<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                 Form 10 - K/A
                               (Amendment No. 1)

      [x] Annual Report Pursuant to Section 13 or 15(d) of
          the Securities Exchange Act of 1934 for the Fiscal Year Ended December
          31, 2000
                     or
      [_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934

          for the transition period from ____________ to ____________

                        Commission File Number 0-25996

                            TRANSWITCH CORPORATION
            (Exact name of Registrant as Specified in its Charter)

         Delaware                                    06-1236189
 (State of Incorporation)               (I.R.S. Employer Identification Number)

                            Three Enterprise Drive
                          Shelton, Connecticut 06484
                   (Address of Principal Executive Offices)
                           Telephone (203) 929-8810

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
                                    Yes X    No
                                        -
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of Common Stock on February 28,
2001, as reported on the Nasdaq National Market, was approximately
$1,595,572,812 Shares of Common Stock held by each executive officer and
director and by each person who to the Company's knowledge owns 5% or more of
the outstanding voting stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.

Common Stock, par value $.001 per share, outstanding at February 28, 2001:
84,855,227
4 1/2% Convertible Notes due 2005, outstanding at February 28, 2001:
$460,000,000

                      DOCUMENTS INCORPORATED BY REFERENCE

     Parts of the following document are incorporated by reference in Part III
     of this Form 10-K Report:
     (1) Proxy Statement for Registrant's 2001 Annual Meeting of Shareholders--
     Items 10, 11, 12 and 13.
================================================================================
<PAGE>

          AMENDED FILING OF FORM 10-K TO CORRECT CERTAIN INFORMATION

         This amendment is being filed for the sole purpose of correcting
information contained in Schedule II Valuation and Qualifying Accounts provided
as a schedule to Part IV, Item 14 in our Annual Report on Form 10-K for the year
ended December 31, 2000 and Exhibit 21.1 Subsidiaries of the Company. The text
of Item 14 is replaced in its entirety and the amended Schedule II Valuation and
Qualifying Accounts, Independent Auditor's Report, Exhibit 23.1, consent of KPMG
LLP, and Exhibit 21.1 Subsidiaries of the Company are filed herewith.


                                       2
<PAGE>

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

(a) 1.   Consolidated Financial Statements

     For the following financial information included herein, see Index on page
F-1:

          Independent Auditors' Report

          Consolidated Balance Sheets as of December 31, 2000 and December 31,
     1999

          Consolidated Statements of Income for each of the years in the three-
     year period ended December 31, 2000

          Consolidated Statements of Stockholders' Equity and Comprehensive
     Income for each of the years in the three-year period ended December 31,
     2000

          Consolidated Statements of Cash Flows for each of the years in the
     three-year period ended December 31, 2000.

          Notes to Consolidated Financial Statements


2.  Financial Statement Schedule

     The following financial statement schedule is included herein:

          Schedule II--Valuation and Qualifying Accounts

          All other schedules are not submitted because they are either not
     applicable, not required or because the information is included in the
     Consolidated Financial Statements


3.  Exhibits

 2.1      Agreement and Plan of Reorganization, dated July 25, 2000, by and
          among TranSwitch, TXC Acquisition Corporation and the Alacrity
          Stockholders (previously filed as an exhibit to the TranSwitch's
          Registration Statement on Form S-3 (File No. 333-44040) and
          incorporated herein by reference).

 2.2      Escrow Agreement, dated August 1, 2000, by and among TranSwitch, the
          Alacrity Stockholders and the other parties thereto (previously filed
          as an exhibit to the TranSwitch's Registration Statement on Form S-3
          (File No. 333-44040) and incorporated herein by reference).

 2.3      Share for Share Exchange Agreement, dated May 9, 2000, by and among
          TranSwitch and the Easics Stockholders (previously filed as an exhibit
          to the TranSwitch's Registration Statement on Form S-3 (File No. 333-
          38318) and incorporated herein by reference).

 2.4      Escrow Agreement, dated May 9, 2000, by and among TranSwitch, the
          Easics Stockholders and the other parties thereto (previously filed as
          an exhibit to the TranSwitch's Registration Statement on Form S-3
          (File No. 333-38318) and incorporated herein by reference).


                                       3

<PAGE>

3.1      Amended and Restated Certificate of Incorporation of the Company, as
         amended (previously filed as Exhibit 3.1 to the TranSwitch's quarterly
         report on Form 10-Q for the quarter ended June 30, 2000 and
         incorporated herein by reference.

3.2      By-Laws, as amended and restated, of the Company (previously filed as
         an exhibit to the TranSwitch's Registration Statement on Form S-1 (File
         No. 33-91694) and incorporated herein by reference).

4.1      Specimen certificate representing the Common Stock of the Company
         (previously filed as an exhibit to the TranSwitch's Registration
         Statement on Form S-1 (File No. 33-91694) and incorporated herein by
         reference).

4.2      Registration Rights Agreement, dated August 1, 2000, by and among
         TranSwitch and the Alacrity Stockholders (previously filed as an
         exhibit to the TranSwitch's Registration Statement on Form S-3 (File
         No. 333-44040) and incorporated herein by reference).

4.3      Purchase Agreement, dated August 1, 2000, by and among TranSwitch,
         Alacrity, TXC Acquisition Corporation, Triophy Investments, Ltd. and
         Current Ventures II, Ltd. (previously filed as an exhibit to the
         TranSwitch's Registration Statement on Form S-3 (File No. 333-44040)
         and incorporated herein by reference).

4.4      Registration Rights Agreement, dated May 9, 2000, by and among
         TranSwitch and the Easics Stockholders (previously filed as an exhibit
         to the TranSwitch's Registration Statement on Form S-3 (File No. 333-
         38318) and incorporated herein by reference).

4.5      Indenture dated September 12, 2000, by and between TranSwitch and State
         Street Bank and Trust Company, including the forms of the 4 1/2%
         convertible promissory notes (previously filed as Exhibit 4.1 to the
         TranSwitch's quarterly report on Form 10-Q for the quarter ended
         September 30, 2000 and incorporated herein by reference).

4.6      Registration Rights Agreement dated September 12, 2000, by and among
         TranSwitch and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
         Smith Incorporated, Robertson Stephens, Inc. and Banc of America
         Securities LLC (previously filed as Exhibit 4.2 to the TranSwitch's
         quarterly report on Form 10-Q for the quarterly ended September 30,
         2000 and incorporated herein by reference).

4.7      1995 Stock Plan of Alacrity Communications, Inc. (previously filed as
         Exhibit 4.2 of the TranSwitch's Registration Statement on Form S-8
         (File No. 333-44032) and incorporated herein by reference).

4.8      Form of Stock Option Agreement under the 1995 Stock Plan of Alacrity
         Communications, Inc. (previously filed as Exhibit 4.3 to the
         TranSwitch's Registration Statement on Form S-8 (File No. 333-44032)
         and incorporated herein by reference).

