees of manufacturing capacity.


Contractual Obligations

Balance Sheet


(in thousands)


|                                               |  |             |        |       |  |       |       |         |  |       |   |  |  |   |   |  |  |   |        | 
|---------------------------------------------- |  | ----------- | ------ | ----- |  | ----- | ----- | ------- |  | ----- | - |  |  | - | - |  |  | - | ------ | 
|                                               |  | Less than 1 |        | 1-3   |  | 4-5   |       | After 5 |  |      
|                                               |  | Year        |        | Years |  | Years |       | Years   |  | Total
|                                               |  |             |        |       |  |       |       |         |  |      
|Short term Debt                                |  | $           | 66,173 |       |  | $     |      |         |  | $     |  |  |  | $ |  |  |  | $ | 66,173 | 
|Capital Lease Obligations (including interest) |  |             | 686    |       |  |       | 100   |         |  |       |  |  |  |   |  |  |  |   | 786    | 
|Long term Obligations                          |  |             | 4,796  |       |  |       | 4,742 |         |  |       |  |  |  |   |  |  |  |   | 9,538  | 
|                                               |  |             |        |       |  |       |       |         |  |       |   |  |  |   |   |  |  |   |        | 
|                                               |  |             | 71,655 |       |  |       | 4,842 |         |  |       |  |  |  |   |  |  |  |   | 76,497 | 
|                                               |  |             |        |       |  |       |       |         |  |       |   |  |  |   |   |  |  |   |        | 

Off-Balance Sheet

|                              |       |             |        |        |  |       |        |         |  |       |     |     |  |  |   |   |  |  |        |         | 
|----------------------------- | ----- | ----------- | ------ | ------ |  | ----- | ------ | ------- |  | ----- | --- | --- |  |  | - | - |  |  | ------ | ------- | 
|                              |       | Less than 1 |        | 1-3    |  | 4-5   |        | After 5 |  |      
|                              |       | Year        |        | Years  |  | Years |        | Years   |  | Total
|                              |       |             |        |        |  |       |        |         |  |      
|Operating Leases              |       |             | 2,292  |        |  |       | 5,298  |         |  |       | 550 |     |  |  |  |   |  |  | 8,140  |        
|Commitment to invest in Tower |       |             | 11,000 |        |  |       | 22,000 |         |  |       |    |     |  |  |  |   |  |  | 33,000 |        
|                              |       |             |        |        |  |       |        |         |  |       |     |     |  |  |   |   |  |  |        |        
|                              |       |             | 13,292 |        |  |       | 27,298 |         |  |       | 550 |     |  |  |  |   |  |  | 41,140 |        
|                              |       |             |        |        |  |       |        |         |  |       |     |     |  |  |   |   |  |  |        |        
|                              | TOTAL |             | $      | 84,947 |  |       | $      | 32,140  |  |       | $   | 550 |  |  | $ |  |  |  | $      | 117,637 | 
|                              |       |             |        |        |  |       |        |         |  |       |     |     |  |  |   |   |  |  |        |        



| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | Trading Activities Involving Non-Exchange
    Traded Contracts Accounted for at Fair Value

The Company uses derivative financial instruments
to manage the market risk of certain of its short-term
investments. The Company does not use derivatives for trading or
speculative purposes.

All derivatives are recognized on the balance
sheet at fair value and are reported in short term investments
and long term obligations. Classification of each derivative as
current or non current is based upon whether the maturity of
each instrument is less than or greater than 12 months. To
qualify for hedge accounting in accordance with SFAS
No. 133, Accounting for Derivative Instruments and
Hedging Activities, the Company requires that the
instruments are effective in reducing the risk exposure that
they are designated to hedge. Instruments that meet established
accounting criteria are formally designated as hedges at the
inception of the contract. These criteria demonstrate that the
derivative is expected to be highly effective at offsetting
changes in fair value of the underlying exposure both at
inception of the hedging relationship and on an ongoing basis.
The assessment for effectiveness is formally documented at hedge
inception and reviewed at least quarterly throughout the
designated hedge period.

The Company applies hedge accounting in
accordance with SFAS No. 133, whereby the Company
designates each derivative as a hedge of the fair value of a
recognized asset (fair value hedge). Changes in the
value of a derivative, along with offsetting changes in fair
value of the underlying hedged exposure, are recorded in
earnings each period. Changes in the value of derivatives that
do not offset the underlying hedged exposure throughout the
designated hedge period (collectively,
ineffectiveness), are recorded in earnings each
period.

In determining fair value of its financial
instruments, the Company uses dealer quotes as well as methods
and assumptions that are based on market conditions and risks
existing at each balance sheet date. All methods of assessing
fair value result in a general approximation of value, and such
value may never actually be realized.

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| |                                                                  
| | -----------------------------------------------------------------
| | Effective Transactions with Related and
    Certain Other Parties

In fiscal 2002, the Company paid Alliance Venture
Management, LLC, which is managed by certain of the
Companys officers, $875,000 in management fees. Management
fees are based upon the commitment of each fund, Alliance
Ventures I, II, III, IV and V. Annually, Alliance Venture
Management is paid 0.5% of the total fund commitment of each of
the funds. This amount is then offset by the Companys
billings to Alliance Venture Management for expenses incurred by
the officers.

Alliance Venture Management receives 15% -
16% of the realized gains of the venture funds. In fiscal 2002,
the Company made distributions of cash and marketable securities
to the partners of Alliance Venture Management totaling
$5.2 million. Details of the distributions are as follows
(in thousands):

|                       |  |                   |       |             |  |               |       |  |  |   |       | 
|---------------------- |  | ----------------- | ----- | ----------- |  | ------------- | ----- |  |  | - | ----- | 
|                       |  | Market Value of   |       | Cash        |  | Total        
|Officer/Employee       |  | Stock Distributed |       | Distributed |  | Distributions
|                       |  |                   |       |             |  |              
|N. Damodar Reddy       |  | $                 | 995   |             |  | $             | 571   |  |  | $ | 1,566 | 
|C.N. Reddy             |  |                   | 995   |             |  |               | 571   |  |  |   | 1,566 | 
|Non-executive employee |  |                   | 1,175 |             |  |               | 686   |  |  |   | 1,861 | 
|Brad Perkins           |  |                   | 126   |             |  |               | 76    |  |  |   | 202   | 
|                       |  |                   |       |             |  |               |       |  |  |   |       | 
|Totals                 |  | $                 | 3,291 |             |  | $             | 1,904 |  |  | $ | 5,195 | 
|                       |  |                   |       |             |  |               |       |  |  |   |       | 

On May 18, 1998, the Company provided loans
to two of its officers and a director aggregating
$1.7 million. The officers loans were used for the
payment of taxes resulting from the gain on the exercise of
non-qualified stock options. The loan to a director was used for
the exercise of stock options. Under these loans, both principal
and accrued interest were due on December 31, 1999, with
accrued interest at rates ranging from 5.50% to 5.58% per annum.
The loan to the director was paid at December 31, 1999. In
fiscal 2002, the officer loans were extended to
December 31, 2002. As of March 31, 2002,
$1.6 million was outstanding under these loans with accrued
interest of $341,000.






|        |                                                               
|------- | --------------------------------------------------------------
|Item 7A | Quantitative and Qualitative Disclosures
    About Market Risk

We have exposure to the impact of foreign
currency fluctuations and changes in market values of our
investments. The entities in which we hold investments operate
in markets that have experienced significant exchange rate and
market price fluctuations over the year ended March 31,
2002. These entities, in which we hold varying percentage
interests, operate and sell their products in various global
markets; however, the majority of their sales are denominated in
U.S. dollars, and therefore, their foreign currency risk is
reduced. We did not hold any derivative financial instruments
for trading purposes at March 31, 2002.



| |                
| | ---------------
| | Investment Risk

As of March 31, 2002, our short-term
investment portfolio consisted of marketable equity securities
in Chartered Semiconductor, UMC, Broadcom Corp., PMC-Sierra,
Vitesse Semiconductor, Adaptec Inc., and Magma Design Automation
the future value of which is subject to market value
fluctuations.

In the last six months of fiscal 2001 as well as
the first six months of fiscal 2002, marketable securities held
by the Company have experienced significant declines in their
market value primarily due to the downturn in the semiconductor
sector and general market conditions. Management has evaluated
the marketable securities for potential
other-than-temporary declines in their value and
determined that the write-downs were necessary at March 31,
2001 and September 30, 2001. As a result, the Company
recorded a pre-tax loss of $506.9 million during the fourth
quarter of fiscal 2001 and $288.5 million during the second
quarter of fiscal 2002, based on the quoted market price of the
respective marketable securities at March 31, 2001 and
September 30, 2001.

Short and long term investments are subject to
declines in market as well as risk associated with the
underlying investment. The Company evaluates its investments
from time to time in terms of credit risk since a substantial
portion of its assets are now in the form of investments, not
all of which are liquid, and

37



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may enter into full or partial hedging strategies
involving financial derivative instruments to minimize market
risk. During fiscal years 2000, 2001 and 2002, the Company
entered into a number of cashless collar and
covered call option transactions to hedge its
holdings in Broadcom Corporation. In addition, during fiscal
2001 and 2002, the Company entered into indexed debt
transactions to partially hedge its holdings in Vitesse
Semiconductor Corporation and Adaptec, Inc. The Company may
enter into other similar transactions in the future.




| |                      
| | ---------------------
| | Foreign Currency Risk

Based on our overall currency rate exposure at
March 31, 2002, a near term 10.0% appreciation or
depreciation in the value of the U.S. dollar would have an
insignificant effect on our financial position, results of
operations and cash flows over the next fiscal year. There can
be no assurance that there will not be a material impact in the
future.

As of June 21, 2002, the Company owned
approximately 303.1 million shares of UMC, a publicly
traded Company in Taiwan. Since these shares are not tradeable
in the United States they are subject to foreign currency risk.
The market value of these holdings on June 21, 2002, based
on the price per share in NTD and the NTD/ US dollar exchange
rate of NTD 33.710 per US$ is US$369.6 million. The
value of these investments could be impacted by foreign currency
fluctuations which could have a material impact on the financial
condition and results of operations of the Company in the future.






|       |                                                             
|------ | ------------------------------------------------------------
|Item 8 | Consolidated Financial Statements and
    Supplementary Data

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






|       |                                                                                         
|------ | ----------------------------------------------------------------------------------------
|Item 9 | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

None.




PART III






|        |                                                                                                                        
|------- | -----------------------------------------------------------------------------------------------------------------------
|Item 10 | Directors, Executive Officers, Promoters
    and Control Persons; Compliance with Section 16(a) of the
    Exchange Act

Other than the information required pursuant to
Items (401(a) and) 405 of Regulation S-K, the
information required by this item concerning executive officers
of the Company is set forth in Part I of this Form 10-K
after Item 4. The information required by this item with
respect to directors is incorporated by reference to the section
captioned Election of Directors in the proxy
statement.






|        |                       
|------- | ----------------------
|Item 11 | Executive Compensation

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






|        |                                                                   
|------- | ------------------------------------------------------------------
|Item 12 | Security Ownership of Certain Beneficial
    Owners and Management

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






|        |                                                   
|------- | --------------------------------------------------
|Item 13 | Certain Relationships and Related
    Transactions

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

38



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 14 | Exhibits, Financial Statements, Financial
    Statement Schedules and Reports on Form 8-K

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

(II) Report
of Independent Accountants  See Index to
Consolidated Financial Statements on F-1 of this Form 10-K
Annual Report.

(2)(I)  Schedule II:
Valuation and Qualifying Accounts  See Index to
Consolidated Financial Statements on F-1 of this Form 10-K
Annual Report.

(3)    Exhibits 
See Exhibit Index on page 40 of this Form 10-K
Annual Report.

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EXHIBIT INDEX

|        |           |                      |  |                                                                                                                                                                                                      
|------- | --------- | -------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |           |                     
|Number  |           | Document Description
|        |           |                     
|        | 3.01(A)   |                      |  | Registrants Certificate of Incorporation                                                                                                                                                            
|        | 3.02(A)   |                      |  | Registrants Certificate of Elimination of
    Series A Preferred Stock                                                                                                                              
|        | 3.03(F)   |                      |  | Registrants Certificate of Amendment of
    Certificate of Incorporation                                                                                                                            
|        | 3.04(A)   |                      |  | Registrants Bylaws                                                                                                                                                                                  
|        | 4.01(A)   |                      |  | Specimen of Common Stock Certificate of Registrant                                                                                                                                                   
|        | 10.01     |                      |  | Registrants Stock Option Plan adopted by
    Registrant on April 7, 1992 and amended through
    September 19, 1996, and related documents (superceded by
    Exhibit 10.51)                        
|        | 10.02(A) |                      |  | Registrants Directors Stock Option Plan
    adopted by Registrant on October 1, 1993 and related
    documents                                                                                      
|        | 10.03(A) |                      |  | Form of Indemnity Agreement used between
    Registrant and certain of its officers and directors                                                                                                    
|        | 10.04(K) |                      |  | Form of Indemnity Agreement used between the
    Registrant and certain of its officers                                                                                                              
|        | 10.05(B)  |                      |  | Sublease Agreement dated February 1994 between
    Registrant and Fujitsu America, Inc.                                                                                                              
|        | 10.06(B)  |                      |  | Net Lease Agreement dated February 1, 1994
    between Registrant and Realtec Properties I L.P.                                                                                                      
|        | 10.07*(I) |                      |  | Subscription Agreement dated February 17,
    1995, by and among Registrant, Singapore Technology Pte. Ltd.
    and Chartered Semiconductor Manufacturing Pte. Ltd.                                  
|        | 10.8*(I)  |                      |  | Manufacturing Agreement dated February 17,
    1995, between Registrant and Chartered Semiconductor
    Manufacturing Pte. Ltd.                                                                      
|        | 10.9(D)   |                      |  | Supplemental Subscription Agreement dated
    March 15, 1995, by and among Registrant, Singapore
    Technology Pte. Ltd. and Chartered Semiconductor Manufacturing
    Pte. Ltd.                    
|        | 10.10*(D) |                      |  | Supplemental Manufacturing Agreement dated
    March 15, 1995, between Registrant and Chartered
    Semiconductor Manufacturing Pte. Ltd.                                                            
|        | 10.11*(E) |                      |  | Foundry Venture Agreement dated July 8,
    1995, by and among Registrant, S3 Incorporated and United
    Microelectronics Corporation                                                               
|        | 10.12*(E) |                      |  | Foundry Capacity Agreement dated July 8,
    1995, by and among Registrant, Fabco, S3 Incorporated and
    United Microelectronics Corporation                                                       
|        | 10.13*(F) |                      |  | Foundry Venture Agreement dated
    September 29, 1995, between Registrant and United
    Microelectronics Corporation                                                                               
|        | 10.14*(F) |                      |  | Foundry Capacity Agreement dated
    September 29, 1995, by and among Registrant, FabVen and
    United Microelectronics Corporation                                                                 
|        | 10.15*(F) |                      |  | Written Assurances Re: Foundry Venture Agreement
    dated September 29, 1995 by and among Registrant, FabVen
    and United Microelectronics Corporation                                            
|        | 10.16*(G) |                      |  | Letter Agreement dated June 26, 1996 by and
    among Registrant, S3 Incorporated and United
    Microelectronics Corporation                                                                        
|        | 10.17(H)  |                      |  | Stock Purchase Agreement dated as of
    June 30, 1996 by and among Registrant,
    S3 Incorporated, United Microelectronics Corporation and
    United Semiconductor Corporation                    
|        | 10.18*(H) |                      |  | Amendment to Fabco Foundry Capacity Agreement
    dated as of July 3, 1996 by and among Registrant,
    S3 Incorporated, United Microelectronics Corporation and
    United Semiconductor Corporation
|        | 10.19(H)  |                      |  | Side Letter dated July 11, 1996 by and among
    Registrant, S3 Incorporated, United Microelectronics
    Corporation and United Semiconductor Corporation                                           
|        | 10.20(I) |                      |  | 1996 Employee Stock Purchase Plan                                                                                                                                                                    
|        | 10.21(J)  |                      |  | Letter Agreement dated December 23, 1996 by
    and among Registrant, S3 Incorporated, United
    Microelectronics Corporation and United Semiconductor Corporation                                  

40



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##### Table of Contents



|        |           |                      |  |                                                                                                                                                                                                                                        
|------- | --------- | -------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |           |                     
|Number  |           | Document Description
|        |           |                     
|        | 10.22(K)  |                      |  | Trademark License Agreement dated as of
    October 17, 1996 between Registrant and Alliance
    Semiconductor International Corporation, a Delaware corporation,
    as amended through May 31, 1997                                  
|        | 10.23(K)  |                      |  | Restated Amendment to FabCo Foundry Venture
    Agreement dated as of February 28, 1997 by and among
    Registrant, S3 Incorporated, United Microelectronics Corporation
    and United Semiconductor Corporation                     
|        | 10.24(K)  |                      |  | Letter Agreement dated April 25, 1997 by and
    among Registrant, S3 Incorporated, United Microelectronics
    Corporation and United Semiconductor Corporation                                                                       
|        | 10.25*(K) |                      |  | Restated DRAM Agreement dated as of
    February 28, 1996 between Registrant and United
    Microelectronics Corporation                                                                                                               
|        | 10.26*(K) |                      |  | First Amendment to Restated DRAM Agreement dated
    as of March 26, 1996 between Registrant and United
    Microelectronics Corporation                                                                                               
|        | 10.27*(K) |                      |  | Second Amendment to Restated DRAM Agreement dated
    as of July 10, 1996 between Registrant and United
    Microelectronics Corporation                                                                                               
|        | 10.28(K)  |                      |  | Promissory Note and Security Agreement dated
    March 28, 1997 between Registrant and Matrix Funding
    Corporation                                                                                                                  
|        | 10.29*(L) |                      |  | Sale and Transfer Agreement dated as of
    March 4, 1998                                                                                                                                                                              
|        | 10.30(M)  |                      |  | Alliance Venture Management, LLC Limited
    Liability Company Operating Agreement dated October 15, 1999                                                                                                                              
|        | 10.31(M)  |                      |  | Alliance Venture Management, LLC Amended Limited
    Liability Company Operating Agreement dated February 28,
    2000                                                                                                                 
|        | 10.32(M)  |                      |  | Alliance Ventures I, LP Agreement of Limited
    Partnership dated November 12, 1999                                                                                                                                                   
|        | 10.33(M)  |                      |  | Alliance Ventures II, LP Agreement of Limited
    Partnership dated November 12, 1999                                                                                                                                                  
|        | 10.34(M)  |                      |  | Alliance Ventures III, LP Agreement of Limited
    Partnership dated February 28, 2000                                                                                                                                                 
|        | 10.35(N)  |                      |  | Share Purchase Agreement, dated as of
    July 4, 2000, by and between SanDisk Corporation and Tower
    Semiconductor Ltd.                                                                                                            
|        | 10.36(N)  |                      |  | Additional Purchase Obligation Agreement, dated
    as of July 4, 2000, by and between SanDisk Corporation and
    Tower Semiconductor Ltd.                                                                                            
|        | 10.37(N)  |                      |  | Registration Rights Agreement, dated as of
    January 18, 2001, by and between Tower Semiconductor Ltd.,
    SanDisk Corporation, The Israel Corporation, Registrant,
    Macronix International Co., Ltd. and QuickLogic Corporation.
|        | 10.38(N)  |                      |  | Consolidated Shareholders Agreement, dated as of
    January 18, 2001 by and among SanDisk Corporation, The
    Israel Corporation, Registrant and Macronix International Co.,
    Ltd.                                                
|        | 10.39(N)  |                      |  | Alliance/ Tower Joinder Agreement, dated
    August 29, 2000, by and between Registrant and Tower
    Semiconductor Ltd.                                                                                                               
|        | 10.40(N)  |                      |  | Alliance/ TIC Joinder Agreement, dated
    August 29, 2000, by and between Registrant and The Israel
    Corporation                                                                                                                   
|        | 10.41(O)  |                      |  | Alliance Venture Management, LLC Amended Limited
    Liability Company Operating Agreement dated January 23, 2001                                                                                                                      
|        | 10.42(O)  |                      |  | Alliance Ventures IV, LP Agreement of
    Limited Partnership dated January 23, 2001                                                                                                                                                   
|        | 10.43(O)  |                      |  | Alliance Ventures V, LP Agreement of Limited
    Partnership dated January 23, 2001                                                                                                                                                    
|        | 10.44(O)  |                      |  | Loan Agreement dated May 17, 2001, by and
    between Registrant and Citibank, N.A.                                                                                                                                                    
|        | 10.45(O)  |                      |  | Share Pledge Agreement dated May 17, 2001,
    by and between Registrant and Citibank, N.A.                                                                                                                                            
|        | 10.46(P)  |                      |  | Credit Agreement dated November 15, 2001, by
    and between Registrant and Chinatrust Commercial Bank, Ltd.                                                                                                                           
|        | 10.47(P)  |                      |  | Pledge Agreement dated November 15, 2001, by
    and between Registrant and Chinatrust Commercial Bank, Ltd.                                                                                                                           

41



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##### Table of Contents



|        |          |                      |  |                                                                                                                                     
|------- | -------- | -------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |          |                     
|Number  |          | Document Description
|        |          |                     
|        | 10.48(P) |                      |  | Amended and Restated Credit Agreement dated
    January 21, 2002, by and between Registrant and Chinatrust
    Commercial Bank, Ltd.
|        | 10.49(P) |                      |  | Supplemental Pledge Agreement dated
    January 21, 2002, by and between Registrant and Chinatrust
    Commercial Bank, Ltd.        
|        | 10.50(P) |                      |  | Asset Purchase Agreement dated January 17,
    2002 by and between Registrant and PulseCore, Inc.                                   
|        | 10.51    |                      |  | Registrants 2002 Stock Option Plan                                                                                                 
|        | 21.01    |                      |  | Subsidiaries of Registrant                                                                                                          
|        | 23.01    |                      |  | Consent of PricewaterhouseCoopers LLP (San Jose,
    California)                                                                    



---



|    |  |                                                                                                                                                                                                                 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  | Management contract or compensatory plan or
    arrangement required to be filed as an Exhibit to this
    Form 10-K.                                                                                           
|   
|*   |  | Confidential treatment has been granted with
    respect to certain portions of this document.                                                                                                                  
|   
|**  |  | Confidential treatment has been requested with
    respect to certain portions of this document.                                                                                                                
|   
|(A) |  | The document referred to is hereby incorporated
    by reference from Registrants Registration Statement on
    Form SB-2 (File No. 33-69956-LA) declared effective by
    the Commission on November 30, 1993.
|   
|(B) |  | The document referred to is hereby incorporated
    by reference from Registrants Annual Report on
    Form 10-KSB filed with the Commission on June 29, 1994.                                                 
|   
|(C) |  | The document referred to is hereby incorporated
    by reference from Registrants Registration Statement on
    Form SB-2 (File No. 33-90346-LA) declared effective by
    the Commission on March 28, 1995.   
|   
|(D) |  | The document referred to is hereby incorporated
    by reference from Registrants Current Report on
    Form 8-K filed with the Commission on April 28, 1995.                                                  
|   
|(E) |  | The document referred to is hereby incorporated
    by reference from Registrants Current Report on
    Form 8-K filed with the Commission on July 24, 1995.                                                   
|   
|(F) |  | The document referred to is hereby incorporated
    by reference from Registrants Current Report on
    Form 8-K filed with the Commission on October 23, 1995.                                                
|   
|(G) |  | The document referred to is hereby incorporated
    by reference from Registrants Quarterly Report on
    Form 10-Q filed with the Commission on August 13, 1996.                                              
|   
|(H) |  | The document referred to is hereby incorporated
    by reference from Registrants Quarterly Report on
    Form 10-Q filed with the Commission on November 12,
    1996.                                        
|   
|(I) |  | The document referred to is hereby incorporated
    by reference from Registrants Registration Statement on
    Form S-8 (File No. 333-13461) filed with the
    Commission on October 4, 1996.                
|   
|(J) |  | The document referred to is hereby incorporated
    by reference from Registrants Quarterly Report on
    Form 10-Q filed with the Commission on February 11,
    1997.                                        
|   
|(K) |  | The document referred to is hereby incorporated
    by reference from Registrants Annual Report on
    Form 10-K filed with the Commission on June 27, 1997.                                                   
|   
|(L) |  | The document referred to is hereby incorporated
    by reference from Registrants Current Report on
    Form 8-K filed with the Commission on March 19, 1998.                                                  
|   
|(M) |  | The document referred to is hereby incorporated
    by reference from Registrants Annual Report on
    Form 10-K filed with the Commission on June 30, 2000.                                                   
|   
|(N) |  | The document referred to is hereby incorporated
    by reference from Registrants Quarterly Report on
    Form 10-Q filed with the Commission on February 13,
    2000.                                        
|   
|(O) |  | The document referred to is hereby incorporated
    by reference from Registrants Annual Report on
    Form 10-K filed with the Commission on June 29, 2001.                                                   
|   
|(P) |  | The document referred to is filed hereby
    incorporated by reference from Registrants Quarterly
    Report on Form 10-Q filed with the Commission on
    February 12, 2002.                                  

42



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                                   
| | ----------------------------------
| | ALLIANCE SEMICONDUCTOR CORPORATION



| |     |                     
| | --- | --------------------
| | By: | /s/ N. DAMODAR REDDY

| |                                  
| | ---------------------------------
| |                                  
| | N. Damodar Reddy                 
| | Chairman of the Board, President,
| | Chief Executive Officer          
| | (Principal Executive Officer)    

July 15, 2002



| |     |                      
| | --- | ---------------------
| | By: | /s/ RONALD K. SHELTON

| |                                                                          
| | -------------------------------------------------------------------------
| |                                                                          
| | Ronald K. Shelton                                                        
| | Vice President Finance and Administration and
    Chief Financial Officer
| | (Principal Financial and Accounting Officer)                             

July 15, 2002

POWER OF ATTORNEY

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

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

|                                     |  |                                                                         |  |              
|------------------------------------ |  | ----------------------------------------------------------------------- |  | -------------
|Signature                            |  | Title                                                                   |  | Date         
|                                     |  |                                                                         |  |              
|/s/ N. DAMODAR REDDYN. Damodar Reddy |  | Director, Chairman of the Board, President, Chief
    Executive Officer |  | July 15, 2002
|/s/ C. N. REDDYC. N. Reddy           |  | Director, Executive Vice President for Investments                      |  | July 15, 2002
|/s/ JUAN A. BENITEZJuan A. Benitez   |  | Director                                                                |  | July 15, 2002
|/s/ SANFORD L. KANESanford L. Kane   |  | Director                                                                |  | July 15, 2002
|/s/ JON B. MINNISJon B. Minnis       |  | Director                                                                |  | July 15, 2002

43



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                   |                                                                                                        |       |  |      | 
|---------------------------------- | ------------------------------------------------------------------------------------------------------ | ----- |  | ---- | 
|                                   |                                                                                                        | Pages
|                                   |                                                                                                        |      
|Consolidated Financial Statements: |                                                                                                        |       |  |     
|                                   | Report of Independent Accountants                                                                      |       |  | F-2  | 
|                                   | Consolidated Balance Sheets as of March 31,
    2002 and 2001                                          |       |  | F-3  | 
|                                   | Consolidated Statements of Operations for the
    years ended March 31, 2002, 2001, and 2000           |       |  | F-4  | 
|                                   | Consolidated Statements of Stockholders
    Equity for the years ended March 31, 2002, 2001, and 2000 |       |  | F-5  | 
|                                   | Consolidated Statements of Cash Flows for the
    years ended March 31, 2002, 2001, and 2000           |       |  | F-6  | 
|                                   | Notes to Consolidated Financial Statements                                                             |       |  | F-7  | 
|Financial Statement Schedule:      |                                                                                                        |       |  |     
|                                   | Report of Independent Accountants                                                                      |       |  | F-36 | 
|                                   | Schedule II  Valuation and
    Qualifying Accounts                                                    |       |  | F-37 | 

F-1



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##### Table of Contents






REPORT OF INDEPENDENT ACCOUNTANTS

To 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, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in
the period ended March 31, 2002 in conformity with
accounting principles generally accepted in the United States of
America. 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
auditing standards generally accepted in the United States of
America 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 our opinion.

As discussed in Note 4 to the financial
statements, the Company changed its method of accounting for
derivative instruments effective April 1, 2001 to comply
with Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities.



| |                               
| | ------------------------------
| | /s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California

April 26, 2002


F-2



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION






CONSOLIDATED BALANCE SHEETS


(in thousands)


|                                                                                               |                                                                                                                                                                                         |                                            |        |         |         |  |         |         |         | 
|---------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------- | ------- |  | ------- | ------- | ------- | 
|                                                                                               |                                                                                                                                                                                         |                                           
|                                                                                               |                                                                                                                                                                                         | March 31,                                 
|                                                                                               |                                                                                                                                                                                         |                                           
|                                                                                               |                                                                                                                                                                                         | 2002                                       |        | 2001   
|                                                                                               |                                                                                                                                                                                         |                                            |        |        
|ASSETS                                                                                         |                                                                                                                                                                                         |                                            |        |         |         |  |         |        
|Current assets:                                                                                |                                                                                                                                                                                         |                                            |        |         |         |  |         |        
|                                                                                               | Cash and cash equivalents                                                                                                                                                               |                                            | $      | 23,560  |         |  | $       | 6,109   |        
|                                                                                               | Restricted cash (Note 2)                                                                                                                                                                |                                            |        | 8,014   |         |  |         | 1,925   |        
|                                                                                               | Short term investments (Notes 2, 3, 6
    through 12)                                                                                                                                   |                                            |        | 466,986 |         |  |         | 430,084 |        
|                                                                                               | Accounts receivable, net (Note 2)                                                                                                                                                       |                                            |        | 2,891   |         |  |         | 18,001  |        
|                                                                                               | Inventory (Note 2)                                                                                                                                                                      |                                            |        | 19,636  |         |  |         | 84,797  |        
|                                                                                               | Related party receivables (Note 22)                                                                                                                                                     |                                            |        | 2,394   |         |  |         | 2,369   |        
|                                                                                               | Other current assets (Note 2)                                                                                                                                                           |                                            |        | 10,519  |         |  |         | 1,079   |        
|                                                                                               |                                                                                                                                                                                         |                                            |        |         |         |  |         |        
|                                                                                               |                                                                                                                                                                                         | Total current assets                       |        |         | 534,000 |  |         |         | 544,364 | 
|Property and equipment, net (Note 2)                                                           |                                                                                                                                                                                         |                                            | 8,214  |         |         |  | 10,183  |        
|Investment in United Microelectronics Corp.
    (excluding short term portion) (Notes 2 and 6) |                                                                                                                                                                                         |                                            | 43,750 |         |         |  | 182,923 |        
|Investment in Tower Semiconductor Ltd.
    (Notes 2 and 13)                                    |                                                                                                                                                                                         |                                            | 16,278 |         |         |  | 16,327  |        
|Alliance Ventures and other investments
    (Notes 2, 14 and 15)                               |                                                                                                                                                                                         |                                            | 72,575 |         |         |  | 84,465  |        
|Other assets                                                                                   |                                                                                                                                                                                         |                                            | 4,294  |         |         |  | 14,981  |        
|Goodwill and intangible assets (Notes 2 and
    5)                                             |                                                                                                                                                                                         |                                            | 3,459  |         |         |  |        |        
|                                                                                               |                                                                                                                                                                                         |                                            |        |         |         |  |         |        
|                                                                                               |                                                                                                                                                                                         | Total assets                               |        | $       | 682,570 |  |         | $       | 853,243 | 
|                                                                                               |                                                                                                                                                                                         |                                            |        |         |         |  |         |        
|                                                                                              
|LIABILITIES AND STOCKHOLDERS EQUITY                                                           |                                                                                                                                                                                         |                                            |        |         |         |  |         |        
|Current liabilities:                                                                           |                                                                                                                                                                                         |                                            |        |         |         |  |         |        
|                                                                                               | Short term borrowings (Note 2)                                                                                                                                                          |                                            | $      | 66,173  |         |  | $       | 22,234  |        
|                                                                                               | Accounts payable                                                                                                                                                                        |                                            |        | 2,893   |         |  |         | 76,130  |        
|                                                                                               | Accrued liabilities (Note 2)                                                                                                                                                            |                                            |        | 6,178   |         |  |         | 5,415   |        
|                                                                                               | Income taxes payable                                                                                                                                                                    |                                            |        | 22,087  |         |  |         | 3,215   |        
|                                                                                               | Deferred income taxes (Note 18)                                                                                                                                                         |                                            |        | 107,495 |         |  |         | 117,223 |        
|                                                                                               | Current portion of long-term obligations                                                                                                                                                |                                            |        | 4,796   |         |  |         |        |        
|                                                                                               | Current portion of capital lease obligation
    (Note 17)                                                                                                                               |                                            |        | 587     |         |  |         | 858     |        
|                                                                                               |                                                                                                                                                                                         |                                            |        |         |         |  |         |        
|                                                                                               |                                                                                                                                                                                         | Total current liabilities                  |        |         | 210,209 |  |         |         | 225,075 | 
|Long term obligations                                                                          |                                                                                                                                                                                         |                                            | 4,742  |         |         |  | 11,882  |        
|Long term capital lease obligation (Note 17)                                                   |                                                                                                                                                                                         |                                            | 66     |         |         |  | 686     |        
|Deferred income taxes (Note 18)                                                                |                                                                                                                                                                                         |                                            | 12,827 |         |         |  | 64,307  |        
|                                                                                               |                                                                                                                                                                                         |                                            |        |         |         |  |         |        
|                                                                                               |                                                                                                                                                                                         | Total liabilities                          |        |         | 227,844 |  |         |         | 301,950 | 
|                                                                                               |                                                                                                                                                                                         |                                            |        |         |         |  |         |        
|Commitments and contingencies (Notes 17 and 21)                                                |                                                                                                                                                                                         |                                            |        |         |         |  |         |        
|Minority interest in subsidiary company                                                        |                                                                                                                                                                                         |                                            | 3,471  |         |         |  | 4,004   |        
|                                                                                               |                                                                                                                                                                                         |                                            |        |         |         |  |         |        
|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; 42,967 and 42,725 shares issued and 40,847 and
    41,440 shares outstanding at March 31, 2002 and 2001,
    respectively |                                            |        | 430     |         |  |         | 427     |        
|                                                                                               | Additional paid-in capital                                                                                                                                                              |                                            |        | 199,200 |         |  |         | 197,350 |        
|                                                                                               | Treasury stock (2,120 and 1,285 shares at cost)                                                                                                                                         |                                            |        | (30,430 | )       |  |         | (22,762 | )      
|                                                                                               | Retained earnings                                                                                                                                                                       |                                            |        | 131,558 |         |  |         | 372,274 |        
|                                                                                               | Accumulated other comprehensive income (Note 2)                                                                                                                                         |                                            |        | 150,497 |         |  |         |        |        
|                                                                                               |                                                                                                                                                                                         |                                            |        |         |         |  |         |        
|                                                                                               |                                                                                                                                                                                         | Total stockholders equity                 |        |         | 451,255 |  |         |         | 547,289 | 
|                                                                                               |                                                                                                                                                                                         |                                            |        |         |         |  |         |        
|                                                                                               |                                                                                                                                                                                         | Total liabilities and stockholders equity |        | $       | 682,570 |  |         | $       | 853,243 | 
|                                                                                               |                                                                                                                                                                                         |                                            |        |         |         |  |         |        

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

F-3



---



##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF
OPERATIONS

(in thousands, except per share data)