10.1     Third Amended and Restated 1995 Stock Option Plan as amended
         (previously filed as an exhibit to the TranSwitch's Definitive Proxy
         Statement on Schedule 14A dated April 26, 1999 and incorporated herein
         by reference).

10.2     1995 Employee Stock Purchase Plan (previously filed as an exhibit to
         the TranSwitch's Registration Statement on Form S-1 (File No. 33-91694)
         and incorporated herein by reference).

10.3     1995 Non-Employee Director Stock Option Plan, as amended (previously
         filed as an exhibit to the TranSwitch's Definitive Proxy Statement on
         Schedule 14A dated April 26, 1999 and incorporated herein by
         reference).

10.4     Form of Incentive Stock Option Agreement under the 1995 Stock Plan of
         the Company (previously


                                       4

<PAGE>

         filed as an exhibit to the TranSwitch's Registration Statement on Form
         S-8 (File No. 33-94324) and incorporated herein by reference).

10.5     Form of Non-Qualified Stock Option Agreement under the 1995 Stock Plan
         of the Company (previously filed as an exhibit to the TranSwitch's
         Registration Statement on Form S-8 (File No. 33-94324) and incorporated
         herein by reference).

10.6     1995 Employee Stock Purchase Plan Enrollment/Authorization Form of the
         Company (previously filed as an exhibit to the TranSwitch's
         Registration Statement on Form S-8 (File No. 33-94324) and incorporated
         herein by reference).

10.7     Form of Non-Qualified Stock Option Agreement under the 1995 Non-
         Employee Director Stock Option Plan of the Company (previously filed as
         an exhibit to the TranSwitch's Registration Statement on Form S-8 (File
         No. 33-94324) and incorporated herein by reference).

#10.8    Agreement with Texas Instruments Incorporated (previously filed as an
         exhibit to the TranSwitch's Registration Statement on Form S-1 (File
         No. 33-91694) and incorporated herein by reference).

10.9     Authorized Distributor Agreement with Insight Electronics, Inc.
         (previously filed as an exhibit to the TranSwitch's Registration
         Statement on Form S-1 (File No. 33-91694) and incorporated herein by
         reference).

10.10    Lease Agreement, as amended, with Robert D. Scinto (previously filed as
         an exhibit to the TranSwitch's Annual Report on Form 10-K for the
         fiscal year ended December 31, 1997 and incorporated herein by
         reference).

10.11    Amended and Restated Promissory Note (Working Capital Line of Credit)
         with Silicon Valley Bank (filed herewith).

10.12    Amended and Restated Promissory Note (Equipment Line of Credit) (filed
         herewith).

10.13    Commitment Letter, as amended, from Silicon Valley Bank (previously
         filed as an exhibit to the TranSwitch's Registration Statement on Form
         S-1 (File No. 33-91694) and incorporated herein by reference).

10.14    Security Agreement with Silicon Valley Bank (previously filed as an
         exhibit to the TranSwitch's Registration Statement on Form S-1 (File
         No. 33-91694) and incorporated herein by reference).

10.15    Development and License Agreement with Adaptive Corporation (previously
         filed as an exhibit to the TranSwitch's Registration Statement on Form
         S-1 (File No. 33-91694) and incorporated herein by reference).

10.16    OEM Agreement for Acquisition of IBM Products with International
         Business Machines Corporation (previously filed as an exhibit to the
         TranSwitch's Registration Statement on Form S-1 (File No. 33-91694) and
         incorporated herein by reference).

#10.17   License Agreement with StrataCom, Inc. (previously filed as an exhibit
         to the TranSwitch's Registration Statement on Form S-1 (File No. 33-
         91694) and incorporated herein by reference).

#10.18   Agreement with Texas Instruments Incorporated (previously filed as an
         exhibit to the TranSwitch's Annual Report of Form 10-K for the fiscal
         year ended December 31, 1995).


                                       5


<PAGE>

#10.19   Integrated Circuit Foundry Agreement with Texas Instruments
         Incorporated (previously filed as an exhibit to the TranSwitch's Annual
         Report of Form 10-K for the fiscal year ended December 31, 1995)

10.20    Silicon Valley Bank Eighth Loan Modification Agreement (filed
         herewith).

10.21    Purchase Agreement dated as of September 6, 2000, by and among
         TranSwitch, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith,
         Incorporated, FleetBoston Robertson Stephens, Inc. and Banc of America
         Securities LLC as representatives of the several initial purchasers
         (previously filed as Exhibit 10 to the TranSwitch's quarterly report on
         Form 10-Q to the TranSwitch's quarterly report on Form 10-Q for the
         quarter ended September 30, 2000 and incorporated herein by reference).

21.1     Subsidiaries of the Company (filed herewith).

23.1     Consent of KPMG LLP (filed herewith).

______________
     # Confidential treatment obtained as to certain portions.


(b)  Reports on Form 8-K.

     We filed no reports on Form 8-K during the fourth quarter ended December
31, 2000.


(c)  Exhibits

     We hereby file as exhibits to this Form 10-K, those exhibits listed in Item
14 (a) (3) above.


(d)  Financial Statement Schedule

     TranSwitch files as a financial statement schedule to this Form 10-K, the
financial statement schedule listed in Item 14(a) (2) above.


                                       6


<PAGE>

                                  SIGNATURES

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

August 24, 2001                            TRANSWITCH CORPORATION


                                           by:   /s/ Dr. Santanu Das
                                               ---------------------
                                           Dr. Santanu Das
                                           Chairman of the Board,
                                           President and Chief Executive Officer

                       POWER OF ATTORNEY AND SIGNATURES

     We, the undersigned officers and directors of TranSwitch Corporation,
hereby severally constitute and appoint Santanu Das and Michael McCoy, and each
of them singly, our true and lawful attorneys, with full power to them and each
of them singly, to sign for us in our names in the capacities indicated below,
all amendments to this report, and generally to do all things in our names and
on our behalf in such capacities to enable TranSwitch Corporation to comply with
the provisions of the Securities Exchange Act of 1934, as amended and all
requirements of the Securities and Exchange Commission.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Name and Signature                      Title(s)                                      Date
------------------                      --------                                      ----
<S>                           <C>                                                 <C>
  /s/ Santanu Das             Chairman of the Board, President,                   August 24, 2001
----------------------
Dr. Santanu Das               and Chief Executive Officer (principal
                              executive officer)


  /s/Peter S. Tallian         Senior Vice President, Chief Financial              August 24, 2001
----------------------
Peter S. Tallian              Officer and Treasurer (principal financial
                              and accounting officer)

*                             Director                                            August 24, 2001
----------------------
Alfred R. Boschulte

*                             Director                                            August 24, 2001
----------------------
Gerald Montry

*                             Director                                            August 24, 2001
----------------------
James M. Pagos

*                             Director                                            August 24, 2001
----------------------
Dr. Albert E. Paladino

*                             Director                                            August 24, 2001
----------------------
Erik Van Der Kaay
</TABLE>

* By:  /s/ Santanu Das
      ---------------------
     Santanu Das
     Attorney-in-fact
<PAGE>

                    TRANSWITCH CORPORATION AND SUBSIDIARIES

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                                Page
                                                                                                                ----
<S>                                                                                                             <C>
Independent Auditors' Report................................................................................    F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999................................................    F-3
Consolidated Statements of Income for each of the years in the three-year period ended
   December 31, 2000........................................................................................    F-4
Consolidated Statements of Stockholders' Equity and Comprehensive Income for each of the
   years in the three-year period ended December 31, 2000...................................................    F-5
Consolidated Statements of Cash Flows for each of the years in the three-year period ended
   December 31, 2000........................................................................................    F-6
Notes to Consolidated Financial Statements..................................................................    F-7
</TABLE>
<PAGE>


                         Independent Auditors' Report

The Board of Directors and Shareholders
TranSwitch Corporation:

     We have audited the accompanying consolidated balance sheets of TranSwitch
Corporation and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TranSwitch
Corporation and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.


/s/ KPMG LLP
Stamford, Connecticut
January 18, 2001
<PAGE>


                    TRANSWITCH CORPORATION AND SUBSIDIARIES


                          CONSOLIDATED BALANCE SHEETS
                       (in thousands, except share data)

<TABLE>
<CAPTION>

                                                                                                      December 31,
                                                                                               --------------------------
                                                                                                 2000               1999
                                                                                                ------             ------
                                    ASSETS
<S>                                                                                            <C>                <C>
Current assets:
     Cash and cash equivalents...........................................................      $ 507,552          $  55,685
     Short-term investments..............................................................         56,572             20,117
     Accounts receivable, net of allowances of $604 in 2000 and $294 in 1999.............         28,443             13,208
     Inventories.........................................................................         14,898              7,900
     Prepaid expenses and other current assets...........................................          9,360              5,242
                                                                                               ---------          ---------
          Total current assets...........................................................        616,825            102,152
     Long-term investments...............................................................         54,183             36,003
     Property and equipment, net.........................................................         13,464              7,563
     Deferred tax assets.................................................................         22,019             11,624
     Goodwill and purchased intangible assets, net.......................................          8,447                 --
     Deferred financing costs............................................................         15,219                 --
     Other assets........................................................................         11,473              4,725
                                                                                               ---------          ---------
          Total assets...................................................................      $ 741,630          $ 162,067
                                                                                               =========          =========
                     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable....................................................................      $   8,393          $   4,297
     Accrued expenses....................................................................          1,599                664
     Accrued compensation................................................................          3,247              1,628
     Sales returns reserve...............................................................          2,600              1,494
     Accrued interest....................................................................          6,207                 --
     Other current liabilities...........................................................          1,600              1,630
                                                                                               ---------          ---------
          Total current liabilities......................................................         23,646              9,713
Long-term lease obligations..............................................................            245                216
Convertible notes........................................................................        460,000                 --
Commitments and contingencies (note 12)..................................................
                                                                                               ---------          ---------
Total liabilities........................................................................        483,891              9,929
                                                                                               ---------          ---------
Stockholders' equity:
     Common stock $.001 par value; authorized 300,000,000 shares at December 31,
        2000 and 100,000,000 shares at December 31, 1999; issued and outstanding
        83,500,125 shares at December 31, 2000 and 79,038,312 shares at December 31,
        1999 ............................................................................             84                 79
     Additional paid-in capital..........................................................        217,455            150,151
     Accumulated other comprehensive loss................................................           (225)              (162)
     Retained earnings...................................................................         40,425              2,070
                                                                                               ---------          ---------
          Total stockholders' equity.....................................................        257,739            152,138
                                                                                               ---------          ---------
          Total liabilities and stockholders' equity.....................................      $ 741,630          $ 162,067
                                                                                               =========          =========
</TABLE>

         See accompanying notes to consolidated financial statements.
                                      F-3
<PAGE>

                    TRANSWITCH CORPORATION AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME
                   (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                         Years ended December 31,
                                                                                    ----------------------------------
                                                                                      2000         1999        1998
                                                                                    ---------    ---------   ---------
<S>                                                                                 <C>          <C>         <C>
Net revenues ................................................................       $ 155,083    $  73,533   $  45,993
Cost of revenues.............................................................          46,147       25,210      17,274
                                                                                    ---------    ---------   ---------
Gross profit.                                                                         108,936       48,323      28,719
                                                                                    ---------    ---------   ---------
Operating expenses:
     Research and development................................................          24,221       14,543      11,500
     Marketing and sales.....................................................          20,518       12,098       8,824
     General and administrative..............................................           5,634        3,865       2,875
     Amortization of goodwill and Purchased intangible assets................             384           --          --
     In-process research and development.....................................           2,800           --          --
     Merger cost.............................................................           1,163           --          --
                                                                                    ---------    ---------   ---------
          Total operating expenses...........................................          54,720       30,506      23,199
                                                                                    ---------    ---------   ---------
Operating income.............................................................          54,216       17,817       5,520
Interest income (expense):
     Interest income.........................................................          15,994        4,740       1,167
     Interest expense........................................................          (7,472)         (35)       (143)
                                                                                    ---------    ---------   ---------
          Interest income, net...............................................           8,522        4,705       1,024
                                                                                    ---------    ---------   ---------
Income before income taxes...................................................          62,738       22,522       6,544
Income tax expense (benefit).................................................          24,383       (2,812)        387
                                                                                    ---------    ---------   ---------
Net income..                                                                        $  38,355    $  25,334   $   6,157
                                                                                    =========    =========   =========
Basic earnings per share (note 11)...........................................       $    0.47    $    0.33   $    0.10
                                                                                    =========    =========   =========
Diluted earnings per share (note 11).........................................       $    0.44    $    0.31   $    0.09
                                                                                    =========    =========   =========
</TABLE>

         See accompanying notes to consolidated financial statements.
                                      F-4
<PAGE>

                    TRANSWITCH CORPORATION AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                                               Accumulated    Retained
                                                                                               -----------    --------
                                                                    Convertible   Additional      other       earnings
                                                                    -----------   ----------      -----       --------
                                                                     preferred      paid-in   comprehensive (accumulated
                                                                     ---------      -------   ------------- ------------
                                                    Common stock       stock        capital   income (loss)  deficit)       Total
                                                --------------------   -----        -------   -------------  --------     ---------
                                                  Shares     Amount
                                                ----------  --------
<S>                                             <C>         <C>      <C>          <C>         <C>          <C>           <C>
Balance at December 31, 1997................... 55,937,604  $     56  $  14,357   $    45,942   $     (80) $  (29,421)   $   30,854