|                                                                                                                                                                    |                                                               |                      |          |         |   |      |          |        |   |   |           |        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | -------------------- | -------- | ------- | - | ---- | -------- | ------ | - | - | --------- | ------ | 
|                                                                                                                                                                    |                                                               |                     
|                                                                                                                                                                    |                                                               | Year Ended March 31,
|                                                                                                                                                                    |                                                               |                     
|                                                                                                                                                                    |                                                               | 2002                 |          | 2001    |   | 2000
|                                                                                                                                                                    |                                                               |                      |          |         |   |     
|Net revenues                                                                                                                                                        |                                                               | $                    | 26,547   |         |   | $    | 208,678  |        |   | $ | 89,153    |       
|Cost of revenues                                                                                                                                                    |                                                               |                      | 73,966   |         |   |      | 187,913  |        |   |   | 58,428    |       
|                                                                                                                                                                    |                                                               |                      |          |         |   |      |          |        |   |   |           |       
|                                                                                                                                                                    | Gross profit (loss)                                           |                      |          | (47,419 | ) |      |          | 20,765 |   |   |           | 30,725 | 
|Operating expenses:                                                                                                                                                 |                                                               |                      |          |         |   |      |          |        |   |   |           |       
|                                                                                                                                                                    | Research and development                                      |                      |          | 10,435  |   |      |          | 13,766 |   |   |           | 14,568 | 
|                                                                                                                                                                    | Selling, general and administrative                           |                      |          | 20,377  |   |      |          | 19,691 |   |   |           | 15,962 | 
|                                                                                                                                                                    | Write-off of acquired in-process research and
    development |                      |          | 906     |   |      |          |       |   |   |           |       | 
|                                                                                                                                                                    |                                                               |                      |          |         |   |      |          |        |   |   |           |       
|Income (loss) from operations                                                                                                                                       |                                                               |                      | (79,137  | )       |   |      | (12,692  | )      |   |   | 195       |       
|Gain on investments                                                                                                                                                 |                                                               |                      | 4,777    |         |   |      | 75,801   |        |   |   | 1,049,130 |       
|Write-down of marketable securities and other
    investments (Note 3)                                                                                              |                                                               |                      | (296,846 | )       |   |      | (509,449 | )      |   |   |          |       
|Other income (loss), net                                                                                                                                            |                                                               |                      | (5,287   | )       |   |      | (200     | )      |   |   | 29        |       
|                                                                                                                                                                    |                                                               |                      |          |         |   |      |          |        |   |   |           |       
|Income (loss) before income taxes                                                                                                                                   |                                                               |                      | (376,493 | )       |   |      | (446,540 | )      |   |   | 1,049,354 |       
|Provision (benefit) for income taxes
    (Note 18)                                                                                                                  |                                                               |                      | (142,701 | )       |   |      | (179,956 | )      |   |   | 410,348   |       
|                                                                                                                                                                    |                                                               |                      |          |         |   |      |          |        |   |   |           |       
|Income (loss) before minority interest in
    subsidiary company, equity in income (loss) of investees,
    and cumulative effect of change in accounting principle |                                                               |                      | (233,792 | )       |   |      | (266,584 | )      |   |   | 639,006   |       
|Minority interest in subsidiary company                                                                                                                             |                                                               |                      | 533      |         |   |      |         |        |   |   |          |       
|Equity in income (loss) of investees                                                                                                                                |                                                               |                      | (9,512   | )       |   |      | (5,737   | )      |   |   | 9,094     |       
|                                                                                                                                                                    |                                                               |                      |          |         |   |      |          |        |   |   |           |       
|Income (loss) before cumulative effect of
    change in accounting principle                                                                                        |                                                               |                      | (242,771 | )       |   |      | (272,321 | )      |   |   | 648,100   |       
|Cumulative effect of change in accounting
    principle (Note 4)                                                                                                    |                                                               |                      | 2,055    |         |   |      |         |        |   |   |          |       
|                                                                                                                                                                    |                                                               |                      |          |         |   |      |          |        |   |   |           |       
|Net income (loss)                                                                                                                                                   |                                                               | $                    | (240,716 | )       |   | $    | (272,321 | )      |   | $ | 648,100   |       
|                                                                                                                                                                    |                                                               |                      |          |         |   |      |          |        |   |   |           |       
|Income (loss) per share before cumulative
    effect of change in accounting principle:                                                                             |                                                               |                      |          |         |   |      |          |        |   |   |           |       
|                                                                                                                                                                    | Basic                                                         |                      | $        | (5.91   | ) |      | $        | (6.58  | ) |   | $         | 15.49  | 
|                                                                                                                                                                    |                                                               |                      |          |         |   |      |          |        |   |   |           |       
|                                                                                                                                                                    | Diluted                                                       |                      | $        | (5.91   | ) |      | $        | (6.58  | ) |   | $         | 15.07  | 
|                                                                                                                                                                    |                                                               |                      |          |         |   |      |          |        |   |   |           |       
|Cumulative effect of change in accounting
    principle per share:                                                                                                  |                                                               |                      |          |         |   |      |          |        |   |   |           |       
|                                                                                                                                                                    | Basic                                                         |                      | $        | (0.05   | ) |      | $        |       |   |   | $         |       | 
|                                                                                                                                                                    |                                                               |                      |          |         |   |      |          |        |   |   |           |       
|                                                                                                                                                                    | Diluted                                                       |                      | $        | (0.05   | ) |      | $        |       |   |   | $         |       | 
|                                                                                                                                                                    |                                                               |                      |          |         |   |      |          |        |   |   |           |       
|Net income (loss) per share:                                                                                                                                        |                                                               |                      |          |         |   |      |          |        |   |   |           |       
|                                                                                                                                                                    | Basic                                                         |                      | $        | (5.86   | ) |      | $        | (6.58  | ) |   | $         | 15.49  | 
|                                                                                                                                                                    |                                                               |                      |          |         |   |      |          |        |   |   |           |       
|                                                                                                                                                                    | Diluted                                                       |                      | $        | (5.86   | ) |      | $        | (6.58  | ) |   | $         | 15.07  | 
|                                                                                                                                                                    |                                                               |                      |          |         |   |      |          |        |   |   |           |       
|Weighted average number of common shares:                                                                                                                           |                                                               |                      |          |         |   |      |          |        |   |   |           |       
|                                                                                                                                                                    | Basic                                                         |                      |          | 41,078  |   |      |          | 41,376 |   |   |           | 41,829 | 
|                                                                                                                                                                    |                                                               |                      |          |         |   |      |          |        |   |   |           |       
|                                                                                                                                                                    | Diluted                                                       |                      |          | 41,078  |   |      |          | 41,376 |   |   |           | 42,992 | 
|                                                                                                                                                                    |                                                               |                      |          |         |   |      |          |        |   |   |           |       

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

F-4



---



##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

(in thousands)


|                                                        |  |              |        |            |  |          |     |                   |  |               |         |               |  |        |         |   |  |   |          |   |  |   |          |   |  |   |          |  
|------------------------------------------------------- |  | ------------ | ------ | ---------- |  | -------- | --- | ----------------- |  | ------------- | ------- | ------------- |  | ------ | ------- | - |  | - | -------- | - |  | - | -------- | - |  | - | -------- | -
|                                                        |  |              |        |            |  |          |     |                   |  |               |         |              
|                                                        |  | Common Stock |        | Additional |  |          |     | Accumulated Other |  | Retained      |         | Total        
|                                                        |  |              |        | Paid In    |  | Treasury |     | Comprehensive     |  | Earnings      |         | Stockholders
|                                                        |  | Shares       |        | Amount     |  | Capital  |     | Stock             |  | Income (Loss) |         | (Deficit)     |  | Equity
|                                                        |  |              |        |            |  |          |     |                   |  |               |         |               |  |       
|Balances at March 31, 1999                              |  |              | 41,609 |            |  | $        | 416 |                   |  | $             | 185,025 |               |  | $      |        |   |  | $ | (18,366  | ) |  | $ | (3,505   | ) |  | $ | 163,570  |  
|Issuance of common stock under employee stock
    plans |  |              | 797    |            |  |          | 8   |                   |  |               | 4,719   |               |  |        |        |   |  |   |          |   |  |   |         |   |  |   | 4,727    |  
|Repurchase of common stock(1)                           |  |              |       |            |  |          |    |                   |  |               |        |               |  |        | (12,468 | ) |  |   |         |   |  |   |         |   |  |   | (12,468  | )
|Tax benefit on exercise of stock options                |  |              |       |            |  |          |    |                   |  |               | 3,516   |               |  |        |        |   |  |   |         |   |  |   |         |   |  |   | 3,516    |  
|Cumulative translation adjustments                      |  |              |       |            |  |          |    |                   |  |               |        |               |  |        |        |   |  |   | 18,366   |   |  |   |         |   |  |   |          |  
|Unrealized gain on investments                          |  |              |       |            |  |          |    |                   |  |               |        |               |  |        |        |   |  |   | 138,144  |   |  |   |         |   |  |   |          |  
|Net income                                              |  |              |       |            |  |          |    |                   |  |               |        |               |  |        |        |   |  |   |         |   |  |   | 648,100  |   |  |   |          |  
|Total comprehensive income                              |  |              |       |            |  |          |    |                   |  |               |        |               |  |        |        |   |  |   |         |   |  |   |         |   |  |   | 804,610  |  
|                                                        |  |              |        |            |  |          |     |                   |  |               |         |               |  |        |         |   |  |   |          |   |  |   |          |   |  |   |          |  
|Balances at March 31, 2000                              |  |              | 42,406 |            |  |          | 424 |                   |  |               | 193,260 |               |  |        | (12,468 | ) |  |   | 138,144  |   |  |   | 644,595  |   |  |   | 963,955  |  
|Issuance of common stock under employee stock
    plans |  |              | 319    |            |  |          | 3   |                   |  |               | 2,349   |               |  |        |        |   |  |   |         |   |  |   |         |   |  |   | 2,352    |  
|Repurchase of common stock(1)                           |  |              |       |            |  |          |    |                   |  |               |        |               |  |        | (10,294 | ) |  |   |         |   |  |   |         |   |  |   | (10,294  | )
|Tax benefit on exercise of stock options                |  |              |       |            |  |          |    |                   |  |               | 1,741   |               |  |        |        |   |  |   |         |   |  |   |         |   |  |   | 1,741    |  
|Unrealized loss on investments                          |  |              |       |            |  |          |    |                   |  |               |        |               |  |        |        |   |  |   | (138,144 | ) |  |   |         |   |  |   |          |  
|Net loss                                                |  |              |       |            |  |          |    |                   |  |               |        |               |  |        |        |   |  |   |         |   |  |   | (272,321 | ) |  |   |          |  
|Total comprehensive loss                                |  |              |       |            |  |          |    |                   |  |               |        |               |  |        |        |   |  |   |         |   |  |   |         |   |  |   | (410,465 | )
|                                                        |  |              |        |            |  |          |     |                   |  |               |         |               |  |        |         |   |  |   |          |   |  |   |          |   |  |   |          |  
|Balances at March 31, 2001                              |  |              | 42,725 |            |  |          | 427 |                   |  |               | 197,350 |               |  |        | (22,762 | ) |  |   |         |   |  |   | 372,274  |   |  |   | 547,289  |  
|Issuance of common stock under employee stock
    plans |  |              | 242    |            |  |          | 3   |                   |  |               | 1,448   |               |  |        |        |   |  |   |         |   |  |   |         |   |  |   | 1,451    |  
|Repurchase of common stock(1)                           |  |              |       |            |  |          |    |                   |  |               |        |               |  |        | (7,668  | ) |  |   |         |   |  |   |         |   |  |   | (7,668   | )
|Tax benefit on exercise of stock options                |  |              |       |            |  |          |    |                   |  |               | 402     |               |  |        |        |   |  |   |         |   |  |   |         |   |  |   | 402      |  
|Unrealized gain on investments                          |  |              |       |            |  |          |    |                   |  |               |        |               |  |        |        |   |  |   | 150,497  |   |  |   |         |   |  |   |          |  
|Net loss                                                |  |              |       |            |  |          |    |                   |  |               |        |               |  |        |        |   |  |   |         |   |  |   | (240,716 | ) |  |   |          |  
|Total comprehensive loss                                |  |              |       |            |  |          |    |                   |  |               |        |               |  |        |        |   |  |   |         |   |  |   |         |   |  |   | (90,219  | )
|                                                        |  |              |        |            |  |          |     |                   |  |               |         |               |  |        |         |   |  |   |          |   |  |   |          |   |  |   |          |  
|Balances at March 31, 2002                              |  |              | 42,967 |            |  | $        | 430 |                   |  | $             | 199,200 |               |  | $      | (30,430 | ) |  | $ | 150,497  |   |  | $ | 131,558  |   |  | $ | 451,255  |  
|                                                        |  |              |        |            |  |          |     |                   |  |               |         |               |  |        |         |   |  |   |          |   |  |   |          |   |  |   |          |  



---



|    |                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | At March 31, 2000, 2001 and 2002, the
    Company held 720, 1,285, and 2,120 shares in treasury, which
    have not been retired. After taking into account these treasury
    shares, the net outstanding shares at March 31, 2000, 2001
    and 2002 were 41,686, 41,440 and 40,847, respectively.

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

F-5



---



##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(in thousands)


|                                                         |                                                                                          |                                                                      |                           |          |         |          |         |          |         |          |        |         |            |         |  
|-------------------------------------------------------- | ---------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | ------------------------- | -------- | ------- | -------- | ------- | -------- | ------- | -------- | ------ | ------- | ---------- | ------- | -
|                                                         |                                                                                          |                                                                     
|                                                         |                                                                                          | Year Ended March 31,                                                
|                                                         |                                                                                          |                                                                     
|                                                         |                                                                                          | 2002                                                                 |                           | 2001     |         | 2000    
|                                                         |                                                                                          |                                                                      |                           |          |         |         
|Cash flows from operating activities:                    |                                                                                          |                                                                      |                           |          |         |          |         |          |         |          |        |        
|                                                         | Net income (loss)                                                                        |                                                                      | $                         | (240,716 | )       |          | $       | (272,321 | )       |          | $      | 648,100 |           
|                                                         | Adjustments to reconcile net income
    (loss) to net cash used in operating activities: |                                                                      |                           |          |         |          |         |          |         |          |        |         |           
|                                                         |                                                                                          | Depreciation and amortization                                        |                           |          | 2,935   |          |         |          | 4,202   |          |        |         | 4,417      |        
|                                                         |                                                                                          | Minority interest in subsidiary company, net of
    tax              |                           |          | (533    | )        |         |          |        |          |        |         |           |        
|                                                         |                                                                                          | Write down of in-process research and development                    |                           |          | 906     |          |         |          |         |          |        |         |            |        
|                                                         |                                                                                          | Non-recurring compensation charge                                    |                           |          |        |          |         |          |        |          |        |         | 3,655      |        
|                                                         |                                                                                          | Equity in (income) loss of investees, net of
    tax                 |                           |          | 9,512   |          |         |          | 5,737   |          |        |         | (9,094     | )      
|                                                         |                                                                                          | Gain on investments                                                  |                           |          | (3,470  | )        |         |          | (75,801 | )        |        |         | (1,049,130 | )      
|                                                         |                                                                                          | Other income                                                         |                           |          | (1,407  | )        |         |          |        |          |        |         |           |        
|                                                         |                                                                                          | Write-down of marketable securities and other
    investments        |                           |          | 296,846 |          |         |          | 509,449 |          |        |         |           |        
|                                                         |                                                                                          | Inventory write-down                                                 |                           |          | 30,352  |          |         |          | 53,945  |          |        |         | 742        |        
|                                                         |                                                                                          | Cumulative effect of change in accounting
    principle, net of tax  |                           |          | (2,055  | )        |         |          |        |          |        |         |           |        
|                                                         |                                                                                          | Changes in assets and liabilities:                                   |                           |          |         |          |         |          |         |          |        |         |            |        
|                                                         |                                                                                          |                                                                      | Accounts receivable       |          |         | 15,177   |         |          |         | (2,143   | )      |         |            | (6,915  | )
|                                                         |                                                                                          |                                                                      | Inventory                 |          |         | 35,253   |         |          |         | (101,303 | )      |         |            | (25,254 | )
|                                                         |                                                                                          |                                                                      | Related party receivables |          |         | (25      | )       |          |         | (591     | )      |         |            | 37      |  
|                                                         |                                                                                          |                                                                      | Other assets              |          |         | (402     | )       |          |         | 993      |        |         |            | (99     | )
|                                                         |                                                                                          |                                                                      | Accounts payable          |          |         | (73,244  | )       |          |         | 48,997   |        |         |            | 19,087  |  
|                                                         |                                                                                          |                                                                      | Accrued liabilities       |          |         | 1,206    |         |          |         | (4,973   | )      |         |            | 92      |  
|                                                         |                                                                                          |                                                                      | Deferred income taxes     |          |         | (158,952 | )       |          |         | (221,877 | )      |         |            | 399,168 |  
|                                                         |                                                                                          |                                                                      | Income tax payable        |          |         | 19,274   |         |          |         | (1,685   | )      |         |            | 10,157  |  
|                                                         |                                                                                          |                                                                      |                           |          |         |          |         |          |         |          |        |        
|Net cash used in operating activities                    |                                                                                          |                                                                      | (69,343                   | )        |         |          | (57,371 | )        |         |          | (5,037 | )      
|                                                         |                                                                                          |                                                                      |                           |          |         |          |         |          |         |          |        |        
|Cash flows from investing activities:                    |                                                                                          |                                                                      |                           |          |         |          |         |          |         |          |        |        
|                                                         |                                                                                          | Purchase of property and equipment                                   |                           |          | (729    | )        |         |          | (4,395  | )        |        |         | (2,816     | )      
|                                                         |                                                                                          | Proceeds from sale of securities of UMC                              |                           |          | 66,740  |          |         |          |        |          |        |         | 21,481     |        
|                                                         |                                                                                          | Proceeds from sale of securities of Broadcom
    Corp.               |                           |          | 5,249   |          |         |          | 38,965  |          |        |         | 48,911     |        
|                                                         |                                                                                          | Proceeds from sale of securities of Adaptec,
    Inc.                |                           |          | 1,541   |          |         |          |        |          |        |         |           |        
|                                                         |                                                                                          | Proceeds from sale of securities of Chartered
    Semiconductor, Co. |                           |          |        |          |         |          | 45,500  |          |        |         |           |        
|                                                         |                                                                                          | Proceeds from sale of Alliance Venture and other
    investments     |                           |          | 15,897  |          |         |          |        |          |        |         |           |        
|                                                         |                                                                                          | Investment in Tower Semiconductor
    Ltd.                           |                           |          | (11,001 | )        |         |          | (31,001 | )        |        |         |           |        
|                                                         |                                                                                          | Acquisition of PulseCore                                             |                           |          | (948    | )        |         |          |        |          |        |         |           |        
|                                                         |                                                                                          | Purchase of Alliance Venture and other investments                   |                           |          | (21,461 | )        |         |          | (66,007 | )        |        |         | (28,696    | )      
|                                                         |                                                                                          |                                                                      |                           |          |         |          |         |          |         |          |        |        
|Net cash provided by (used in) investing
    activities  |                                                                                          |                                                                      | 55,288                    |          |         |          | (16,938 | )        |         |          | 38,880 |        
|                                                         |                                                                                          |                                                                      |                           |          |         |          |         |          |         |          |        |        
|Cash flows from financing activities:                    |                                                                                          |                                                                      |                           |          |         |          |         |          |         |          |        |        
|                                                         |                                                                                          | Net proceeds from the issuance of common stock                       |                           |          | 1,451   |          |         |          | 2,352   |          |        |         | 4,727      |        
|                                                         |                                                                                          | Principal payments on lease obligation                               |                           |          | (891    | )        |         |          | (558    | )        |        |         | (1,439     | )      
|                                                         |                                                                                          | Repurchase of common stock                                           |                           |          | (7,668  | )        |         |          | (10,294 | )        |        |         | (12,468    | )      
|                                                         |                                                                                          | Payment of short term borrowings                                     |                           |          | (78,850 | )        |         |          |        |          |        |         |           |        
|                                                         |                                                                                          | Proceeds from short term borrowings                                  |                           |          | 118,533 |          |         |          | 22,234  |          |        |         |           |        
|                                                         |                                                                                          | Restricted cash                                                      |                           |          | (6,089  | )        |         |          | 879     |          |        |         | 2,371      |        
|                                                         |                                                                                          | Proceeds from long term obligations                                  |                           |          | 5,020   |          |         |          | 31,035  |          |        |         | 1,517      |        
|                                                         |                                                                                          |                                                                      |                           |          |         |          |         |          |         |          |        |        
|Net cash provided by (used in) financing
    activities  |                                                                                          |                                                                      | 31,506                    |          |         |          | 45,648  |          |         |          | (5,292 | )      
|                                                         |                                                                                          |                                                                      |                           |          |         |          |         |          |         |          |        |        
|Net increase (decrease) in cash and cash
    equivalents |                                                                                          |                                                                      | 17,451                    |          |         |          | (28,661 | )        |         |          | 28,551 |        
|Cash and cash equivalents at beginning of the
    period |                                                                                          |                                                                      | 6,109                     |          |         |          | 34,770  |          |         |          | 6,219  |        
|                                                         |                                                                                          |                                                                      |                           |          |         |          |         |          |         |          |        |        
|Cash and cash equivalents at end of the period           |                                                                                          | $                                                                    | 23,560                    |          |         | $        | 6,109   |          |         | $        | 34,770 |        
|                                                         |                                                                                          |                                                                      |                           |          |         |          |         |          |         |          |        |        
|Supplemental disclosures of cash flow
    information:   |                                                                                          |                                                                      |                           |          |         |          |         |          |         |          |        |        
|                                                         | Cash paid for taxes                                                                      |                                                                      | $                         | 3,017    |         |          | $       | 29,501   |         |          | $      | 355     |           
|                                                         |                                                                                          |                                                                      |                           |          |         |          |         |          |         |          |        |        
|                                                         | Cash paid for interest                                                                   |                                                                      | $                         | 3,091    |         |          | $       | 733      |         |          | $      | 99      |           
|                                                         |                                                                                          |                                                                      |                           |          |         |          |         |          |         |          |        |        
|                                                         | Receivable related to sale of UMC shares                                                 |                                                                      | $                         | 7,906    |         |          |         |         |         |          |        |        |           
|                                                         |                                                                                          |                                                                      |                           |          |         |          |         |          |         |          |        |        
|                                                         | Reclass of Tower wafer credits                                                           |                                                                      | $                         | 9,595    |         |          |         |         |         |          |        |        |           
|                                                         |                                                                                          |                                                                      |                           |          |         |          |         |          |         |          |        |        
|                                                         | Note payable related to acquisition of PulseCore                                         |                                                                      | $                         | 4,151    |         |          |         |         |         |          |        |        |           
|                                                         |                                                                                          |                                                                      |                           |          |         |          |         |          |         |          |        |        

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

F-6



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


(In thousands, except per share
data)


Note 1.     The
Company and Its Significant Accounting Policies

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

The semiconductor industry is highly cyclical and
has been subject to significant rapid technological changes at
various times that have been characterized by diminished product
demand, production overcapacity, product shortages due to
production under-capacity and accelerated erosion of selling
prices. The average selling price that the Company is able to
command for its products is highly dependent on industry-wide
production capacity and demand, and as a consequence the Company
could experience rapid erosion in product pricing (such as that
occurred with SRAM and DRAM pricing during fiscal 2002 and the
fourth quarter of fiscal year 2001), which is not within the
control of the Company and which could have an adverse material
effect on the Companys results of operations.



| |                            
| | ---------------------------
| | Principles of Consolidation

The consolidated financial statements include the
accounts of the Company and its direct and indirect
subsidiaries, including Alliance Venture Management, LLC,
Alliance Ventures, LP I, II, III, IV and V, Solar Venture
Partners, LP, and SiPackets, Inc. All significant inter-company
accounts and transactions have been eliminated.



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in
conformity with generally accepted accounting principles
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.



| |                      
| | ---------------------
| | Basis of Presentation

For purposes of presentation, the Company has
indicated its fiscal years as ending on March 31, whereas
the Companys fiscal year actually ends on the Saturday
nearest the end of March. The fiscal years ended March 31,
2002, 2001 and 2000 contained 52 weeks. Certain items
previously reported in specific financial statement captions
have been reclassified to conform to the fiscal year 2002
presentation.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

Cash and cash equivalents consist of cash on
deposit and highly liquid money market instruments with banks
and financial institutions. The Company considers all highly
liquid investments with maturity from the date of purchase of
three months or less to be cash equivalents.



| |                
| | ---------------
| | Restricted Cash

Restricted cash is comprised of funds deposited
with financial institutions. They cannot be accessed by the
Company until certain events have transpired or until
liabilities have been met.

F-7



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                       
| | ----------------------
| | Short term Investments

The Company accounts for its short term
investments in accordance with Statement of Financial Accounting
Standard (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Management
determines the appropriate categorization of investment
securities at the time of purchase and reevaluates such
designation as of each balance sheet date. At March 31,
2002 and 2001, all short term equity securities were designated
as available-for-sale in accordance with SFAS 115.

Available-for-sale securities are carried at fair
value using available market information. Unrealized gains and
losses are generally reported in accumulated other comprehensive
income (loss) in the balance sheet.



| |            
| | -----------
| | Derivatives

The Company uses derivative financial instruments
to manage the market risk of certain of its short term
investments. The Company does not use derivatives for trading or
speculative purposes.

All derivatives are recognized on the balance
sheet at fair value and are reported in short term investments
and long term obligations. Classification of each derivative as
current or non current is based upon whether the maturity of
each instrument is less than or greater than 12 months. To
qualify for hedge accounting in accordance with SFAS
No. 133, Accounting for Derivative Instruments and
Hedging Activities, the Company requires that the
instruments are effective in reducing the risk exposure that
they are designated to hedge. Instruments that meet established
accounting criteria are formally designated as hedges at the
inception of the contract. These criteria demonstrate that the
derivative is expected to be highly effective at offsetting
changes in fair value of the underlying exposure both at
inception of the hedging relationship and on an ongoing basis.
The assessment for effectiveness is formally documented at hedge
inception and reviewed at least quarterly throughout the
designated hedge period.

The Company applies hedge accounting in
accordance with SFAS No. 133, whereby the Company
designates each derivative as a hedge of the fair value of a
recognized asset (fair value hedge). Changes in the
value of a derivative, along with offsetting changes in fair
value of the underlying hedged exposure, are recorded in
earnings each period. Changes in the value of derivatives that
do not offset the underlying hedged exposure throughout the
designated hedge period (collectively,
ineffectiveness), are recorded in earnings each
period.

In determining fair value of its financial
instruments, the Company uses dealer quotes as well as methods
and assumptions that are based on market conditions and risks
existing at each balance sheet date. All methods of assessing
fair value result in a general approximation of value, and such
value may never actually be realized.



| |          
| | ---------
| | Inventory

Inventory is stated at the lower of standard cost
(which approximates actual cost on a first-in, first-out basis)
or market. Market is based on the estimated net realizable value
or current replacement cost. The Company also evaluates its open
purchase order commitments on an on-going basis and accrues for
any expected loss if appropriate.

F-8



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                 
| | ------------------------------------------------
| | Investments In Non Publicly Traded
    Companies

The Company invests in various high-technology
companies. These investments are included in Alliance Ventures
and other investments. If an investment in the voting stock and
other factors give Alliance the ability to exercise significant
influence over the operating and financial policies of the
investee, the investment is accounted for under the equity
method. Investments which do not give Alliance the ability to
exercise significant influence over the operating and financial
policies of the investee are accounted for under the cost
method. For investments accounted for under the equity method,
the Company includes its share of the earnings or losses of the
investee in its results of operations based on financial
information of the investee on a one quarter lag. The Company
reviews the investments for impairment when circumstances or
events indicate that the carrying value of the investments may
not be recoverable.



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment are stated at cost and
depreciated on a straight-line basis over the estimated economic
useful lives of the assets, which range from three to seven
years. Upon disposal, the cost of the asset and related
accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in the results of operations.



| |                  
| | -----------------
| | Long-Lived Assets

Long-lived assets held by the Company are
reviewed for impairment whenever events or circumstances
indicate that the carrying amount of an asset may not be
recoverable. Recoverability is measured by comparison of
carrying amounts to future net cash flows an asset is expected
to generate. If an asset is considered to be impaired, the
impairment to be recognized is measured by the amount to which
the carrying amount of the assets exceeds the projected
discounted future cash flows arising from the asset.



| |                    
| | -------------------
| | Revenue Recognition

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



| |                                   
| | ----------------------------------
| | Research and Development
    Costs

Costs incurred in the research and development of
semiconductor devices are expensed as incurred, including the
cost of prototype wafers and new production mask sets.



| |                                   
| | ----------------------------------
| | Goodwill and Intangible
    Assets

The Company accounts for goodwill and intangible
assets acquired in business combinations after June 30,
2001, pursuant to SFAS No. 141, Business
Combinations and the non-amortization provisions of SFAS
No. 142, Goodwill and Other Intangible Assets.
Recorded goodwill is not amortized but is reviewed periodically
for impairment. Intangible assets with definite lives are
amortized over the estimated useful life, generally three years.

F-9



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                  
| | -----------------
| | Advertising Costs

Advertising costs are expensed as incurred.



| |             
| | ------------
| | Income Taxes

The Company accounts for its deferred income
taxes in accordance with the liability method. Under this
method, deferred tax assets and liabilities are determined based
on the difference between the financial statement and income tax
bases of the assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected
to be realized.



| |                       
| | ----------------------
| | Concentration of Risks

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

Cash is deposited with one major bank in the
United States while cash equivalents are deposited with several
major financial institutions in the United States. The Company
attempts to limit its exposure to these investments by placing
such investments with several financial institutions and
performs periodic evaluations of these institutions.

Short and long term investments are subject to
declines in market as well as risk associated with the
underlying investment. The Company evaluates its investments
from time to time in terms of credit risk since a substantial
portion of its assets are now in the form of investments, not
all of which are liquid, and may enter into full or partial
hedging strategies involving financial derivative instruments to
minimize market risk. During fiscal years 2000, 2001 and 2002,
the Company entered into a number of cashless collar
and covered call option transactions to hedge its
holdings in Broadcom Corporation. In addition, during fiscal
2001 and 2002, the Company entered into indexed debt
transactions to partially hedge its holdings in Vitesse
Semiconductor Corporation and Adaptec, Inc. The Company may
enter into other similar transactions in the future.

Since Chartered, UMC, Broadcom, Vitesse,
PMC-Sierra, Adaptec, Magma and Tower are in the semiconductor
business, as is the Company, they will be subject to the same
fluctuations in market value as is the Company, and may
experience downturns in value at the same time the Company is
experiencing such downturns. All of the risks that the Company
may experience as a semiconductor company are also applicable to
these companies. In addition, because they are semiconductor
manufacturers, they are subject to additional risks, such as
fires and other disasters, excess fabrication capacity, and
other risks known to semiconductor manufacturers. There can be
no assurances that the Companys investment in these
companies will increase in value or even maintain their value.
Because of the cyclical nature of the semiconductor industry, it
is possible that these investments, like the Company, will
experience a significant business downturn in the future, which
will significantly depress the value of these stocks.
Additionally, the Company is dependent on its investments in
Chartered, UMC and Tower because these investments provide the
Company with wafer production capacity rights which are
essential to the Companys operations.

The Company sells its products to original
equipment manufacturers and distributors throughout the world.
The Company performs ongoing credit evaluations of its customers
and, on occasion, may require letters of credit from its non-US
customers. Sales to the Companys customers are typically
made pursuant to specific purchase orders, which may be canceled
by the customer

F-10



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

without enforceable penalties. For fiscal 2002
and 2001, no customers accounted for 10% or more of the
Companys net revenues. For the fiscal 2000, one customer
accounted for approximately 10% of the Companys net
revenues.

The Company conducts the majority of its business
in U.S. dollars and foreign currency transaction gains and
losses have not been material in any one-year. International
sales accounted for approximately $19.6 million,
$131.6 million, and $53.1 million of net revenues for
fiscal 2002, 2001, and 2000, 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 fair market value of the Companys stock on
the date of grant. Accordingly, no compensation expense has been
recognized in the Companys statements of operations. The
Company provides additional pro forma disclosures as required
under SFAS 123, Accounting for Stock-Based
Compensation. The Company accounts for equity instruments
issued to non-employees in accordance with the provisions of
SFAS No. 123 and Emerging Issues Task Force Issue
(EITF) No. 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or
Services which require that such equity instruments are
recorded at fair value on the measurement date, which is
typically the date of grant.



| |                            
| | ---------------------------
| | Net Income (Loss) Per Share

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

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

|                                                         |         |                      |          |       |   |      |          |       |   |   |         |       | 
|-------------------------------------------------------- | ------- | -------------------- | -------- | ----- | - | ---- | -------- | ----- | - | - | ------- | ----- | 
|                                                         |         |                     
|                                                         |         | Year Ended March 31,
|                                                         |         |                     
|                                                         |         | 2002                 |          | 2001  |   | 2000
|                                                         |         |                      |          |       |   |     
|Net income (loss) available to common
    shareholders   |         | $                    | (240,716 | )     |   | $    | (272,321 | )     |   | $ | 648,100 |      
|                                                         |         |                      |          |       |   |      |          |       |   |   |         |      
|Weighted average common shares outstanding (basic)       |         |                      | 41,078   |       |   |      | 41,376   |       |   |   | 41,829  |      
|Effect of dilutive options                               |         |                      |         |       |   |      |         |       |   |   | 1,163   |      
|                                                         |         |                      |          |       |   |      |          |       |   |   |         |      
|Weighted average common shares outstanding
    (diluted) |         |                      | 41,078   |       |   |      | 41,376   |       |   |   | 42,992  |      
|                                                         |         |                      |          |       |   |      |          |       |   |   |         |      
|Net income (loss) per share:                             |         |                      |          |       |   |      |          |       |   |   |         |      
|                                                         | Basic   |                      | $        | (5.86 | ) |      | $        | (6.58 | ) |   | $       | 15.49 | 
|                                                         |         |                      |          |       |   |      |          |       |   |   |         |      
|                                                         | Diluted |                      | $        | (5.86 | ) |      | $        | (6.58 | ) |   | $       | 15.07 | 
|                                                         |         |                      |          |       |   |      |          |       |   |   |         |      

At March 31, 2002, 2001 and 2000, there were
2,480,487, 2,374,362, and zero options outstanding to purchase
common stock that were excluded from the diluted loss per share
computations because their effect would be anti-dilutive. The
weighted average purchase prices of these options were $10.66
and $11.11 for fiscal 2002 and 2001.

F-11



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                     
| | --------------------
| | Comprehensive Income

In 1999, the Company adopted SFAS 130,
Reporting Comprehensive Income, which requires an
enterprise to report, by major components and as a single total,
the change in net assets during the period from non-owner
sources. Comprehensive loss for fiscal 2002 and 2001 was
$90.2 million and $410.5 million, respectively,
compared to comprehensive income of $804.6 million for
fiscal 2000. The components of comprehensive income
(loss) are shown in the Consolidated Statements of
Stockholders Equity.



| |                  
| | -----------------
| | Segment Reporting

In 1999, the Company adopted SFAS No. 131,
Disclosures about Segments of an Enterprise and Related
Information which establishes annual and interim reporting
standards for an enterprises business segments and related
disclosures about its products, services, geographic areas and
major customers. The Company operates in one reportable segment,
semiconductor.



| |                                         
| | ----------------------------------------
| | Recently Issued Accounting
    Standards

In October 2001, the FASB issued SFAS 144,
Accounting for Impairment or Disposal of Long-Lived
Assets, which supercedes SFAS 121,
Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of and the
accounting and reporting provision of Accounting Principles
Board (APB) No. 30, Reporting the Results
of Operations, Reporting the Effects of Disposal of a Segment of
a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions. SFAS No. 144
addresses financial accounting and reporting for impairment or
disposal of long-lived assets, including amortizable
intangibles, and is effective for the fiscal years beginning
after December 15, 2001 as well as interim periods within
those fiscal years. The Company is currently reviewing this
statement to determine its effect on the Companys
financial position and results of operations.

Note 2.     Balance
Sheet Components



| |                
| | ---------------
| | Restricted Cash

|                                   |  |                |       |      |  |   |       | 
|---------------------------------- |  | -------------- | ----- | ---- |  | - | ----- | 
|                                   |  |               
|                                   |  | March 31,     
|                                   |  |               
|                                   |  | 2002           |       | 2001
|                                   |  |                |       |     
|                                   |  |               
|                                   |  | (In thousands)
|Deposit against anti-dumping order |  | $              | 1,743 |      |  | $ | 1,925 | 
|Interest escrow                    |  |                | 1,763 |      |  |   |      | 
|Escrow on sale of Platys           |  |                | 4,508 |      |  |   |      | 
|                                   |  |                |       |      |  |   |       | 
|                                   |  | $              | 8,014 |      |  | $ | 1,925 | 
|                                   |  |                |       |      |  |   |       | 

F-12



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                       
| | ----------------------
| | Short Term Investments

Short term investments include the following
available-for-sale securities and derivatives at March 31,
2002 and 2001 (in thousands):

|                                           |  |                |         |                |  |           |         |        |  |  |         |  |  |   |         | 
|------------------------------------------ |  | -------------- | ------- | -------------- |  | --------- | ------- | ------ |  |  | ------- |  |  | - | ------- | 
|                                           |  |                |         |               
|                                           |  | March 31, 2002 |         | March 31, 2001
|                                           |  |                |         |               
|                                           |  | Number of      |         | Market         |  | Number of |         | Market
|                                           |  | Shares         |         | Value          |  | Shares    |         | Value 
|                                           |  |                |         |                |  |           |         |       
|United Microelectronics Corporation        |  |                | 256,474 |                |  | $         | 385,142 |        |  |  | 226,635 |  |  | $ | 365,796 | 
|Chartered Semiconductor Manufacturing Ltd. |  |                | 1,642   |                |  |           | 44,181  |        |  |  | 1,642   |  |  |   | 39,481  | 
|Broadcom Corporation                       |  |                | 75      |                |  |           | 2,693   |        |  |  | 200     |  |  |   | 5,780   | 
|Vitesse Semiconductor Corporation          |  |                | 728     |                |  |           | 7,137   |        |  |  | 728     |  |  |   | 17,341  | 
|PMC-Sierra Corporation                     |  |                | 68      |                |  |           | 1,110   |        |  |  | 68      |  |  |   | 1,686   | 
|Adaptec Inc.                               |  |                | 1,441   |                |  |           | 19,266  |        |  |  |        |  |  |   |        | 
|Magma Design Automation                    |  |                | 360     |                |  |           | 7,010   |        |  |  |        |  |  |   |        | 
|Broadcom hedge                             |  |                |         |                |  |           | 447     |        |  |  |         |  |  |   |         | 
|                                           |  |                |         |                |  |           |         |        |  |  |         |  |  |   |         | 
|Total                                      |  |                |         |                |  | $         | 466,986 |        |  |  |         |  |  | $ | 430,084 | 
|                                           |  |                |         |                |  |           |         |        |  |  |         |  |  |   |         | 



| |                      
| | ---------------------
| | Long-term Investments

At March 31, 2002 and 2001, the
Companys long-term investments were as follows (in
thousands):

|                                    |  |                  |        |                |  |                  |         |            |  |  |         |  |  |   |         | 
|----------------------------------- |  | ---------------- | ------ | -------------- |  | ---------------- | ------- | ---------- |  |  | ------- |  |  | - | ------- | 
|                                    |  |                  |        |               
|                                    |  | March 31, 2002   |        | March 31, 2001
|                                    |  |                  |        |               
|                                    |  | Number of Shares |        | Cost Basis     |  | Number of Shares |         | Cost Basis
|                                    |  |                  |        |                |  |                  |         |           
|United Microelectronics Corporation |  |                  | 56,671 |                |  | $                | 43,750  |            |  |  | 113,333 |  |  | $ | 182,923 | 
|Tower Semiconductor Ltd.            |  |                  | 2,856  |                |  |                  | 16,278  |            |  |  | 1,233   |  |  |   | 16,327  | 
|Alliance Venture investments        |  |                  |        |                |  |                  | 62,322  |            |  |  |         |  |  |   | 67,961  | 
|Solar Venture investments           |  |                  |        |                |  |                  | 10,253  |            |  |  |         |  |  |   | 16,504  | 
|                                    |  |                  |        |                |  |                  |         |            |  |  |         |  |  |   |         | 
|Total                               |  |                  |        |                |  | $                | 132,603 |            |  |  |         |  |  | $ | 283,715 | 
|                                    |  |                  |        |                |  |                  |         |            |  |  |         |  |  |   |         | 



| |                    
| | -------------------
| | Accounts Receivable

|                     |                                                                      |                |       |        |   |   |        |        |  
|-------------------- | -------------------------------------------------------------------- | -------------- | ----- | ------ | - | - | ------ | ------ | -
|                     |                                                                      |               
|                     |                                                                      | March 31,     
|                     |                                                                      |               
|                     |                                                                      | 2002           |       | 2001  
|                     |                                                                      |                |       |       
|                     |                                                                      |               
|                     |                                                                      | (In thousands)
|Accounts receivable: |                                                                      |                |       |        |   |   |        |       
|                     | Trade receivables                                                    |                | $     | 4,739  |   |   | $      | 21,582 |  
|                     | Less: allowance for doubtful accounts and sales
    related reserves |                |       | (1,848 | ) |   |        | (3,581 | )
|                     |                                                                      |                |       |        |   |   |        |       
|                     |                                                                      | $              | 2,891 |        |   | $ | 18,001 |       
|                     |                                                                      |                |       |        |   |   |        |       



| |          
| | ---------
| | Inventory

|           |                 |                |        |        |  |   |        |        | 
|---------- | --------------- | -------------- | ------ | ------ |  | - | ------ | ------ | 
|           |                 |               
|           |                 | March 31,     
|           |                 |               
|           |                 | 2002           |        | 2001  
|           |                 |                |        |       
|           |                 |               
|           |                 | (In thousands)
|Inventory: |                 |                |        |        |  |   |        |       
|           | Work in process |                | $      | 10,718 |  |   | $      | 41,350 | 
|           | Finished goods  |                |        | 8,918  |  |   |        | 43,447 | 
|           |                 |                |        |        |  |   |        |       
|           |                 | $              | 19,636 |        |  | $ | 84,797 |       
|           |                 |                |        |        |  |   |        |       

F-13



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                     
| | --------------------
| | Other Current Assets

|                                   |  |                |        |      |  |   |       | 
|---------------------------------- |  | -------------- | ------ | ---- |  | - | ----- | 
|                                   |  |               
|                                   |  | March 31,     
|                                   |  |               
|                                   |  | 2002           |        | 2001
|                                   |  |                |        |     
|                                   |  |               
|                                   |  | (In thousands)
|Receivable from sale of securities |  | $              | 7,906  |      |  | $ | 195   | 
|Prepaids                           |  |                | 2,613  |      |  |   | 884   | 
|                                   |  |                |        |      |  |   |       | 
|                                   |  | $              | 10,519 |      |  | $ | 1,079 | 
|                                   |  |                |        |      |  |   |       | 



| |                       
| | ----------------------
| | Property and Equipment

|                               |  |                |         |      |  |   |         |  
|------------------------------ |  | -------------- | ------- | ---- |  | - | ------- | -
|                               |  |               
|                               |  | March 31,     
|                               |  |               
|                               |  | 2002           |         | 2001
|                               |  |                |         |     
|                               |  |               
|                               |  | (In thousands)
|Engineering and test equipment |  | $              | 17,286  |      |  | $ | 16,715  |  
|Computers and software         |  |                | 11,941  |      |  |   | 11,769  |  
|Furniture and office equipment |  |                | 661     |      |  |   | 689     |  
|Leasehold improvements         |  |                | 1,458   |      |  |   | 1,350   |  
|Land                           |  |                | 288     |      |  |   | 288     |  
|                               |  |                |         |      |  |   |         |  
|                               |  |                | 31,634  |      |  |   | 30,811  |  
|Less: Accumulated depreciation |  |                | (23,420 | )    |  |   | (20,628 | )
|                               |  |                |         |      |  |   |         |  
|                               |  | $              | 8,214   |      |  | $ | 10,183  |  
|                               |  |                |         |      |  |   |         |  

Depreciation expense for fiscal 2002, 2001, and
2000 were $2.8 million, $4.2 million, and
$4.4 million, respectively.