Comprehensive income:
  Net income...................................                                                                 6,157         6,157
  Currency translation adjustment..............                                                        54                        54
                                                                                                ---------                ----------
    Total comprehensive income.................                                                                               6,211
                                                                                                                         ----------
Shares of Common stock issued under stock
  option and stock purchase plans..............  3,516,680         3                    3,876          --                     3,879
Deemed dividend on convertible preferred
  stock........................................         --        --        143          (143)         --                        --
Issuance costs for convertible preferred
  stock........................................         --        --         --           (75)         --                       (75)
Shares of Common stock issued upon
  conversion of preferred stock................  7,104,490         7    (14,500)       14,495          --                         2
Compensation related to issuance of stock
  options......................................         --        --         --           384          --                       384
                                                ----------  --------  ---------   -----------   ---------  ----------    ----------
Balance at December 31, 1998................... 66,558,774        66         --        64,479         (26)    (23,264)       41,255
                                                ----------
Comprehensive income:
  Net income...................................                                                                25,334        25,334
  Currency translation adjustment..............                                                      (136)                     (136)
                                                                                                ---------                ----------
    Total comprehensive income.................                                                                              25,198
                                                                                                                         ----------
Shares of Common stock issued under stock
  option and stock purchase plans..............  3,682,038         4         --         7,101          --                     7,105
Shares of Common stock issued in
  connection with follow-on public offering,
  net of issuance costs........................  8,797,500         9         --        68,172          --                    68,181
Tax benefit from employee stock options........         --        --         --         8,266          --                     8,266
Reversal of deferred tax asset valuation
  allowance relating to tax benefits on stock
  options......................................         --        --         --         2,000          --                     2,000
Compensation related to issuance of stock
  options......................................         --        --         --           133          --                       133
                                                ----------  --------  ---------   -----------   ---------  ----------    ----------
Balance at December 31, 1999................... 79,038,312        79         --       150,151        (162)      2,070       152,138

Comprehensive income:
  Net income...................................                                                                38,355        38,355
  Currency translation adjustment..............                                                       (63)                      (63)
                                                                                                ---------                ----------
    Total comprehensive income.................                                                                              38,292
                                                                                                                         ----------
Shares of Common stock issued under stock
  option and stock purchase plans..............  4,194,977         5         --        21,418          --                    21,423
Shares of Common stock issued to acquire
  Alacrity Communications, Inc.................    266,836        --                   10,657          --          --        10,657
Tax benefit from exercise of employee stock
  options......................................         --        --         --        35,229          --                    35,229
                                                ----------  --------  ---------   -----------   ---------  ----------    ----------
Balance at December 31, 2000................... 83,500,125  $     84  $      --   $   217,455   $    (225) $   40,425    $  257,739
                                                ==========  ========  =========   ===========   =========  ==========    ==========
</TABLE>

         See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>

                    TRANSWITCH CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)

<TABLE>
<CAPTION>
                                                                                         Years ended December 31,
                                                                                      -----------------------------
                                                                                        2000        1999      1998
                                                                                     ----------- --------- ----------
<S>                                                                                  <C>         <C>       <C>
Cash flows from operating activities:
     Net income....................................................................  $   38,355  $  25,334  $   6,157
     Adjustments required to reconcile net income to cash flows provided by
        operating activities, net of effects of purchase of Alacrity:
          Depreciation and amortization............................................       6,496      3,494      2,702
          Bad debt expense.........................................................         500         47         50
          Deferred income taxes....................................................       1,274     (5,043)      (167)
          Other non-cash items.....................................................         165         --         --
          Stock compensation expense...............................................          65        133        384
          Purchased in-process research and development............................       2,800         --         --
          Changes in assets and liabilities:
               (Increase) in accounts receivable...................................     (15,735)    (5,239)    (3,161)
               (Increase) in inventories...........................................      (6,998)    (2,424)      (664)
               (Increase) in prepaid expenses and other assets.....................      (2,634)    (1,541)      (873)
               Increase in accounts payable........................................       3,661      1,294      1,530
               Increase in accrued expenses and other liabilities..................      31,112      1,753        859
                                                                                     ----------  ---------  ---------
                    Total adjustments..............................................      20,706     (7,526)       660
                                                                                     ----------  ---------  ---------
                    Net cash provided by operating activities......................      59,061     17,808      6,817
                                                                                     ----------  ---------  ---------
Cash flows from investing activities:
     Purchase of product licenses..................................................        (500)    (1,000)      (550)
     Capital expenditures..........................................................     (10,481)    (5,053)    (3,057)
     Purchases of other investments................................................      (6,505)    (2,499)        --
     Purchases of held-to-maturity investments.....................................    (256,858)   (98,855)    (6,405)
     Proceeds from maturity of investments.........................................     202,223     45,688      4,562
     Cash acquired in acquisition..................................................          90         --         --
                                                                                     ----------  ---------  ---------
                    Net cash (used in) investing activities........................     (72,031)   (61,719)    (5,450)
                                                                                     ----------  ---------  ---------
Cash flows from financing activities:
     Proceeds from issuance of convertible debt, net of issuance costs.............     443,694         --         --
     Payments on product license obligations.......................................          --       (303)    (1,045)
     Proceeds from the exercise of stock options...................................      21,423      7,105      3,879
     Payments on lease obligations.................................................        (280)      (337)      (237)
     Proceeds from the issuance of common stock, net of issuance costs.............          --     68,181         --
     Issuance costs in connection with convertible preferred stock offering........          --         --        (73)
                                                                                     ----------  ---------  ---------
                    Net cash provided by financing activities......................     464,837     74,646      2,524
                                                                                     ----------  ---------  ---------
Increase (decrease) in cash and cash equivalents...................................     451,867     30,735      3,891
Cash and cash equivalents at beginning of year.....................................      55,685     24,950     21,059
                                                                                     ----------  ---------  ---------
Cash and cash equivalents at end of year...........................................  $  507,552  $  55,685  $  24,950
                                                                                     ==========  =========  =========
</TABLE>

         See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>

                    TRANSWITCH CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              (in thousands, except share and per share amounts)

(1) Summary of Significant Accounting Policies

Description of Business

     We were incorporated in Delaware on April 26, 1988. Our company, based in
Shelton, Connecticut, designs, develops, markets and supports highly integrated
digital and mixed-signal semiconductor devices for the telecommunications and
data communications markets.

Basis of Presentation

     The consolidated financial statements include our accounts and the accounts
of our subsidiaries. All significant intercompany accounts and transactions have
been eliminated.

     Operations of businesses acquired and accounted for as purchases are
consolidated as of the date of acquisition. In May 2000, we completed our merger
with Easics NV. This merger was accounted for as a pooling of interests and,
accordingly, our historical consolidated financial statements have been restated
to include the financial position, results of operations, and cash flows of
Easics NV for all periods presented.

Use of Estimates

     The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America 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 revenues and
expenses during the period reported. Actual results could differ from those
estimates. Estimates are used in accounting for, among other things, allowances
for uncollectable receivables, inventory obsolescence, product warranty,
depreciation, taxes, and contingencies. Estimates and assumptions are reviewed
periodically, and the effects of revisions are reflected in the Consolidated
Financial Statements in the period they are determined to be necessary.