Property and equipment includes $2.1 million
and $2.2 million of assets under capital leases at
March 31, 2002 and 2001, respectively. Accumulated
depreciation of assets under capital leases totaled
$1.7 million and $1.0 million at March 31, 2002
and 2001, respectively.



| |                                   
| | ----------------------------------
| | Goodwill and Intangible
    Assets

|                     |  |      |       |              |  |            |      |   |  |   |       | 
|-------------------- |  | ---- | ----- | ------------ |  | ---------- | ---- | - |  | - | ----- | 
|                     |  |      |       |              |  | Net       
|                     |  |      |       | Accumulated  |  | Intangible
|                     |  | Cost |       | Amortization |  | Assets    
|                     |  |      |       |              |  |           
|Developed technology |  | $    | 1,592 |              |  | $          | (110 | ) |  | $ | 1,482 | 
|Tradename            |  |      | 109   |              |  |            | (8   | ) |  |   | 101   | 
|Patents              |  |      | 363   |              |  |            | (25  | ) |  |   | 338   | 
|Goodwill             |  |      | 1,538 |              |  |            |     |   |  |   | 1,538 | 
|                     |  |      |       |              |  |            |      |   |  |   |       | 
|                     |  | $    | 3,602 |              |  | $          | (143 | ) |  | $ | 3,459 | 
|                     |  |      |       |              |  |            |      |   |  |   |       | 

There were no intangible assets at March 31,
2001.



| |                    
| | -------------------
| | Accrued Liabilities

|                         |  |           |       |      |  |   |       | 
|------------------------ |  | --------- | ----- | ---- |  | - | ----- | 
|                         |  |          
|                         |  | March 31,
|                         |  |          
|                         |  | 2002      |       | 2001
|                         |  |           |       |     
|Accrued compensation     |  | $         | 279   |      |  | $ | 1,065 | 
|Accrued interest payable |  |           | 674   |      |  |   | 533   | 
|Accrued other            |  |           | 5,225 |      |  |   | 3,817 | 
|                         |  |           |       |      |  |   |       | 
|                         |  | $         | 6,178 |      |  | $ | 5,415 | 
|                         |  |           |       |      |  |   |       | 

F-14



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                           
| | ------------------------------------------
| | Accumulated Other Comprehensive
    Income

|                                               |  |                 |         |            |  |                     |          |   |  |   |         | 
|---------------------------------------------- |  | --------------- | ------- | ---------- |  | ------------------- | -------- | - |  | - | ------- | 
|                                               |  | Unrealized Gain |         | Tax Effect |  | Net Unrealized Gain
|                                               |  |                 |         |            |  |                    
|United Microelectronics Corporation            |  | $               | 226,521 |            |  | $                   | (91,288  | ) |  | $ | 135,233 | 
|Chartered Semiconductor Manufacturing
    Ltd. |  |                 | 15,860  |            |  |                     | (5,800   | ) |  |   | 10,060  | 
|Broadcom Corporation                           |  |                 | 1,358   |            |  |                     | (548     | ) |  |   | 810     | 
|Vitesse Semiconductor Corporation              |  |                 | 489     |            |  |                     | (197     | ) |  |   | 292     | 
|PMC-Sierra Corporation                         |  |                 | 401     |            |  |                     | (130     | ) |  |   | 271     | 
|Adaptec, Inc.                                  |  |                 | 4,203   |            |  |                     | (1,694   | ) |  |   | 2,509   | 
|Magma Design Automation                        |  |                 | 2,215   |            |  |                     | (893     | ) |  |   | 1,322   | 
|                                               |  |                 |         |            |  |                     |          |   |  |   |         | 
|                                               |  | $               | 251,047 |            |  | $                   | (100,550 | ) |  | $ | 150,497 | 
|                                               |  |                 |         |            |  |                     |          |   |  |   |         | 

Due to the write-down of marketable securities in
fiscal 2001, there was no balance in Accumulated Other
Comprehensive Income at March 31, 2001.



| |                      
| | ---------------------
| | Short Term Borrowings

At March 31, 2002, the Company had total
short term borrowings of $66.2 million.

During fiscal 2001, the Company borrowed
approximately $22.2 million from a brokerage firm. The loan
is secured by 1.6 million shares of Chartered common stock.
The loan bears an interest at a rate determined by the
prevailing market interest rate. At March 31, 2002 and
2001, the applicable market rate for the loan was 2.75% and
6.5%, respectively. The outstanding balance on the loan at
March 31, 2002 and 2001 was approximately
$16.2 million and $22.2 million, respectively.

During the first quarter of fiscal 2002, the
Company entered into a secured loan agreement with Citibank,
N.A. to borrow up to $60.0 million. On November 16,
2001, the Company paid off its loan in full with Citibank for an
aggregate sum of $17.3 million and the loan was terminated.

During the second quarter of fiscal 2002, the
Company converted an account payable of $14.4 million, to
UMC and a subsidiary of UMC, to a secured loan that was to
mature in August 2002. The loan accrued interest at a rate of
7.5%, and was collateralized by 16.7 million shares of UMC.
The Company paid off outstanding principal and interest on
February 6, 2002 for an aggregate sum of $16.4 million.

In the third quarter of fiscal 2002, the Company
entered into a secured loan agreement with Chinatrust Commercial
Bank, Ltd, to borrow up to $30.0 million. In January 2002,
the Company increased the principal amount it could borrow under
the loan agreement to $46.0 million. The loan is secured by
UMC stock held by the Company with the aggregate value at least
250% of the outstanding loan balance. The loan bears interest at
LIBOR plus 2.5% and matures on December 7, 2002. The
principal and accrued interest are payable upon maturity. A
portion of this loan was used to pay off the Citibank loan. The
remaining was used for working capital. The loan required that
the Company set up an interest escrow deposit account with the
bank, which is collateral against any accrued interest. The
balance in the interest escrow account as of March 31, 2002
was $1.8 million, and is shown as restricted cash on the
balance sheet. The loan requires compliance with certain
restrictive covenants with which the Company was in compliance
at March 31, 2002. The outstanding balance on the
Chinatrust loan was $45.7 million at March 31, 2002.

In the fourth quarter of fiscal 2002, the Company
issued a $4.8 million promissory note in connection with
the acquisition of PulseCore. The note is non-interest bearing
and matures on March 29, 2003. Discount on the note of
$609,000 was calculated based on an imputed interest

F-15



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

rate of 12%. The outstanding balance on the
promissory note, net of unamortized discount, was approximately
$4.3 million at March 31, 2002.

Note
3.     Write-Down of Marketable
Securities and Other Investments

In the past year, marketable securities held by
the Company have experienced significant declines in their
market value primarily due to the downturn in the semiconductor
sector and general market conditions. Management has evaluated
the marketable securities for potential
other-than-temporary declines in their fair value.
Such evaluation included researching commentary from industry
experts, analysts, and other companies, all of whom were not
optimistic that the semiconductor sector and general market
conditions would recover in the short term. Based on the
continuing depression in the investments stock prices from
those originally used to record the investment, coupled with the
expectation that stock prices will not significantly recover in
the next 6 to 9 months and due to unfavorable business
conditions for companies in the semiconductor industry in
general, management determined that a write-down was necessary
as of September 30, 2001 and March 31, 2001. As a
result, the Company recorded pre-tax, non-operating losses of
approximately $288.5 million and $506.8 million during
the second quarter of fiscal 2002 and the fourth quarter of
fiscal 2001, respectively, based on the quoted price of the
respective marketable securities. During fiscal 2002, the
Company wrote-down its investments in Alliance Ventures and
Solar Ventures and recognized a pre-tax, non-operating loss of
approximately $8.3 million. During fiscal 2001, the Company
wrote down several of its investments in Alliance Ventures and
recognized a pre-tax, non-operating loss of approximately
$2.6 million. Total write-down of marketable securities and
other investments during fiscal 2002 and 2001 was recorded as
follows (in thousands):

|                                            |  |             |         |             |  |   |         | 
|------------------------------------------- |  | ----------- | ------- | ----------- |  | - | ------- | 
|                                            |  | Fiscal 2002 |         | Fiscal 2001
|                                            |  |             |         |            
|United Microelectronics Corporation         |  | $           | 250,894 |             |  | $ | 460,014 | 
|Broadcom Corporation                        |  |             |        |             |  |   | 3,778   | 
|Vitesse Semiconductor Corporation           |  |             | 3,845   |             |  |   | 32,298  | 
|PMC-Sierra Corporation                      |  |             | 1,048   |             |  |   | 10,777  | 
|Chartered Semiconductor Manufacturing, Ltd. |  |             | 12,155  |             |  |   |        | 
|Tower Semiconductor Ltd.                    |  |             | 20,645  |             |  |   |        | 
|Alliance and Solar Ventures Investments     |  |             | 8,259   |             |  |   | 2,582   | 
|                                            |  |             |         |             |  |   |         | 
|Total                                       |  | $           | 296,846 |             |  | $ | 509,449 | 
|                                            |  |             |         |             |  |   |         | 

Note
4.     Cumulative Effect of Change in
Accounting Principle  Adoption of
SFAS 133

The Company adopted Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by the
Statement of Financial Accounting Standards No. 137,
Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement
No. 133, an amendment of FASB Statement No. 133and Statement of Financial Accounting Standards
No. 138, Accounting for Certain Derivative Instruments
and Certain Hedging Activities, an amendment of FASB Statement
No. 133(herein referred to as
SFAS 133), on April 1, 2001. In the fourth
quarter of fiscal 2001, the Company entered into two derivative
instruments to hedge its investment in Vitesse Semiconductor
common stock. The Company has designated these arrangements as
fair value hedges under SFAS 133. In accordance with the
transition provisions of SFAS 133, the Company recorded
approximately $2.1 million cumulative effect adjustment in
earnings in the quarter ended June 30, 2001.

F-16



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note
5.     Acquisition of PulseCore,
Inc.

In fiscal 2002, the Company acquired PulseCore
Inc. (PulseCore) in order to diversify its product
base. The acquisition was completed in January 2002. PulseCore
provides a diverse mixed-signal product line built around its
low EMI frequency timing technology. The Company
paid $5.1 million for acquiring the net assets of
PulseCore. The acquisition was accounted for using the purchase
method in accordance with SFAS 141 and, accordingly,
PulseCores results of operations have been included in the
accompanying consolidated financial statements from the date of
acquisition.

No supplemental pro forma information is
presented due to the immaterial effect on prior period results
of operations. In connection with this acquisition, the Company
paid $722,000 in cash and cash advances and executed a
$4.2 million note, net of imputed interest of $609,000, in
exchange for PulseCores net assets. The promissory note
matures on March 29, 2003, is non-interest bearing and
accordingly, has been discounted to reflect the implied interest
expense. Direct transaction costs relating to the acquisition,
consisting primarily of legal and other professional service
fees were $270,000. The purchase price was allocated to the
tangible and intangible assets acquired and liabilities assumed
based in part on an independent appraisal of their respective
fair values. Total consideration paid in connection with the
acquisitions was attributable to the following:

|                      |       |                |       |              |  |            | 
|--------------------- | ----- | -------------- | ----- | ------------ |  | ---------- | 
|                      |       |                |       | Amortization
|                      |       | Amount         |       | Period      
|                      |       |                |       |             
|                      |       | (In thousands) |       |             
|Developed technology  |       | $              | 1,592 |              |  | 3 years   
|In-Process technology |       |                | 906   |              |  | Expensed  
|Tangible assets       |       |                | 635   |              |  |           
|Tradename             |       |                | 109   |              |  | 3 years   
|Patents               |       |                | 363   |              |  | 3 years   
|Goodwill              |       |                | 1,538 |              |  | Indefinite
|                      |       |                |       |              |  |           
|                      | Total |                | $     | 5,143        |  |            | 
|                      |       |                |       |              |  |           

The allocation of amounts to developed technology
and in-process research and development were consistent with
widely recognized appraisal practices. The Companys
analysis resulted in a valuation of developed technology at
$1.6 million. Developed technology represents technologies
that have reached technological feasibility, and therefore can
be capitalized. The Company is amortizing the developed
technology on a straight-line basis over a period of three
years. The Companys analysis also resulted in a $906,000
charge to acquired in-process research and development. The
acquired in-process technology represents the appraised value of
technologies in the development stage that had not yet reached
technological feasibility and do not have alternative future
uses. Such amount was expensed as a non-recurring charge upon
consummation of the acquisition.

The value assigned to in-process research and
development was determined by identifying research projects in
areas for which technological feasibility had not been
established. For PulseCore valuations, the Company estimated the
expected cash flows from the projects once commercially viable.
The net cash flows were then discounted back to their present
value using discount rates of 35%, which the Company believes to
be appropriate given the business risks inherent in
manufacturing and marketing these products, and a percentage of
completion was applied. The percentage of completion was
determined using milestones representing managements
estimate of effort, value added, and degree of difficulty of the
portion of each project completed as of the acquisition date, as
compared to the remaining research and development to be
completed to bring each project to technical feasibility.

F-17



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

If the Company does not successfully develop its
research projects discussed above, its sales and profitability
may be adversely affected in future periods and the value of
other intangible assets acquired may become impaired. Management
believes that the in-process research and development charge is
valued consistently with the SEC staffs current views
regarding valuation methodologies. The Company cannot assure the
reader that the SEC staff will not take issue with any
assumptions used in its valuation model and require it to revise
the amount allocated to in-process research and development. As
of March 31, 2002, the Company believes that the
projections used in the valuations with respect to each
acquisition are still materially valid; however, there can be no
assurance that the projected results will be achieved.

Note
6.     Investment in United
Microelectronics Corporation

At March 31, 2002, the Company owned
approximately 313.1 million shares of United
Microelectronics Corporation (UMC) common stock,
representing approximately less than 1% ownership. According to
Taiwanese laws and regulations, 50% of the 283.3 million
Alliances UMC shares it initially received are subject to
a lock-up or no trade period. This lock-up period
expired in July 2000. Of this remaining 50% or
141.6 million shares, approximately 28.3 million
shares became eligible for sale on January 2001, with
approximately 28.3 million shares becoming available for
sale every six months thereafter, during years 2002 through
2004. In May 2000, the Company received an additional 20% or
56.6 million shares of UMC by way of a stock dividend. In
January 2002, the Company received an additional 15% or
51.0 million shares of UMC by way of stock dividend.

The portion of the investment in UMC which is
restricted beyond twelve months (approximately 18% of the
Companys holding at March 31, 2002), is accounted for
under the cost method and is presented as a long-term
investment. As this long-term portion becomes current over time,
the investment will be transferred to short-term investments and
will be accounted for as an available-for-sale marketable
security in accordance with SFAS 115. The long-term portion of
the investments becomes unrestricted securities between 2003 and
2004. At the end of the fourth quarter of fiscal 2001, the
Company wrote down its investment in UMC and recognized a
pre-tax, non-operating loss of approximately
$460.0 million. In fiscal 2002, the Company sold
77.8 million shares of UMC stock and recorded a pre-tax
non-operating loss of $20.8 million. The majority of the
stock sold by the Company was in order to comply with the
restrictions as part of its loan agreement with Citibank as a
result of the decline in the stock price of UMC in the second
and third quarters of fiscal 2002. At the end of the second
quarter of fiscal 2002, the Company wrote down its investment in
UMC and recognized a pre-tax, non-operating loss of
approximately $250.9 million. During fiscal 2000, the
Company recognized a $907.5 million pre-tax, non-operating
gain as a result of the merger between UMC and the four wafer
foundry units, USC, USIC, United Integrated Circuit Corporation
and UTEK Semiconductor Corporation.

At March 31, 2002, the Company owned
256.5 million shares of UMC that were available-for-sale
and recorded an unrealized gain of approximately
$135.2 million, net of deferred taxes of approximately
$91.3 million as part of Accumulated Other Comprehensive
Income in the stockholders equity section of the balance
sheet. Also at March 31, 2002, the Company owned
56.7 million shares of UMC that are recorded at cost.

Given the market risk for securities, when these
shares are ultimately sold, it is possible that additional gain
or loss will be reported. If the Company sells more that 50% of
its original holdings of UMC, the Company will start to lose a
proportionate share of its wafer production capacity rights,
which could materially affect its ability to conduct its
business.

F-18



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note
7.     Investment in Chartered
Semiconductor Manufacturing Ltd.

At March 31, 2002, the Company owns
approximately 16.4 million ordinary shares or
1.64 million American Depository Shares (ADSs)
of Chartered Semiconductor Manufacturing
(Chartered). The Company does not own a material
percentage of the equity of Chartered. The Company accounts for
its investment in Chartered as an available-for-sale security in
accordance with SFAS 115. During the second quarter of
fiscal 2002, the Company wrote down its investment in Chartered
and recognized a pre-tax, non-operating loss of approximately of
$12.2 million. At March 31, 2002, the Company recorded
an unrealized gain of approximately $10.1 million, net of
taxes of approximately $5.8 million as part of Accumulated
Other Comprehensive Income in the stockholders equity
section of the balance sheet. During fiscal 2001, the Company
sold 500,000 shares of Chartered and recognized a pre-tax gain
of approximately $33.5 million.

Given the market risk for securities, when these
shares are ultimately sold, it is possible that additional gain
or loss will be reported. If the Company sells more than 50% of
its original holdings of Chartered, the Company will start to
lose a proportionate share of its wafer production capacity
rights, which could materially affect its ability to conduct its
business.

Note
8.     Investment in Broadcom
Corporation

At March 31, 2002, the Company owned 75,000
shares of Broadcom Corporation (Broadcom). The
Company accounts for its investment in Broadcom as an
available-for-sale marketable security in accordance with SFAS
115. In fiscal 2002, the Company sold 125,000 shares of Broadcom
common stock, recognizing a pre-tax, non-operating gain of
approximately $1.6 million. In fiscal 2002, the Company
also entered into a cashless collar arrangement with a brokerage
firm with respect to 75,000 shares of Broadcom common
stock. The collar arrangement consists of a written call option
to buy 75,000 shares of Broadcom common stock at a price of
$64.72 and a purchased put option to sell 75,000 shares at
a price of $36.72 through August 2002. At the end of the fourth
quarter fiscal 2001, the Company wrote down its investment in
Broadcom and recognized a pre-tax, non-operating loss of
approximately $3.8 million.

At March 31, 2002, the Company recorded an
unrealized gain of approximately $810,000, net of taxes of
approximately $548,000, as part of Accumulated Other
Comprehensive Income in the stockholders equity section of
the balance sheet.

Broadcoms stock, like many other high
technology stocks, has historically experienced material and
significant fluctuations in market value, and will probably
continue to do so in the future. Additionally, because it is
common that high technology stocks, like Broadcoms and the
Companys, sometimes move as a group, it is likely that
Broadcoms stock and the Companys stock can both
suffer significant loss in value at the same time. This occurred
in fiscal 2002 and 2001. Therefore, there can be no assurance
that the Companys investment in Broadcom will increase in
value or even maintain its value.

Note
9.     Investment in Vitesse
Semiconductor Corporation

At March 31, 2002, the Company owned 728,000
shares of Vitesse Semiconductor Corporation
(Vitesse). The Company accounts for its investment
in Vitesse as an available-for-sale marketable security in
accordance with SFAS 115. In January 2001, the Company
entered into two derivative contracts (Derivative
Agreements) with a brokerage firm and received aggregate
cash proceeds of approximately $31.0 million. The
Derivative Agreements have repayment provisions that incorporate
a collar arrangement with respect to 490,000 shares of Vitesse
Semiconductor

F-19



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

common stock. The Company, at its option, may
settle the contracts by either delivering Vitesse shares or
making a cash payment to the brokerage firm in January 2003, the
maturity date of the Derivative Agreements. The number of
Vitesse shares to be delivered or the amount of cash to be paid
is determined by a formula in the Derivative Agreements based
upon the market price of the Vitesse shares on the settlement
date. Under the Derivative Agreements, if the stock price of
Vitesse exceeds the ceiling of the collar, then the settlement
amount also increases by an amount determined by a formula
included in the Derivative Agreements (generally equal to the
excess of the value of the stock over the ceiling of the
collar.) If the stock price of Vitesse declines below the floor
of the collar, then the settlement amount also decreases by an
amount determined by a formula included in the Derivative
Agreements (generally equal to the excess of the floor of the
collar over the value of the stock.) During the second quarter
of fiscal 2002, the Company wrote down its investment in Vitesse
and recognized a pre-tax non-operating loss of approximately
$3.8 million. At the end of the fourth quarter fiscal 2001,
the Company wrote-down its investment in Vitesse and recognized
a pre-tax, non-operating loss of approximately
$52.9 million. This loss was offset by a $20.6 million
gain on the Vitesse derivative contract.

At March 31, 2002, the Company recorded an
unrealized gain of approximately $292,000, net of taxes of
$197,000 as part of Accumulated Other Comprehensive Income in
the stockholders equity section of the balance sheet.

Vitesses stock, like many other high
technology stocks, has historically experienced material and
significant fluctuations in market value, and will probably
continue to do so in the future. Additionally, because it is
common that high technology stocks, like Vitesses and the
Companys, sometimes move as a group, it is likely that
Vitesses stock and the Companys stock can both
suffer significant loss in value at the same time. This occurred
in fiscal 2002 and 2001. Therefore, there can be no assurance
that the Companys investment in Vitesse will increase in
value or even maintain its value.

Note
10.     Investment in PMC-Sierra
Corporation

At March 31, 2002, the Company held 68,152
shares of PMC-Sierra Corporation (PMC) common stock.
The Company records its investment in PMC as an
available-for-sale marketable security in accordance with
SFAS 115. In the second quarter of fiscal 2002, the Company
wrote down its investment in PMC recognizing a pre-tax,
non-operating loss of approximately $1.0 million. At the
end of the fourth quarter fiscal 2001, the Company wrote down
its investment in PMC and recognized a pre-tax, non-operating
loss of approximately $10.8 million. At March 31,
2002, The Company recorded an unrealized gain of approximately
$271,000 net of taxes of approximately $130,000, as part of
Accumulated Other Comprehensive Income in the stockholders
equity section of the balance sheet.

PMCs stock, like many other high technology
stocks, has historically experienced material and significant
fluctuations in market value, and will probably continue to do
so in the future. Additionally, because it is common that high
technology stocks, like PMCs and the Companys,
sometimes move as a group, it is likely that PMCs stock
and the Companys stock can both suffer significant loss in
value at the same time. This occurred in fiscal 2002 and 2001.
Therefore, there can be no assurance that the Companys
investment in PMC will increase in value or even maintain its
value.

F-20



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note
11.     Investment in Adaptec,
Inc.

In June 2000, the Company through its venture arm
Alliance Venture Management, LLC, made an investment in Platys
Communications, Inc. (Platys), a developer and
marketer of advanced storage networking products. On
August 25, 2001, Adaptec Inc. (Adaptec)
acquired Platys. In connection with the acquisition, the Company
received 1,540,961 shares of Adaptec common stock and
$15.9 million in cash, of which $4.5 million is held
in an escrow account and is classified as part of restricted
cash on the balance sheet, and recorded a pre-tax, non-operating
gain of approximately $28.6 million. In the third fiscal
quarter of fiscal 2002, the Company sold 100,000 shares of
Adaptec recording a pre-tax, non-operating gain of approximately
$403,000.

In December 2001, the Company entered into a
derivative contract with a brokerage firm and received aggregate
cash proceeds of $5.0 million. The contract has repayment
provisions that incorporate a collar arrangement with respect to
362,173 shares of Adaptec common stock. The Company has to
deliver a certain number of Adaptec shares in June 2003, the
maturity date of the contract. The number of Adaptec shares to
be delivered is determined by a formula in the contract based
upon the market price of the Adaptec shares on the settlement
date. Under the contract, if the stock price of Adaptec is
outside of the collar (the floor of which is $16.26 and the
ceiling of which is $21.99), the number of Adaptec shares to be
delivered equals 362,173. If the stock price of Adaptec is
within the collar, the Company will have to deliver that number
of Adaptec shares having total value equal to $5.9 million.

At March 31, 2002, the Company held
1,440,961 shares of Adaptec. The Company records its investment
in Adaptec as an available-for-sale marketable security in
accordance with SFAS 115. In fiscal 2002, the Company
recorded an unrealized gain of approximately $2.5 million,
net of tax of approximately $1.7 million, as part of
Accumulated Other Comprehensive Income in the stockholders
equity section of the balance sheet.

Adaptecs stock, like many other high
technology stocks, has historically experienced material and
significant fluctuations in market value, and will probably
continue to do so in the future. Additionally, because it is
common that high technology stocks, like Adaptecs and the
Companys, move as a group, it is likely that
Adaptecs stock and the Companys stock can both
suffer significant loss in value at the same time. This occurred
in fiscal 2002. Therefore, there can be no assurance that the
Companys investment in Adaptec will increase in value or
even maintain its value.

Note
12.     Investment in Magma Design
Automation

In December 1999, the Company, through its
venture arm Alliance Venture Management, LLC, made an investment
in Magma Design Automation (Magma). On
November 20, 2001, Magma successfully completed its initial
public offering. The Company accounts for its investment in
Magma as an available-for-sale marketable security in accordance
with SFAS 115. At March 31, 2002, the Company held
360,244 shares of Magma and recorded an unrealized gain of
approximately $1.3 million, net of taxes of $893,000, as
part of Accumulated Other Comprehensive Income in the
stockholders equity section of the balance sheet.

Note
13.     Investment in Tower
Semiconductor Ltd.

In August 2000, the Company entered into a share
purchase agreement with Tower Semiconductor Ltd.
(Tower) under which Alliance committed to make a
$75.0 million strategic investment in Tower as part of
Towers plan to build its new fab. In return for its
investment, the Company

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ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

should receive equity, corresponding
representation on Towers Board of Directors and committed
production capacity in the advanced fab, which Tower intended to
build. Pursuant to the agreement, the Company purchased
1,233,241 ordinary shares of Tower for an aggregate purchase
price of $31 million in the fourth quarter of fiscal 2001.
The Company had an obligation to purchase an additional
1,466,760 ordinary shares in four equal increments upon
occurrence of events relating to Towers construction of
the new fab as specified in the agreement.

In the first quarter of fiscal 2002, the Company
purchased an additional 366,690 ordinary shares of Tower and
future wafer purchase credits for an aggregate purchase price of
$11.0 million. At September 30, 2001, due to an
other-than-temporary decline in the value of the
stock, the Company wrote down its investment in Tower, recording
a pre-tax, non-operating loss of $20.6 million. In August
2001, Tower issued an additional 1,255,848 of its ordinary
shares to the Company in connection with the conversion of wafer
credits in the amount of $9.6 million to equity.

In conjunction with the share purchase agreement,
the Company entered into a foundry agreement under which the
Company is entitled to a certain amount of credits towards
future wafer purchases from Tower. The amount of credits is
determined upon each share purchase transaction by the Company
and is calculated based on the difference between Towers
average stock price for 30 days preceding a purchase
transaction and Alliances share purchase exercise price.
The wafer credits will be utilized as the Company purchases
wafers from Tower in the future where 15% of order value will be
applied against the wafer credits. Under the terms of the
foundry agreement, the Company is guaranteed a capacity of up to
15% of available wafer starts but not to exceed 5,000 wafers
starts per month. The guaranteed capacity may be reduced if the
Company elects not to exercise its additional share purchase
obligation.

At March 31, 2002, the Company owns
2,855,779 shares of Tower and wafer credits totaling
$5.1 million. The Company accounts for its investment in
Tower under the cost method based on the Companys
inability to exercise significant influence over Towers
operations and restrictions to sell the Tower stock.

Note 14.     Alliance
Venture Management, LLC

In October 1999, the Company formed Alliance
Venture Management, LLC, (Alliance Venture
Management), a California limited liability corporation,
to manage and act as the general partner in the investment funds
the Company intended to form. Alliance Venture Management does
not directly invest in the investment funds with the Company,
but is entitled to a management fee out of the net profits of
the investment funds. This management company structure was
created to provide incentives to the individuals who participate
in the management of the investment funds by allowing them
limited participation in the profits of the various investment
funds through the management fees paid by the investment funds.

In November 1999, the Company formed Alliance
Ventures I, LP (Alliance Ventures I) and
Alliance Ventures II, LP (Alliance
Ventures II), both California limited partnerships.
The Company, as the sole limited partner, owns 100% of the
shares of each partnership. Alliance Venture Management acts as
the general partner of these partnerships and receives a
management fee of 15% of the profits from these partnerships for
its managerial efforts.

At Alliance Venture Managements inception
in November 1999, series A member units and series B member
units in Alliance Venture Management were created. The unit
holders of series A units and series B units receive management
fees of 15% of investment gains realized by Alliance
Ventures I and Alliance Ventures II, respectively. In
February 2000, upon the creation of Alliance

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ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Ventures III, LP (Alliance
Ventures III), the management agreement for Alliance
Venture Management was amended to create series C member
units which are entitled to receive a management fee of 16% of
investment gains realized by Alliance Ventures III. In
January 2001, upon the creation of Alliance Ventures IV, LP
(Alliance Ventures IV) and Alliance
Ventures V, LP (Alliance Ventures V), the
management agreement for Alliance Venture Management was amended
to create series D and E member units which are entitled to
receive a management fee of 15% of investment gains realized by
Alliance Ventures IV and Alliance Ventures V,
respectively.

Each of the owners of the series A, B, C, D
and E member units paid the initial carrying value for their
shares of the member units. While the Company owns 100% of the
common units in Alliance Venture Management, it does not hold
any series A, B, C, D or E member units and does not
participate in the management fees generated by the management
of the investment funds. Several of the Companys senior
management hold the majority of the series A, B, C, D or E
member units of Alliance Venture Management.

After Alliance Ventures I was formed, the
Company contributed all its then current investments, except
Chartered, UMC and Broadcom, to Alliance Ventures I to
allow Alliance Venture Management to manage these investments.
As of March 31, 2002, Alliance Ventures I, whose focus is
investing in networking and communication start-up companies,
has invested $20.0 million in nine companies, with a fund
allocation of $20.0 million. Alliance Ventures II,
whose focus is in investing in internet start-up ventures has
invested approximately $9.1 million in ten companies, with
a total fund allocation of $15.0 million. As of
March 31, 2002, Alliance Ventures III, whose focus is
investing in emerging companies in the networking and
communication market areas, has invested $42.4 million in
13 companies, with a total fund allocation of
$100.0 million. As of March 31, 2002, Alliance
Ventures IV, whose focus is investing in emerging companies
in the semiconductor market areas, has invested
$19.9 million in six companies, with a total fund
allocation of $40.0 million. As of March 31, 2002,
Alliance Ventures V, whose focus is investing in emerging
companies in the networking and communication market areas, has
invested $14.5 million in eight companies, with a total
fund allocation of $60.0 million.

In fiscal 2002 and 2001, the Company wrote-down
certain of its investments in Alliance Ventures and recognized
pre-tax, non-operating losses of approximately $7.6 million
and $2.6 million, respectively. Also, several of the
Alliance Venture investments are accounted for under the equity
method due to the Companys ability to exercise significant
influence on the operations of investees resulting primarily
from ownership interest and/or board representation. The total
equity in the net losses of Alliance Ventures investee companies
was approximately $8.4 million and $5.7 million,
respectively, for the fiscal 2002 and 2001, respectively.

Certain of the Companys officers have
formed private venture funds, which invest in some of the same
investments as the Company.

Alliance Venture Management generally directs the
individual funds to invest in startup, pre-IPO (initial public
offering) companies. These types of investments are inherently
risky and many venture funds have a large percentage of
investments decrease in value or fail. Most of these startup
companies fail, and the investors lose their entire investment.
Successful investing relies on the skill of the investment
managers, but also on market and other factors outside the
control of the managers. The market for these types of
investments has, in the past, been successful and many venture
capital funds have been profitable, and while the Company has
been successful in its recent investments, there can be no
assurance as to any future or continued success. It is possible
there will be a downturn in the success of these types of
investments in the future and the Company will suffer
significant diminished success in these investments. It is
possible that many or most, and

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ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

maybe all of the Companys venture type
investments may fail, resulting in the complete loss of some or
all the money the Company has invested in these types of
investments.

Note
15.     Investment in Solar Venture
Partners, LP

Through March 31, 2002, the Company has
invested $12.5 million in Solar Venture Partners, LP
(Solar), a venture capital partnership whose focus
is investing in early stage companies in the areas of
networking, telecommunications, wireless, software
infrastructure enabling efficiencies of the Web and e-commerce,
semiconductors for emerging markets and design automation.

Due to the Companys majority interest in
Solar, the Company accounts for Solar under the consolidation
method. Some of the investments Solar has made are accounted for
under the equity method due to the Companys ability to
exercise significant influence on the operations of the
investees resulting primarily from ownership interest and/or
board representation. In fiscal 2002, the Company recorded an
equity in the loss of investees of approximately
$1.1 million, net of minority interest, and wrote down
certain Solar investments by $731,000, net of minority interest.

Certain of the Companys directors and
officers are the general partners of Solar and run the
day-to-day operations. Furthermore, certain of the
Companys officers and employees have also invested in
Solar. Solar has made investments in some of the same companies
as Alliance Ventures I, II, III, IV, and V.

Note
16.     Derivative Instruments and
Hedging Activities

The Company has investments in the common stock
of Vitesse, Broadcom and Adaptec. The Companys investments
expose it to a risk related to the effects of changes in the
price of Vitesse, Broadcom and Adaptec common stock. The
financial exposure is monitored and managed by the Company. The
Companys risk management focuses on the unpredictability
of financial markets and seeks to reduce the potentially adverse
effects that the volatility of these markets may have on its
operating results. The Company uses cashless collars, which are
combinations of option contracts, and forward sales to hedge
this risk.

By using derivative financial instruments to
hedge exposures to changes in share prices, the Company exposes
itself to credit risk and market risk. Credit risk is a risk
that the counterparty might fail to fulfill its performance
obligations under the terms of the derivative contract. When the
fair value of a derivative contract is an asset, the
counterparty owes the Company, which creates repayment risk for
the Company. When the fair value of a derivative contract is a
liability, the Company owes the counterparty and, therefore,
does not assume any repayment risk. The Company minimizes its
credit (or repayment) risk in derivative instruments by
(1) entering into transactions with high-quality
counterparties, (2) limiting the amount of its exposure to
each counterparty, and (3) monitoring the financial
condition of its counterparties.

All derivatives are recognized on the balance
sheet at their fair market value. On the date that the Company
enters into a derivative contract, it designates the derivative
as (1) a hedge of the fair value of a recognized asset or
liability, or (2) an instrument that is held for trading or
non-hedging purposes (a trading or
non-hedging instrument). Since April 1, 2001,
the Company has designated all derivative contracts as a fair
value hedge and has not entered into derivatives for purposes of
trading. Changes in the fair value of a derivative that is
highly effective and is designated and qualifies as a fair value
hedge, along with changes in the fair value of the hedged asset
or liability that are attributable to the hedged risk, are
recorded in the current period earnings.

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ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company formally documents all relationships
between hedging instruments and hedged items, as well as its
risk-management objective and strategy for undertaking various
hedge transactions. This process includes linking all
derivatives that are designated as fair-value hedges to specific
assets on the balance sheet. The Company also formally assesses
(both at the hedges inception and on an ongoing basis)
whether the derivatives that are used in the hedging
transactions have been highly effective in offsetting changes in
fair value of the hedged items and whether those derivatives may
be expected to remain highly effective in future periods. When
it is determined that a derivative is not (or has ceased to be)
highly effective as a hedge, the Company discontinues hedge
accounting prospectively. The Company discontinues hedge
accounting prospectively when (1) it determines that the
derivative is no longer effective in offsetting changes in the
fair value of a hedged item, (2) that the derivative
expires or is sold, terminated or exercised, or
(3) management determines that designating the derivative
as a hedging instrument is no longer appropriate.