Cash Equivalents

     We consider all highly liquid investments with an original maturity of
three months or less to be cash equivalents. Cash equivalents amounted to
$470,717 at December 31, 2000 and $44,391 at December 31, 1999 and consist of
certificates of deposit, U.S. Treasury Bills, commercial paper and U.S. Agency
notes.

Investments

     Investments are comprised of marketable securities, primarily U.S. Treasury
Bills, commercial paper, and corporate debt securities. Investments with
remaining maturities of less than one year as of the date of the balance sheet
are considered short-term. Long-term investments consist of the same mix of
securities with maturity dates greater than one year from the balance sheet
date. At December 31, 2000 and 1999, all of our marketable securities are
classified as held-to-maturity. Held-to-maturity securities are those securities
in which we have the ability and intent to hold the securities to maturity.
These securities are recorded at amortized cost.

                                      F-7
<PAGE>

                    TRANSWITCH CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
              (in thousands, except share and per share amounts)

Fair Value of Financial Instruments

     The carrying amounts for cash and cash equivalents, short-term investments,
accounts receivable, and accounts payable approximate fair value because of
their short maturities. The fair values of investments and convertible notes are
determined using quoted market prices for those securities or similar financial
instruments. The fair value of our convertible notes at December 31, 2000 was
approximately $400 million.

Inventories

     Inventories are carried at the lower of cost (on a first-in, first-out
basis) or estimated net realizable value.

Product Licenses

     Product licenses are amortized using the greater of the amount computed
using the ratio that current gross revenues for a product bear to the total of
current and anticipated future gross revenues for that product, or the
straight-line method over the estimated useful life of the asset, generally
three to five years. We capitalized $500 in 2000 and $1,000 in 1999 in
connection with the acquisition of selected technologies. Amortization of
product licenses amounted to $412 in 2000, $485 in 1999 and $408 in 1998.
Product licenses, net, is included in Other Assets on the Consolidated Balance
Sheets.

Property and Equipment

     Property and equipment are carried at cost less accumulated depreciation.
Depreciation of property and equipment is provided on the half-year convention
method based on the related assets' estimated useful lives, ranging from three
to seven years. Depreciation of semiconductor tooling costs is provided on the
straight-line method using the lesser of three years or the life of the related
semiconductor it produces. Repairs and maintenance are charged to operations as
incurred.

Goodwill and Purchased Intangible Assets

     Goodwill and purchased intangible assets, which arose from our acquisition
of Alacrity Communications, Inc., are carried at cost less accumulated
amortization, and are being amortized over the economic lives of the respective
assets, generally five to ten years. Accumulated amortization for goodwill and
purchased intangible assets amounted to $384 in 2000 and $0 in 1999 and 1998.

     We review our goodwill for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. When
factors indicate that goodwill should be evaluated for possible impairment, we
use an estimate of the related business' future revenue over the remaining
useful life.

                                      F-8
<PAGE>

                    TRANSWITCH CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
              (in thousands, except share and per share amounts)

Impairment of Long-Lived Assets

     We review our long-lived assets and certain identifiable intangible assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. When factors indicate that a
long-lived asset should be evaluated for possible impairment, we use an estimate
of the related asset's undiscounted future cash flows over the remaining life of
the asset in measuring whether the carrying value is recoverable. Any impairment
is measured based upon the excess of the carrying value of the asset in excess
of its estimated fair value which is generally based on an estimate of future
discounted cash flows.

Investments in Non-Public Companies

     We have certain minority investments in non-publicly traded companies in
which we have less than 20 percent of the voting rights and in which we do not
exercise significant influence. These investments are included in Other Assets
on our Consolidated Balance Sheets and are carried at cost. We monitor these
investments for impairment and make appropriate reductions in carrying values
when necessary.

Revenue Recognition

     Revenues from product sales are recognized upon shipment to distributors
and original equipment manufacturers. Sales to certain distributors are made
under agreements which provide the distributor with certain price protection and
return and allowance rights. Revenues are reduced at time of shipment for
estimated price protection and returns based upon historical experience.

Concentrations of Credit Risk

     Financial instruments that potentially subject us to significant
concentrations of credit risk consist principally of cash and cash equivalents,
marketable securities, and trade receivables.

     We maintain our cash, cash equivalents, and marketable securities in
investment grade financial instruments with high-quality financial institutions,
thereby reducing credit risk concentrations. In addition, we limit the amount of
credit exposure to any one financial institution and any one type of investment.

     At December 31, 2000, approximately 26%, 25%, 16% and 14% of accounts
receivable represented amounts due from each of four of our distributors,
respectively. We believe that this concentration and the concentration of credit
risk resulting from trade receivables owing from high-technology industry
customers is substantially mitigated by our credit evaluation process and
relatively short collection terms. We generally do not require collateral
security for outstanding amounts. We establish an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific customers,
historical trends and other information.

Product Warranties

     We provide for expected costs to be incurred under our product warranties
based on historical experience. Estimated warranty costs are accrued as products
are sold and are charged to cost of revenues.

                                      F-9
<PAGE>

                    TRANSWITCH CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
              (in thousands, except share and per share amounts)

Research and Development Costs

     Research and development costs are expensed as incurred.

Income Taxes

     Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. To the extent that it is more likely than not that we will not
be able to utilize deferred tax assets in the future, we establish a valuation
allowance.

Earnings Per Share

Basic earnings per share are based upon the weighted average common shares
outstanding during the period. Diluted earnings per share assume exercise of
stock options outstanding and full conversion of convertible notes into common
stock at the beginning of the period or the date of issuance, if later, unless
they are antidilutive.

Foreign Currency Translation

     All of our foreign subsidiaries use their local currency as their
functional currency. Therefore, assets and liabilities of foreign subsidiaries
are translated at exchange rates in effect at the balance sheet date and revenue
and expense accounts are translated at average exchange rates during the year.
The resulting translation adjustments are recorded in accumulated other
comprehensive income or loss. Gains and losses related to monetary assets and
liabilities denominated in a currency different than a subsidiary's functional
currency are included in the Consolidated Statement of Income.

Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133),
and in June 2000 issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133" (SFAS No. 138). SFAS No. 133, as amended by SFAS No. 138, requires
companies to recognize all derivatives as assets or liabilities measured at
their fair value. Gains or losses resulting from changes in the value of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. We are required to adopt SFAS No.
133, as amended by SFAS No. 138, beginning January 1, 2001. The adoption of this
accounting standard will have no material impact on our financial position or
results of operations.

     The Securities and Exchange Commission (SEC) released Staff Accounting
Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements," on
December 3, 1999, SAB No. 101A on March 24, 2000, SAB No. 101B on June 26, 2000
and a document issued on October 12, 2000 responding to frequently asked
questions regarding accounting standards related to revenue recognition and SAB
No. 101. SAB No. 101 sets forth the views of the staff of the SEC on revenue
recognition issues, including conceptual issues as well as certain industry-
specific guidance. We adopted SAB No. 101, as amended, in the fourth quarter of
2000. The adoption of this accounting guidance did not have a material impact on
our financial position or results of operations.

                                      F-10
<PAGE>

                    TRANSWITCH CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
              (in thousands, except share and per share amounts)


(2)   Business Combinations

Merger with Easics NV
     In May 2000, we completed our combination with Easics NV, a Belgian
communications semiconductor design service provider, in which Easics NV became
our wholly-owned subsidiary. We issued 505,382 shares of common stock in
exchange for all of the outstanding stock of Easics NV. The transaction was
accounted for as a pooling-of-interests and, accordingly, our historical
consolidated financial statements have been restated to include the financial
position, results of operations, and cash flows of Easics NV for all periods
presented. During the quarter ended June 30, 2000, we recorded merger-related
transaction costs of $1.2 million related to the combination with Easics NV,
which have been included under merger costs in the Consolidated Statements of
Income.

     Our historical results of operations and the historical results of
operations of Easics NV prior to the consummation of the merger are summarized
below:

<TABLE>
<CAPTION>
                                                     Four months                       Years ended
                                                     -----------                       -----------
                                                   ended April 30,                     December 31,
                                                   ---------------                     ------------
                                                         2000                   1999                  1998
                                                     -----------             -----------          -----------
                                                                         (unaudited)
<S>                                                 <C>                  <C>                      <C>
Net revenues:
     TranSwitch................................      $    37,743             $    71,407          $    44,169
     Easics NV.................................              635                   2,126                1,824
                                                     -----------             -----------          -----------
          Combined.............................      $    38,378             $    73,533          $    45,993
Net income:
     TranSwitch................................      $     9,353             $    25,154          $     6,003
     Easics NV.................................               62                     180                  154
                                                     -----------             -----------          -----------
          Combined.............................      $     9,415             $    25,334          $     6,157
</TABLE>

     There were no significant adjustments required to the accounting policies
of Easics NV.

     Royalties from TranSwitch to Easics NV in the amount of $79 for the four
months ended April 30, 2000, $68 for the year ended December 31, 1999, and $79
for the year ended December 31, 1998 have been eliminated in the consolidated
financial statements.

     Accounts payable from TranSwitch to Easics NV in the amount of $229 as of
December 31, 2000 and $40 as of December 31, 1999 have been eliminated in the
consolidated financial statements. There were no other significant transactions
between TranSwitch and Easics NV prior to the combination.

Acquisition of Alacrity Communications, Inc.

     On August 1, 2000, we acquired all of the outstanding stock of Alacrity
Communications, Inc. (Alacrity) for 266,836 shares of our common stock, which
includes the conversion of stock options to purchase 5,756 shares of common
stock, valued, in the aggregate, at approximately $10.7 million. The total
purchase price of approximately $11.3 million also includes professional fees
and other direct costs of the acquisition totaling $600. Alacrity specializes in
the development and marketing of high-capacity VLSI switching devices for
telecommunications and data communications applications.

                                      F-11
<PAGE>

                    TRANSWITCH CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
              (in thousands, except share and per share amounts)

     The acquisition was accounted for using the purchase method of accounting
and, accordingly, the results of operations of Alacrity have been included in
our consolidated financial statements from August 1, 2000. The allocation of
purchase price among tangible and intangible assets acquired and liabilities
assumed was as follows:

<TABLE>
<S>                                                                                                       <C>
     Tangible assets...........................................................................           $    359
     Intangible assets:
     Goodwill..................................................................................              8,477
     Assembled workforce.......................................................................                350
     In process research and development (IPR&D)...............................................              2,800
     Liabilities...............................................................................               (697)
                                                                                                          --------
     Total purchase price......................................................................           $ 11,289
                                                                                                          ========
</TABLE>


     The amount allocated to IPR&D of $2.8 million was expensed upon acquisition
, as it was determined that the underlying project had not reached technological
feasibility, had no alternative future use and successful development was
uncertain. The charge for IPR&D was based on a methodology that focused on the
present value of after-tax cash flows attributable to the in-process project
combined with the consideration of the stage of completion of the individual
research and development project at the date of acquisition.

     The significant assumptions used in determining the valuation of the IPR&D
are as follows:

     .  Net cash inflows are anticipated to commence in 2002;

     .  Risk adjusted discount rate applied to cash flows of 30%; and

     .  No anticipated material changes from historical pricing margin and
        expense elevels.

     To date, there have been no shipments related to this product or changes in
development that would require an adjustment to the valuation.

     The following unaudited pro-forma financial information presents our
results of operations combined with the results of operations of Alacrity as if
the acquisition had occurred as of January 1, 1999. The pro-forma information
does not necessarily reflect the results from operations that would have
occurred had Alacrity and we constituted a single entity during such periods.
Alacrity did not generate any revenues for the full years ended 2000 or 1999.
The unaudited pro-forma information for the years ended December 31, 2000 and
1999 is as follows (in thousands, except for per share amounts):

<TABLE>
<CAPTION>
                                                                                     2000               1999
                                                                                 ----------            -------
<S>                                                                              <C>                   <C>
     Net income............................................................      $   36,300             21,771
     Basic earnings per share..............................................      $     0.44               0.28
     Diluted earnings per share............................................      $     0.41               0.27
</TABLE>

                                     F-12
<PAGE>

                    TRANSWITCH CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
              (in thousands, except share and per share amounts)

(3)   Investments

      The following table summarizes our investments in securities at December
31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                                          Gross
                                                                                          -----
                                                                           Amortized     urealized
                                                                           ---------     ---------
                                                                             cost         (losses)       Fair value
                                                                             ----         --------       ----------
<S>                                                                        <C>          <C>              <C>
     Money market & certificates of deposit..........................       $     748        $   --        $     748
     U.S. government & agency obligations............................         499,420          (502)         498,918
     Corporate bonds & commercial paper..............................          81,304          (167)          81,137
                                                                            ---------        ------        ---------
               Total at December 31, 2000............................       $ 581,472        $ (669)       $ 580,803
                                                                            =========        ======        =========
     Reported as:
          Cash equivalents...........................................       $ 470,717
          Short-term investments.....................................          56,572
          Long-term investments......................................          54,183
                                                                            ---------
               Total at December 31, 2000............................       $ 581,472
                                                                            =========
</TABLE>

<TABLE>
<CAPTION>
                                                                              Gross        Gross
                                                                              -----        -----
                                                              Amortized    Unrealized    Unrealized     Fair
                                                              ---------    ----------    ----------     -----
                                                                Cost          Gains      (Losses)       Value
                                                                -----         -----      --------       -----
<S>                                                           <C>          <C>           <C>           <C>
Money market & certificates of deposit......................     $   5,756   $     6     $    --       $   5,762
U.S. government & agency obligations........................        12,343        --         (75)         12,268
Corporate bonds & commercial paper..........................        82,412        --        (255)         82,157
                                                                 ---------   -------     -------       ---------
          Total at December 31, 1999........................     $ 100,511   $     6     $  (330)      $ 100,187
                                                                 =========   =======     =======       =========
Reported as:
     Cash equivalents.......................................     $  44,391
     Short-term investments.................................        20,117
     Long-term investments..................................        36,003
                                                                 ---------
               Total at December 31, 1999...................     $ 100,511
                                                                 =========
</TABLE>