In January 2001, the Company entered into two
derivative contracts (Derivative Agreements) with a
brokerage firm and received aggregate cash proceeds of
approximately $31.0 million. The Derivative Agreements have
repayment provisions that incorporate a collar arrangement with
respect to 490,000 shares of Vitesse Semiconductor common stock.
The Company, at its option, may settle the contracts by either
delivering Vitesse shares or making a cash payment to the
brokerage firm in January 2003, the maturity date of the
Derivative Agreements. The number of Vitesse shares to be
delivered or the amount of cash to be paid is determined by a
formula in the Derivative Agreements based upon the market price
of the Vitesse shares on the settlement date. Under the
Derivative Agreements, if the stock price of Vitesse exceeds the
ceiling of the collar, then the settlement amount also increases
by an amount determined by a formula included in the Derivative
Agreements (generally equal to the excess of the value of the
stock over the ceiling of the collar). If the stock price of
Vitesse declines below the floor of the collar, then the
settlement amount also decreases by an amount determined by a
formula included in the Derivative Agreements (generally equal
to the excess of the floor of the collar over the value of the
stock).

In August 2001, the Company entered into a
cashless collar arrangement with a brokerage firm with respect
to 75,000 shares of Broadcom common stock. The collar
arrangement consists of written call option to buy 75,000 shares
of Broadcom common stock at a price of $64.72 and a purchased
put option to sell 75,000 shares at a price of $36.72 through
August 2002.

In December 2001, the Company entered into a
derivative contract with a brokerage firm and received aggregate
cash proceeds of $5.0 million. The contract has repayment
provisions that incorporate a collar arrangement with respect to
362,173 shares of Adaptec common stock. The Company has to
deliver a certain number of Adaptec shares in June 2003, the
maturity date of the contract. The number of Adaptec shares to
be delivered is determined by a formula in the contract based
upon the market price of the Adaptec shares on the settlement
date. Under the contract, if the stock price of Adaptec is
outside of the collar (the floor of which is $16.26 and the
ceiling of which is $21.99), the number of Adaptec shares to be
delivered equals 362,173. If the stock price of Adaptec is
within the collar, the Company will have to deliver that number
of Adaptec shares having total value equal to $5.9 million.

During fiscal 2002, the Company recorded a gain
of $2.2 million relating to the Vitesse hedged instrument,
offset by a loss of $6.9 million on the Vitesse
investments. The Company recognized a gain of approximately
$448,000 for the Broadcom hedged instrument offset by a loss of
$832,000, on the Broadcom investment. The Company also recorded
a gain of $680,000 relating to the Adaptec derivative contract
and a loss of $1.0 million on the Adaptec investments.

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ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 17.     Leases,
Commitments and Contingencies



| |                 
| | ----------------
| | Operating Leases

The Company leases its headquarters facility
under an operating lease that expires in June 2006. Under the
terms of the lease, the Company is required to pay property
taxes, insurance and maintenance costs. In addition, the Company
also leases sales and design center offices under operating
leases, which expire between 2002 and 2007.

Future minimum fiscal rental payments under
non-cancelable operating leases are as follows:

|               |      |            |       |       | 
|-------------- | ---- | ---------- | ----- | ----- | 
|Fiscal Year    |      | (In       
|               |      | thousands)
|               | 2003 |            | $     | 2,292 | 
|               | 2004 |            |       | 1,848 | 
|               | 2005 |            |       | 1,696 | 
|               | 2006 |            |       | 1,754 | 
|               | 2007 |            |       | 550   | 
|               |      |            |       |      
|Total payments |      | $          | 8,140 |      
|               |      |            |       |      

Rent expense for fiscal 2002, 2001, and 2000, was
$2.2 million, $1.8 million and $1.4 million,
respectively.



| |               
| | --------------
| | Capital Leases

At March 31, 2002, equipment under capital
leases amounted to approximately $2.1 million compared to
$2.2 million at March 31, 2001. The original lease
terms ranged from three to five years.

The following is a schedule of future minimum
fiscal lease payments under capital leases:

|                                      |  |            |      |  
|------------------------------------- |  | ---------- | ---- | -
|Fiscal Year                           |  | (In       
|                                      |  | thousands)
|2003                                  |  | $          | 686  |  
|2004                                  |  |            | 100  |  
|                                      |  |            |      |  
|Total payments minimum lease payments |  |            | 786  |  
|Amount representing interest          |  |            | (133 | )
|                                      |  |            |      |  
|                                      |  |            | 653  |  
|Less current portion                  |  |            | (587 | )
|                                      |  |            |      |  
|Long-term capital lease obligations   |  | $          | 66   |  
|                                      |  |            |      |  



| |                       
| | ----------------------
| | Certificate of Deposit

At March 31, 2002, the Company held one
certificate of deposit secured by restricted cash in the amount
of $1.7 million, which expired on April 1, 2002.



| |                                   
| | ----------------------------------
| | Investment Company Act of
    1940

Due to the Companys investments in
unconsolidated entities, it has exceeded a threshold in the
Investment Company Act of 1940 which would require the Company
to register as an investment company. In August 2000, the
Company applied to the SEC for an order under
section 3(b)(2) of the Act confirming its
non-investment-company status. In March 2002, the staff of the
SEC informed the Company that the staff could not support the
granting of the requested exemption. Since that time, the
Company has been working diligently to resolve its status under
the

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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Act. Most recently, the Company recommenced
informal discussions with the staff of the SEC to assess various
means to achieve that goal. The Company anticipates in
particular raising with the staff in the near future the
possibility of seeking exemptive relief under the Act different
from that applied for in 2000. No assurances can be given that
the staff and the SEC would act favorably upon such a request,
or that the SEC will agree that the Company is not currently
deemed to be an unregistered investment company in violation of
the Act. If the SEC takes the view that the Company has been
operating and continues to operate as an unregistered investment
company in violation of the Act, and does not provide the
Company with a sufficient period to either register as an
investment company or divest itself of investment securities
and/or acquire non-investment securities, the Company may be
subject to significant potential penalties.

In the absence of exemptions granted by the SEC
(if it determines to do so in its discretion after an assessment
of the public interest), the Company would be required either to
register as a closed-end investment company under the Act, or,
in the alternative, to divest itself of sufficient investment
securities and/or to acquire sufficient non-investment assets so
as not to be regarded as an investment company under the Act.

If the Company elects to register as a closed-end
investment company under the Act, a number of significant
requirements will be imposed upon the Company. These would
include, but not be limited to, a requirement that at least 40%
of the Companys board of directors not be interested
persons of the Company as defined in the Act and that
those directors be granted certain special rights with respect
to the approval of certain kinds of transactions (particularly
those that pose a possibility of giving rise to conflicts of
interest); prohibitions on the grant of stock options that would
be outstanding for more than 120 days and upon the use of
stock for compensation (which could be highly detrimental to the
Company in view of the competitive circumstances in which it
seeks to attract and retain qualified employees); and broad
prohibitions on affiliate transactions, such as the compensation
arrangements applicable to the management of Alliance Venture
Management, many kinds of incentive compensation arrangements
for management employees and joint investment by persons who
control the Company in entities in which the Company is also
investing (which could require the Company to abandon or
significantly restructure its management arrangements,
particularly with respect to its investment activities). While
the Company could apply for individual exemptions from these
restrictions, there could be no guarantee that such exemptions
would be granted, or granted on terms that the Company would
deem practical. Additionally, the Company would be required to
report its financial results in a different form from that
currently used by the Company, which would have the effect of
turning the Companys Statement of Operations upside
down by requiring that the Company report its investment
income and the results of its investment activities, instead of
its operations, as its primary sources of revenue.

If the Company elects to divest itself of
sufficient investment securities and/or to acquire sufficient
non-investment assets so as not to be regarded as an investment
company under the Act. The Company would need to ensure that the
value of investment securities (excluding the value of
U.S. Government securities and securities of certain
majority-owned subsidiaries) does not exceed forty percent (40%)
of the Companys total assets (excluding the value of U.S.
Government securities and cash items) on an unconsolidated
basis. In seeking to meet this requirement, the Company might
choose to divest itself of assets that it considers
strategically significant for the conduct of its operations or
to acquire additional operating assets that would have a
material effect on the Companys operations. There can be
no assurance that the Company could identify such operating
assets to acquire or could successfully acquire such assets. Any
such acquisition could result in the Company issuing additional
shares that may dilute the equity of the Companys existing

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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

stockholders, and/or result in the Company
incurring additional indebtedness, which could have a material
impact on the Companys balance sheet and results of
operations. Were the Company to acquire any additional
businesses, there would be the additional risk that the
companies acquired and previously-existing businesses could be
disrupted while the Company attempted to integrate the acquired
business, as well as risks associated with the Company
attempting to manage a new business with which it was not
familiar. Any of the above risks could result in a material
adverse effect on the Companys results of operations and
financial condition.

Note 18.     Provision
(Benefit) for Income Taxes

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

|          |         |                           |          |          |          |      |          |          |          |   |         |         |         | 
|--------- | ------- | ------------------------- | -------- | -------- | -------- | ---- | -------- | -------- | -------- | - | ------- | ------- | ------- | 
|          |         |                          
|          |         | Year Ended March 31,     
|          |         |                          
|          |         | 2002                      |          | 2001     |          | 2000
|          |         |                           |          |          |          |     
|          |         |                          
|          |         | (In thousands)           
|Current:  |         |                           |          |          |          |      |          |          |          |   |         |        
|          | Federal |                           | $        | 14,114   |          |      | $        | 28,969   |          |   | $       | 14,340  |        
|          | State   |                           |          | 2,137    |          |      |          | 5,291    |          |   |         | 228     |        
|          | Foreign |                           |          |         |          |      |          | 34       |          |   |         |        |        
|          |         |                           |          |          |          |      |          |          |          |   |         |        
|          |         |                           | 16,251   |          |          |      | 34,294   |          |          |   | 14,568  |        
|          |         |                           |          |          |          |      |          |          |          |   |         |        
|Deferred: |         |                           |          |          |          |      |          |          |          |   |         |        
|          | Federal |                           |          | (138,048 | )        |      |          | (185,070 | )        |   |         | 340,351 |        
|          | State   |                           |          | (20,904  | )        |      |          | (29,180  | )        |   |         | 55,429  |        
|          |         |                           |          |          |          |      |          |          |          |   |         |        
|          |         |                           | (158,952 | )        |          |      | (214,250 | )        |          |   | 395,780 |        
|          |         |                           |          |          |          |      |          |          |          |   |         |        
|          |         | Total provision (benefit) |          | $        | (142,701 | )    |          | $        | (179,956 | ) |         | $       | 410,348 | 
|          |         |                           |          |          |          |      |          |          |          |   |         |        

In addition, a net deferred income tax benefit of
$2.8 million was recorded in minority interest in
subsidiary company, equity in income (loss) of investees,
and cumulative effect of change in accounting principle in
fiscal 2002.

Deferred tax assets (liabilities) comprise
the following:

|                              |                                |                |          |          |   |   |          |          |  
|----------------------------- | ------------------------------ | -------------- | -------- | -------- | - | - | -------- | -------- | -
|                              |                                |               
|                              |                                | March 31,     
|                              |                                |               
|                              |                                | 2002           |          | 2001    
|                              |                                |                |          |         
|                              |                                |               
|                              |                                | (In thousands)
|Inventory reserves            |                                | $              | 26,009   |          |   | $ | 14,743   |         
|Accrued expenses and reserves |                                |                | 2,763    |          |   |   | 1,839    |         
|Investment in Tower           |                                |                | 7,226    |          |   |   |         |         
|Investment in PMC-Sierra      |                                |                | 138      |          |   |   |         |         
|Other                         |                                |                | 6,156    |          |   |   | 3,866    |         
|                              |                                |                |          |          |   |   |          |         
|                              | Gross deferred tax assets      |                |          | 42,292   |   |   |          | 20,448   |  
|                              |                                |                |          |          |   |   |          |         
|Investment in UMC             |                                |                | (150,760 | )        |   |   | (193,102 | )       
|Investment in Broadcom        |                                |                | (1,057   | )        |   |   | (2,254   | )       
|Investment in Chartered       |                                |                | (1,892   | )        |   |   |         |         
|Investment in Vitesse         |                                |                | (2,436   | )        |   |   | (6,549   | )       
|Investment in Magna           |                                |                | (810     | )        |   |   |         |         
|Investment in Adaptec         |                                |                | (5,659   | )        |   |   |         |         
|Investment in PMC-Sierra      |                                |                |         |          |   |   | (73      | )       
|                              |                                |                |          |          |   |   |          |         
|                              | Gross deferred tax liabilities |                |          | (162,614 | ) |   |          | (201,978 | )
|                              |                                |                |          |          |   |   |          |         
|                              |                                | $              | (120,322 | )        |   | $ | (181,530 | )       
|                              |                                |                |          |          |   |   |          |         

F-28



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                    |       |                                    |          |          |   |      |          |          |   |   |         |         | 
|----------------------------------- | ----- | ---------------------------------- | -------- | -------- | - | ---- | -------- | -------- | - | - | ------- | ------- | 
|                                    |       |                                   
|                                    |       | Year Ended March 31,              
|                                    |       |                                   
|                                    |       | 2002                               |          | 2001     |   | 2000
|                                    |       |                                    |          |          |   |     
|                                    |       |                                   
|                                    |       | (In thousands, except percentages)
|Federal statutory rate              |       |                                    | 35       | %        |   |      | 35       | %        |   |   | 35      | %      
|Tax at federal statutory rate       |       | $                                  | (131,773 | )        |   | $    | (156,289 | )        |   | $ | 367,274 |        
|State taxes, net of federal benefit |       |                                    | (8,358   | )        |   |      | (25,893  | )        |   |   | 59,813  |        
|Change in valuation allowance       |       |                                    |         |          |   |      |         |          |   |   | (17,815 | )      
|Other, net                          |       |                                    | (2,570   | )        |   |      | 2,226    |          |   |   | 1,076   |        
|                                    |       |                                    |          |          |   |      |          |          |   |   |         |        
|                                    | Total |                                    | $        | (142,701 | ) |      | $        | (179,956 | ) |   | $       | 410,348 | 
|                                    |       |                                    |          |          |   |      |          |          |   |   |         |        

The tax benefit associated with the exercises of
non-qualified stock options and disqualifying dispositions of
incentive stock options reduced taxes currently payable by
$402,000, $1.7 million and $3.5 million in fiscal
2002, 2001 and 2000, respectively.

Note 19.     Stock
Option Plans



| |                       
| | ----------------------
| | 1992 Stock Option Plan

In April 1992, the Company adopted the 1992 Stock
Option Plan (the Plan) for issuance of common stock
to employees and consultants of the Company. At March 31,
2002, 13,000,000 shares of the Companys Common Stock was
reserved under the Plan for issuance. In April 2002, the 2002
Stock Option Plan, was adopted to replace the expired 1992 Stock
Option Plan. The Board of Directors may terminate the Plan at
any time at its discretion.

Incentive stock options may not be granted at
less than 100 percent of the fair value of the
Companys common stock at the date of grant and the option
term may not exceed 10 years. Options granted vest over a
period of 5 years. For holders of more than 10 percent
of the total combined voting power of all classes of the
Companys stock, options may not be granted at less than
110 percent of the current market price of the common stock
at the date of grant and the option term may not exceed five
years.



| |                                 
| | --------------------------------
| | Directors Stock Option
    Plan

On September 30, 1993, the Company adopted
its 1993 Directors Stock Option Plan
(Directors Plan), under which 900,000 shares
of common stock have been reserved for issuance. The
Directors Plan provides for the automatic grant to each
non-employee director of the Company (but excluding persons on
the Companys Board of Directors in November 1993) of an
option to purchase 22,500 shares of common stock on the date of
such directors election to the Companys Board of
Directors. Thereafter, such director will receive an automatic
annual grant of an option to purchase 11,250 shares of common
stock on the date of each annual meeting of the Companys
stockholders at which such director is re-elected. The maximum
number of shares that may be issued to any one director under
this plan is 90,000. Such options will vest ratably over four
years from their respective dates of grant. No options were
granted in fiscal 2002 under the Directors Plan.

F-29



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes grant and stock
option activity under the Plan and the Directors Plan for
fiscal years 2002, 2001, and 2000:

|                          |                    |                     |           |                     |   |                         |           |           |   |   |       |       | 
|------------------------- | ------------------ | ------------------- | --------- | ------------------- | - | ----------------------- | --------- | --------- | - | - | ----- | ----- | 
|                          |                    |                     |           |                    
|                          |                    |                     |           | Options Outstanding
|                          |                    | Options             |           |                    
|                          |                    | Available for Grant |           | Shares              |   | Weighted Average Prices
|                          |                    |                     |           |                     |   |                        
|Balance at March 31, 1999 |                    |                     | 1,305,663 |                     |   |                         | 2,741,298 |           |   | $ | 5.37  |      
|                          | Options authorized |                     |           | 2,000,000           |   |                         |           |          |   |   |       |       | 
|                          | Options granted    |                     |           | (1,150,950          | ) |                         |           | 1,150,950 |   |   | $     | 11.91 | 
|                          | Options canceled   |                     |           | 925,374             |   |                         |           | (925,374  | ) |   | $     | 5.49  | 
|                          | Options exercised  |                     |           |                    |   |                         |           | (677,717  | ) |   | $     | 5.85  | 
|                          |                    |                     |           |                     |   |                         |           |           |   |   |       |      
|Balance at March 31, 2000 |                    |                     | 3,080,087 |                     |   |                         | 2,289,157 |           |   | $ | 8.44  |      
|                          | Options authorized |                     |           | 2,000,000           |   |                         |           |          |   |   |       |       | 
|                          | Options granted    |                     |           | (627,250            | ) |                         |           | 627,250   |   |   | $     | 19.46 | 
|                          | Options canceled   |                     |           | 267,850             |   |                         |           | (267,850  | ) |   | $     | 13.93 | 
|                          | Options exercised  |                     |           |                    |   |                         |           | (274,195  | ) |   | $     | 5.51  | 
|                          |                    |                     |           |                     |   |                         |           |           |   |   |       |      
|Balance at March 31, 2001 |                    |                     | 4,720,687 |                     |   |                         | 2,374,362 |           |   | $ | 11.11 |      
|                          | Options granted    |                     |           | (1,151,500          | ) |                         |           | 1,151,500 |   |   | $     | 11.81 | 
|                          | Options canceled   |                     |           | 852,050             |   |                         |           | (852,050  | ) |   | $     | 14.68 | 
|                          | Options exercised  |                     |           |                    |   |                         |           | (193,325  | ) |   | $     | 5.25  | 
|                          |                    |                     |           |                     |   |                         |           |           |   |   |       |      
|Balance at March 31, 2002 |                    |                     | 4,421,237 |                     |   |                         | 2,480,487 |           |   | $ | 10.66 |      
|                          |                    |                     |           |                     |   |                         |           |           |   |   |       |      

As of March 31, 2002, options to purchase
653,077 shares of common stock were exercisable.