(4)   Inventories

     The components of inventories at December 31, 2000 and 1999 follow:

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                                ------------------
                                                                          2000                      1999
                                                                        --------                  --------
<S>                                                                     <C>                       <C>
Raw materials...............................................            $  1,414                  $  1,017
Work in process.............................................               4,130                     1,121
Finished goods..............................................               9,354                     5,762
                                                                        --------                  --------
Total inventories...........................................            $ 14,898                  $  7,900
                                                                        ========                  ========
</TABLE>

                                     F-13
<PAGE>

                    TRANSWITCH CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
              (in thousands, except share and per share amounts)

(5)  Property and Equipment, Net

     The components of property and equipment, net at December 31, 2000 and 1999
follow:

<TABLE>
<CAPTION>
                                                                           Estimated
                                                                           ---------
                                                                             Useful
                                                                             ------
                                                                              Lives               December 31,
                                                                             -------            ----------------
                                                                              2000              1999         1998
                                                                           ----------         -------      -------
<S>                                                                        <C>               <C>          <C>
     Purchased computer software.......................................      3 years         $  10,071    $   6,902
     Equipment.........................................................     3-7 years           13,221        8,187
     Semiconductor tooling.............................................      3 years             1,232        1,077
     Furniture.........................................................     3-7 years            2,741        1,651
     Leasehold improvements............................................    Lease term*           1,394          563
     Construction in progress..........................................                            737          321
                                                                                             ---------    ---------
     Gross property and equipment......................................                         29,396       18,701
     Less accumulated depreciation and amortization....................                        (15,932)     (11,138)
                                                                                             ---------    ---------
     Property and equipment, net.......................................                      $  13,464    $   7,563
                                                                                             =========    =========
</TABLE>
     . Shorter of estimated useful life or lease term.


(6)  Segment Information and Major Customers

     Under SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," we are required to use the "management" approach to
reporting segments. The management approach designates the internal organization
that is used by management for making operating decisions and assessing
performance as the source of the Company's reportable segments. SFAS No. 131
also requires disclosures about products and services, geographic areas, and
major customers. Under SFAS No. 131, we have one segment: Communication
semiconductor products.


Products and Services

     Our products are Very Large Scale Integrated (VLSI) semiconductor devices
that provide core functionality of communications network equipment. The
integration of various technologies and standards in these devices result in a
homogeneous product line for management and measurement purposes.


                                     F-14
<PAGE>

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
              (in thousands, except share and per share amounts)

Enterprise-wide Information

     Enterprise-wide information provided on geographic net revenues is based on
the ordering location of our customer. Long-lived asset information is based on
the physical location of the assets. The following tables present net revenues
and long-lived assets information for geographic areas:

<TABLE>
<CAPTION>
                                                                           Years ended December 31,
                                                                           ------------------------
                                                                  2000               1999              1998
                                                                --------           -------            -------
     <S>                                                        <C>                <C>                <C>
     Net revenues:
          United States...................................       $84,517           $50,334            $23,803
          Israel..........................................         7,520             2,937              5,961
          China...........................................        15,150             2,358              7,175
          Other areas.....................................        47,896            17,904              9,054
                                                                --------           -------            -------
               Total......................................      $155,083           $73,533            $45,993
                                                                ========           =======            =======

                                                                                 December 31,
                                                                                 ------------
                                                                   2000             1999                1998
                                                                --------           -------            -------
     Long-lived assets:
          United States...................................      $ 28,524           $ 8,841            $ 4,926
          Foreign countries...............................         3,093             1,767              1,040
                                                                --------           -------            -------
               Total......................................      $ 31,617           $10,608            $ 5,966
                                                                ========           =======            =======
</TABLE>

Information about Major Customers

     The percentage of net revenues attributable to our significant customers
and distributors for the years ended December 31, 2000, 1999 and 1998 follow:

<TABLE>
<CAPTION>
                                                                                  Years ended December 31,
                                                                                  ------------------------
                                                                              2000           1999        1998
                                                                              ----           ----        ----
     <S>                                                                      <C>            <C>         <C>
     Insight Electronics, Inc.(1)(2)....................................       32%            33%         19%
     Coltek Technology(1)...............................................        *              *          14%
     Tellabs Operations, Inc.(1)(2)(3)..................................       16%            13%         20%
     Lucent Technologies, Inc.(1)(3)(4).................................       11%            16%          *
     Nortel Networks Corporation(2)(3)..................................        *             13%          *
     Unique Memec(1)....................................................       16%             *           *
     Arrow Electronics, Inc.(2).........................................        *             18%         16%
</TABLE>

__________
(1)  Insight Electronics, Coltek Technology (formerly Columbia Technology) and
     Unique Memec are distributors of our products to various end-users. In 2000
     and 1999, a portion of Lucent Technologies' purchases were shipped through
     Insight Electronics. In 2000, a portion of Tellabs Operations' purchases
     were shipped through Insight Electronics.
(2)  Our sales to Tellabs Operations during 2000 and 1999 were made through
     Arrow Electronics and Insight Electronics, both of which also shipped
     products to Nortel Networks. Sales to Tellabs Operations through Arrow
     Electronics during 1998 represented 16% of our net revenues. During 1998,
     sales to Tellabs Operations were made through Reptron Electronics and Arrow
     Electronics, both Tellabs Operations' designated distributors.
(3)  Represents total shipments, including those made directly and those made
     through distributors.
(4)  Includes sales to Ascend Communications, which was acquired by Lucent
     Technologies during 1999. This percentage represents total shipments,
     including those made directly and those made through distributors.
 *   Revenues were less than 10% of our net revenues in these years.