The weighted average estimated fair value at the
date of grant, as defined by SFAS 123, for options granted
in fiscal 2002, 2001, and 2000 was $7.38, $14.69, and $8.57,
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, 2002,
and related weighted average exercise price and contractual life
information are as follows:

Outstanding and Exercisable by Price
Range

|                         |  |                |           |                  |  |          |      |                 |  |          |       |  |  |  |         |  |  |   |       | 
|------------------------ |  | -------------- | --------- | ---------------- |  | -------- | ---- | --------------- |  | -------- | ----- |  |  |  | ------- |  |  | - | ----- | 
|                         |  | Number         |           |                  |  |          |      | Number Vested   |  |         
|                         |  | Outstanding as |           | Weighted         |  | Weighted |      | and             |  | Weighted
|                         |  | of             |           | Average          |  | Average  |      | Exercisable     |  | Average 
|                         |  | March 31,      |           | Remaining        |  | Exercise |      | as of March 31, |  | Exercise
|Range of Exercise Prices |  | 2002           |           | Contractual Life |  | Price    |      | 2002            |  | Price   
|                         |  |                |           |                  |  |          |      |                 |  |         
|$2.094-$2.9060           |  |                | 250,140   |                  |  |          | 2.62 |                 |  | $        | 2.50  |  |  |  | 107,960 |  |  | $ | 2.46  | 
|$3.000-$7.3438           |  |                | 272,525   |                  |  |          | 2.05 |                 |  | $        | 5.01  |  |  |  | 176,625 |  |  | $ | 5.10  | 
|$7.3575-$11.1880         |  |                | 685,492   |                  |  |          | 3.53 |                 |  | $        | 9.98  |  |  |  | 240,590 |  |  | $ | 9.37  | 
|$11.250-$11.500          |  |                | 165,500   |                  |  |          | 5.84 |                 |  | $        | 11.42 |  |  |  | 1,200   |  |  | $ | 11.27 | 
|$11.5625-$12.8125        |  |                | 530,680   |                  |  |          | 4.74 |                 |  | $        | 12.06 |  |  |  | 57,552  |  |  | $ | 12.38 | 
|$12.9000-13.0200         |  |                | 291,000   |                  |  |          | 5.09 |                 |  | $        | 13.00 |  |  |  | 100     |  |  | $ | 12.94 | 
|$13.3800-$27.2500        |  |                | 285,150   |                  |  |          | 4.21 |                 |  | $        | 19.40 |  |  |  | 69,050  |  |  | $ | 19.27 | 
|                         |  |                |           |                  |  |          |      |                 |  |          |       |  |  |  |         |  |  |   |       | 
|$2.0940-$27.2500         |  |                | 2,480,487 |                  |  |          | 3.95 |                 |  | $        | 10.66 |  |  |  | 653,077 |  |  | $ | 8.39  | 
|                         |  |                |           |                  |  |          |      |                 |  |          |       |  |  |  |         |  |  |   |       | 

F-30



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following assumptions are used to estimate
the fair value for stock options on the grant date:

|                        |  |            |  |            |  |           
|----------------------- |  | ---------- |  | ---------- |  | ----------
|                        |  | 2002       |  | 2001       |  | 2000      
|                        |  |            |  |            |  |           
|Expected life           |  | 5.00 years |  | 5.00 years |  | 5.00 years
|Risk-free interest rate |  | 4.9%       |  | 4.8%       |  | 6.7%      
|Volatility              |  | 87.6%      |  | 87.6%      |  | 86.0%     
|Dividend yield          |  | 0.0%       |  | 0.0%       |  | 0.0%      



| |                             
| | ----------------------------
| | Employee Stock Purchase Plan

In September 1996, the Company and its
shareholders approved an Employee Stock Purchase Plan
(ESPP), which allows eligible employees of the
Company and its designated subsidiaries to purchase shares of
common stock through payroll deductions. The ESPP consists of a
series of 12-month offering periods composed of two consecutive
6-month purchase periods. The purchase price per share is 85% of
the fair market value of the common stock, at the date of
commencement of the offering period, or at the last day of the
respective 6-month purchase period, whichever is lower.
Purchases are limited to 10% of an eligible employees
compensation, subject to a maximum annual employee contribution
and limited to a $25,000 fair market value. Of the
750,000 shares of common stock authorized under the ESPP,
48,550, 45,051, and 119,765 shares were issued during
fiscal 2002, 2001, and 2000, respectively. At March 31,
2002, there were 232,029 shares available under the ESPP.

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

|                        |  |          |  |          |  |         
|----------------------- |  | -------- |  | -------- |  | --------
|                        |  | 2002     |  | 2001     |  | 2000    
|                        |  |          |  |          |  |         
|Expected life           |  | 6 months |  | 6 months |  | 6 months
|Risk-free interest rate |  | 2.8%     |  | 3.6%     |  | 6.4%    
|Volatility              |  | 57.2%    |  | 87.6%    |  | 78.0%   
|Dividend yield          |  | 0.0%     |  | 0.0%     |  | 0.0%    

The weighted average estimated grant date fair
value, as defined by SFAS 123, of rights to purchase common
stock under the ESPP granted in fiscal 2002, 2001, and 2000 was
$4.51, $8.43, and $2.24 per share, respectively.



| |                                                                          
| | -------------------------------------------------------------------------
| | Pro Forma Net Income (Loss) and Pro Forma
    Net Income (Loss) Per Share

Had the Company recorded compensation expense
based on the estimated grant date fair value, as defined by SFAS
123, for awards granted under the Plan, the Directors Plan
and its ESPP, the Companys pro forma net income
(loss) and pro forma net income (loss) per share for
the years ended March 31, 2002, 2001, and 2000, would have
been as follows (in thousands, except per share data):

|                                       |         |           |          |       |   |      |          |       |   |   |         |       | 
|-------------------------------------- | ------- | --------- | -------- | ----- | - | ---- | -------- | ----- | - | - | ------- | ----- | 
|                                       |         |          
|                                       |         | March 31,
|                                       |         |          
|                                       |         | 2002      |          | 2001  |   | 2000
|                                       |         |           |          |       |   |     
|Pro forma net income (loss):           |         | $         | (242,759 | )     |   | $    | (274,635 | )     |   | $ | 646,905 |      
|Pro forma net income (loss) per share: |         |           |          |       |   |      |          |       |   |   |         |      
|                                       | Basic   |           | $        | (5.91 | ) |      | $        | (6.64 | ) |   | $       | 15.47 | 
|                                       | Diluted |           | $        | (5.91 | ) |      | $        | (6.64 | ) |   | $       | 15.05 | 

F-31



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 20.     401(k)
Salary Savings Plan

Effective May 1992, the Company adopted the
Salary Savings Plan (the Savings Plan) pursuant to
Section 401(k) of the Internal Revenue Code (the
Code), whereby eligible employees may contribute up
to 15% of their earnings, not to exceed amounts allowed under
the Code. Effective April 1999, the Company agreed to match up
to 50% of the first 6% of the employee contribution to a maximum
of two thousand dollars annually per employee. The
Companys matching contribution vests over five years. In
fiscal 2002, 2001, and 2000, the Company contributed
approximately $117,600, $115,000, and $131,000, respectively.

Note 21.     Legal
Matters

In July 1998, the Company learned that a default
judgment was entered against the Company in Canada, in the
amount of approximately $170 million (USD), in a case filed
in 1985 captioned Prabhakara Chowdary Balla and TritTek Research
Ltd. v. Fitch Research Corporation, et al., British Columbia
Supreme Court No. 85-2805 (Victoria Registry). The Company,
which had previously not participated in the case, believes that
it never was properly served with process in this action, and
that the Canadian court lacks jurisdiction over the Company in
this matter. In addition to jurisdictional and procedural
arguments, the Company also believes it may have grounds to
argue that the claims against the Company should be deemed
discharged by the Companys bankruptcy in 1991. In February
1999, the court set aside the default judgment against the
Company. In April 1999, the plaintiffs were granted leave by the
Court to appeal this judgment. Oral arguments were made before
the Court of Appeals in June 2000. In July 2000 the Court of
Appeals instructed the lower Court to allow the parties to take
depositions regarding the issue of service of process, while
also setting aside the default judgment against the Company. The
plaintiffs appealed the setting aside of the default judgment
against the Company to the Canadian Supreme Court. In June 2001,
the Canadian Supreme Court refused to hear the appeal of the
setting aside of the default judgment against the Company. The
Company believes the resolution of this matter will not have a
material adverse effect on its financial conditions and its
results of operations.

In November 2001 Amstrad plc
(Amstrad) filed suit against the Company in England
in the amount of approximately $1.5 million. This claim is
based on allegations that a batch of 15,000 parts supplied by
the Company, and which were incorporated into Amstrad products,
were defective. The Company has investigated whether there are
sufficient grounds to dispute the jurisdiction of the English
Court to hear this case. In November 2001, the Company had filed
suit in the California Superior Court for $45,000 owed for the
parts sold to Amstrad that were not paid for. In January 2002,
the California Superior Court granted Amstrads motion to
quash the Companys California action for lack of
jurisdiction. As a consequence, there are no grounds to dispute
the jurisdiction of the English Court to hear Amstrads
suit. The Company has prepared a detailed defense to
Amstrads suit, which was filed in February 2002. The
Company believes the resolution of this matter will not have a
material adverse effect on its financial conditions and its
results of operations.

In February 1997, Micron Technology, Inc. filed
an antidumping petition with the United States International
Trade Commission (ITC) and United States Department
of Commerce (DOC), alleging that SRAMs fabricated in
Taiwan were being sold in the United States at less than fair
value, and that the United States industry producing SRAMs was
materially injured or threatened with material injury by reason
of imports of SRAMs fabricated in Taiwan. After a final
affirmative DOC determination of dumping and a final affirmative
ITC determination of injury, DOC issued an antidumping duty
order in April 1998. Under that order, the Companys
imports into the United States on or after approximately
April 16, 1998 of SRAMs fabricated in Taiwan were subject
to a

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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

cash deposit in the amount of 50.15% (the
Antidumping Margin) of the entered value of such
SRAMs. (The Company posted a bond in the amount of 59.06% (the
preliminary margin) with respect to its importation, between
approximately October 1997 and April 1998, of SRAMs fabricated
in Taiwan.) In May 1998, the Company and others filed an appeal
in the United States Court of International Trade (the
CIT), challenging the determination by the ITC that
imports of Taiwan-fabricated SRAMs were causing material injury
to the U.S. industry. Following two remands from the CIT, the
ITC, on June 12, 2000, reversed its original determination
that Taiwan-fabricated SRAMs were causing material injury to the
U.S. industry. The CIT affirmed the ITCs negative
determination on August 29, 2000, and Micron appealed to
the U.S. Court of Appeals for the Federal Circuit
(CAFC). On September 21, 2001, the CAFC
affirmed the ITCs negative injury determination. The
Company had made cash deposits in the amount of
$1.7 million and had posted a bond secured by a letter of
credit in the amount of approximately $1.7 million relating
to the Companys importation of Taiwan-manufactured SRAMs.
The balances remained unchanged at December 31, 2001. In
January 2002, the decision of the CIT was made final and the DOC
revoked the order and instructed the U.S. Customs Service to
refund the Companys cash deposits with interest. The
Company received a refund of $2.6 million, including interest of
approximately $515,000 from its deposits during the quarter
ended March 31, 2002. In the first quarter of fiscal 2003,
the Company received approximately $262,000, including interest
of approximately $56,000; also, the cash deposit of
$1.7 million at March 31, 2002 has been released and
became unrestricted in April 2002.

Note 22.     Related
Party Transactions

On May 18, 1998, the Company provided loans
to two of its officers and a director aggregating
$1.7 million. The officers loans were used for the
payment of taxes resulting from the gain on the exercise of
non-qualified stock options. The loan to a director was used for
the exercise of stock options. Under these loans, both principal
and accrued interest were due on December 31, 1999, with
accrued interest at rates ranging from 5.50% to 5.58% per annum.
The loan to the director was paid at December 31, 1999. In
fiscal 2002, the officer loans were extended to
December 31, 2002. As of March 31, 2002,
$1.6 million was outstanding under these loans with accrued
interest of $341,000.

In fiscal 2002, the Company paid Alliance Venture
Management, LLC, which is managed by certain of the
Companys officers, $875,000 in management fees. Management
fees are based upon the commitment of each fund, Alliance
Ventures I, II, III, IV and V. Annually, Alliance Venture
Management is paid 0.5% of the total fund commitment of each of
the funds. This amount is then offset by the Companys
billings to Alliance Venture Management for expenses incurred by
the officers.

Alliance Venture Management receives 15 -16% of
the realized gains of the venture funds. In fiscal 2002, the
Company made distributions of cash and marketable securities to
the partners of

F-33



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Alliance Venture Management totaling
$5.2 million. Details of the distributions are as follows
(in thousands):

|                       |  |                   |       |             |  |               |       |  |  |   |       | 
|---------------------- |  | ----------------- | ----- | ----------- |  | ------------- | ----- |  |  | - | ----- | 
|                       |  | Market Value of   |       | Cash        |  | Total        
|Officer/Employee       |  | Stock Distributed |       | Distributed |  | Distributions
|                       |  |                   |       |             |  |              
|N. Damodar Reddy       |  | $                 | 995   |             |  | $             | 571   |  |  | $ | 1,566 | 
|C.N. Reddy             |  |                   | 995   |             |  |               | 571   |  |  |   | 1,566 | 
|Non-executive employee |  |                   | 1,175 |             |  |               | 686   |  |  |   | 1,861 | 
|Brad Perkins           |  |                   | 126   |             |  |               | 76    |  |  |   | 202   | 
|                       |  |                   |       |             |  |               |       |  |  |   |       | 
|Totals                 |  | $                 | 3,291 |             |  | $             | 1,904 |  |  | $ | 5,195 | 
|                       |  |                   |       |             |  |               |       |  |  |   |       | 

Note 23.     Segment
and Geographic Information

The Company operates in one reportable segment,
semiconductor. The products within the semiconductor segment
include: Static Random Access Memories, Dynamic Random Access
Memories, Flash Memories and Mixed Signal Integrated Circuits.

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

|                               |       |                      |       |        |  |      |        |         |  |   |        |        | 
|------------------------------ | ----- | -------------------- | ----- | ------ |  | ---- | ------ | ------- |  | - | ------ | ------ | 
|                               |       |                     
|                               |       | Year Ended March 31,
|                               |       |                     
|                               |       | 2002                 |       | 2001   |  | 2000
|                               |       |                      |       |        |  |     
|                               |       |                     
|                               |       | (In thousands)      
|United States                  |       | $                    | 6,968 |        |  | $    | 77,114 |         |  | $ | 36,088 |       
|Taiwan                         |       |                      | 3,894 |        |  |      | 35,666 |         |  |   | 11,310 |       
|Japan                          |       |                      | 2,603 |        |  |      | 36,775 |         |  |   | 10,251 |       
|Asia (except Taiwan and Japan) |       |                      | 4,044 |        |  |      | 19,069 |         |  |   | 6,211  |       
|Europe (except UK)             |       |                      | 3,735 |        |  |      | 18,724 |         |  |   | 15,042 |       
|UK                             |       |                      | 4,981 |        |  |      | 20,363 |         |  |   | 10,251 |       
|Rest of world                  |       |                      | 322   |        |  |      | 967    |         |  |   |       |       
|                               |       |                      |       |        |  |      |        |         |  |   |        |       
|                               | Total |                      | $     | 26,547 |  |      | $      | 208,678 |  |   | $      | 89,153 | 
|                               |       |                      |       |        |  |      |        |         |  |   |        |       

International net revenues in fiscal 2002
decreased by 85% over fiscal 2001. International net revenues
are derived from customers outside the United States of America.
The largest decrease in international net revenues was to
customers in Japan, which decreased approximately 92.9% over
fiscal 2001. This decrease was due to an overall decrease in
product demand and lower average selling prices during the
fiscal year. International revenues increased 148% in fiscal
2001 compared to fiscal 2000. The largest increase in
international net revenues was to customers in Asia, which
increased approximately 236% over fiscal 2000. This increase was
attributable to overall increase in product demand and higher
average selling prices during the first three quarters of fiscal
2001.

Note
24.     Subsequent Events
(Unaudited)

During the first quarter of fiscal 2003, the
Company sold 15,000,000 of its shares in UMC, resulting in
proceeds of $20.8 million and sold all of its holdings in
Magma Design Automation, resulting in proceeds of approximately
$5.9 million.

In April 2002, the Company paid
$11.0 million to Tower Semiconductor, in accordance with
the terms of the share purchase agreement between the two
companies. The Company received an additional 1,071,497 shares
of Tower and prepaid wafer credits in the amount of
$4.4 million.

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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In May 2002, the Board of Directors increased the
number of shares the Company is authorized to repurchase from
4 million to 9 million. During the first quarter of
fiscal 2003, the Company repurchased 2,452,100 shares of its
stock for approximately $22.2 million.

In April 2002, the Company announced that it has
taken a perpetual license to the HyperTransportTM
technology developed by API NetWorks, Inc. (API).
API is a fabless semiconductor company and is involved in the
development of high-speed HyperTransport I/O interconnect
components for performance and bandwidth-intensive embedded
applications. In June 2002, the transaction closed and the
Company acquired the intangible assets from API Networks for
$3.2 million in cash. These intangible assets will be
written-off over a period of three years.

F-35



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##### Table of Contents






REPORT OF INDEPENDENT ACCOUNTANTS ON

FINANCIAL STATEMENT SCHEDULE


To the Board of Directors

of Alliance Semiconductor Corporation:


Our audits of the consolidated financial
statements referred to in our report dated April 26, 2002,
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 conjunction with the related consolidated financial
statements.



| |                               
| | ------------------------------
| | /s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California

April 26, 2002


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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION






SCHEDULE II: VALUATION AND QUALIFYING
ACCOUNTS


(In thousands)


|                          |                                                                                                |                     |   |           |  |            |   |               |  |  |   |         |   |  |   |        | 
|------------------------- | ---------------------------------------------------------------------------------------------- | ------------------- | - | --------- |  | ---------- | - | ------------- |  |  | - | ------- | - |  | - | ------ | 
|                          |                                                                                                | Balance at          |   |           |  |            |   | Balance at   
|Description               |                                                                                                | Beginning of Period |   | Additions |  | Reductions |   | End of Period
|                          |                                                                                                |                     |   |           |  |            |   |              
|Year ended March 31, 2002 |                                                                                                |                     |   |           |  |            |   |               |  |  |   |         |   |  |   |       
|                          | Allowance for doubtful accounts and sales-related
    reserves                                 |                     | $ | 3,581     |  |            | $ | 8,209         |  |  | $ | (9,942  | ) |  | $ | 1,848  | 
|                          | Inventory related reserves for excess and
    obsolescence; and lower of cost or market issues |                     | $ | 37,940    |  |            | $ | 33,363        |  |  | $ | (4,546  | ) |  | $ | 66,757 | 
|Year ended March 31, 2001 |                                                                                                |                     |   |           |  |            |   |               |  |  |   |         |   |  |   |       
|                          | Allowance for doubtful accounts and sales-related
    reserves                                 |                     | $ | 954       |  |            | $ | 3,310         |  |  | $ | (683    | ) |  | $ | 3,581  | 
|                          | Inventory related reserves for excess and
    obsolescence; and lower of cost or market issues |                     | $ | 8,270     |  |            | $ | 37,886        |  |  | $ | (8,216  | ) |  | $ | 37,940 | 
|Year ended March 31, 2000 |                                                                                                |                     |   |           |  |            |   |               |  |  |   |         |   |  |   |       
|                          | Allowance for doubtful accounts and sales-related
    reserves                                 |                     | $ | 2,527     |  |            | $ | 6,209         |  |  | $ | (7,782  | ) |  | $ | 954    | 
|                          | Inventory related reserves for excess and
    obsolescence; and lower of cost or market issues |                     | $ | 15,701    |  |            | $ | 5,862         |  |  | $ | (13,293 | ) |  | $ | 8,270  | 

F-37