                                      F-15
<PAGE>

                    TRANSWITCH CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
              (in thousands, except share and per share amounts)

(7)  Income Taxes

     The components of 2000, 1999 and 1998 income before income taxes are as
follows:

<TABLE>
<CAPTION>
                                                                              Years ended December 31,
                                                                              ------------------------
                                                                        2000            1999             1998
                                                                      -------          -------          ------
     <S>                                                              <C>              <C>              <C>
     U.S. domestic income........................................     $62,085          $22,262          $6,287
     Foreign income..............................................         653              260             257
                                                                      -------          -------          ------
     Income before income taxes..................................     $62,738          $22,522          $6,544
                                                                      =======          =======          ======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                            Years ended December 31,
                                                                            ------------------------
                                                                   2000               1999             1998
                                                                  -------            -------          ------
     <S>                                                          <C>                <C>              <C>
     Federal income taxes
          Current...........................................      $19,638            $ 1,581            $161
          Deferred..........................................        1,184             (4,682)           (161)
     State income taxes
          Current...........................................        3,210                434             252
          Deferred..........................................           90               (263)             --
     Foreign income taxes
          Current...........................................          261                216             141
          Deferred..........................................           --                (98)             (6)
                                                                  -------            -------            ----
     Income taxes...........................................      $24,383            $(2,812)           $387
                                                                  =======            =======            ====
</TABLE>

     The following table summarizes the differences between the U.S. federal
statutory rate and our effective tax rate for financial statement purposes for
the years ended December 31, 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                                 Years ended December 31,
                                                                                 ------------------------
                                                                              2000           1999          1998
                                                                              ----           ----          ----
     <S>                                                                      <C>            <C>          <C>
     U.S. federal statutory tax rate..................................        35.0 %         35.0 %        34.0 %
     State taxes......................................................         3.4            0.8           4.0
     Utilization of net operating losses (NOL)........................          --             --         (34.4)
     In-process research and development..............................         1.6             --            --
     Foreign sales corporation benefit................................        (1.9)            --            --
     Change in valuation allowance....................................          --          (48.2)           --
     Permanent differences and other..................................         0.8           (0.1)          2.3
                                                                             -----         ------         -----
     Effective income tax rate........................................        38.9 %        (12.5) %        5.9 %
                                                                             =====         ======         =====
</TABLE>

     The tax effect of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31, 2000 and 1999 are presented
below:

                                      F-16
<PAGE>

                    TRANSWITCH CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
              (in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                                                           2000           1999
                                                                                         ---------       -------
     <S>                                                                                 <C>             <C>
     Deferred tax assets:
          Property and equipment.....................................................    $     302       $   295
          Nondeductible reserves.....................................................        3,776         2,332
          Net operating losses.......................................................       19,306         9,215
          Research and development credit............................................        3,158         2,599
          Other......................................................................           64           412
                                                                                         ---------       -------
          Total gross deferred tax assets............................................       26,606        14,853
          Less valuation allowance...................................................         (833)         (833)
                                                                                         ---------       -------
          Net deferred tax assets....................................................       25,773        14,020
                                                                                         ---------       -------
          Deferred tax liabilities:
               Product license.......................................................          (62)          (62)
               Other.................................................................            0             0
                                                                                         ---------       -------
          Total gross deferred tax liabilities.......................................          (62)          (62)
          Total deferred taxes, net of valuation allowance...........................    $  25,711       $13,958
                                                                                         =========       =======
</TABLE>

     There was no change in the deferred tax valuation allowance between
December 31, 2000 and December 31, 1999. The valuation allowance relates to
state tax net operating losses which management believes it is more likely than
not will expire unutilized. Of the valuation allowance of $833, subsequently
recognized tax benefits, if any, in the amount of $833 will be applied directly
to contributed capital. Of the total deferred tax assets at December 31, 2000,
$3,692 is recorded as current and $22,019 is recorded as non-current. The
current portion is recorded in other current assets.

     At December 31, 2000, we had available, for federal income tax purposes,
NOL carryforwards of approximately $50,155 and research and development tax
credit carryforwards of approximately $3,157 expiring in varying amounts from
2003 through 2020.

     Certain transactions involving our beneficial ownership have occurred which
resulted in a stock ownership change for purposes of Section 382 of the Internal
Revenue Code of 1986, as amended. Consequently, approximately $21,852 of our NOL
carryforward and $1,410 of our research and development tax credit carryforward
are subject to these limitations. However, we believe it is more likely than not
that the NOL and research and development tax credits will be utilized.


(8)  Stockholders' Equity

Authorized Shares

     In connection with our May 2000 annual shareholders' meeting, we received
shareholder approval to increase the authorized number of shares of common stock
from 100,000,000 to 300,000,000 shares.


Follow-on Common Stock Offering

     On February 9, 1999 and March 16, 1999, we completed a follow-on public
offering of 8,797,500 shares of our common stock for net proceeds, after
issuance costs, of $68,181.

                                      F-17
<PAGE>

                    TRANSWITCH CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
              (in thousands, except share and per share amounts)

Stock Splits

     In June 1999 and January 2000, we effected three-for-two splits, and in
August 2000, we effected a two-for-one split of our common stock paid in the
form of a stock dividend. All share and per share data for all periods presented
have been adjusted to reflect these stock splits.

(9)  Employee Benefit Plans

Employee Stock Purchase Plan

     To provide employees with an opportunity to purchase our common stock
through payroll deductions, we established the 1995 Employee Stock Purchase Plan
(the "Purchase Plan"), under which 300,000 shares of common stock have been
reserved for issuance. Under the Purchase Plan, eligible employees may purchase
a limited number of shares of common stock at 85% of the fair market value at
either the date of enrollment or the date of purchase, whichever is less. Under
the Purchase Plan, 10,340 shares were issued in 2000, 25,305 shares were issued
in 1999 and 77,535 shares were issued in 1998. At December 31, 2000, 138,127
shares remained available for future issuance.

Stock Option Plans

     We have three main stock options plans: the 1995 Stock Plan, as amended
(the "1995 Plan"); the 1995 Non-Employee Director Stock Option Plan (the
"Director Plan"); and the 2000 Stock Option Plan (the "2000 Plan").

     With respect to the 1995 Plan, in connection with our May 2000 annual
shareholders meeting, we received shareholder approval to increase the maximum
number of shares reserved and authorized for issuance to 31,400,000 shares of
our common stock, pursuant to the grant to employees of incentive stock options
and the grant of non-qualified stock options, stock awards or opportunities to
make direct purchases of our common stock to our employees, consultants,
directors and executive officers. The terms of the options granted are subject
to the provisions of the 1995 Plan as determined by the Compensation Committee
of the Board of Directors. The 1995 Plan will terminate ten years after its
adoption unless earlier terminated by the Board of Directors. As of December 31,
2000, 9,268,696 shares were available for grant under the 1995 Plan.

     The 2000 Plan was adopted by the Board of Directors on July 14, 2000, and
provides for the grant of non-qualified options to purchase shares of common
stock, up to an aggregate of 8,000,000 shares, to our employees and consultants.
No member of the Board of Directors or executive officers as appointed by the
Board shall be eligible for grants of options under the 2000 Plan. The terms of
the options granted are subject to the provisions of the 2000 Plan as determined
by the Compensation Committee of the Board of Directors. The non-qualified stock
option shall either be fully exercisable on the date of grant or shall become
exercisable thereafter in such installments as the Board may specify. The 2000
Plan will terminate ten years after its adoption. No option granted under the
2000 Plan may be exercised after the expiration of seven years from the date of
grant. The exercise price of options under the 2000 Plan must be equal to the
fair market value of the Common Stock on the date of grant. Options granted
under the 2000 Plan are generally nontransferable. As of December 31, 2000,
5,562,850 shares were available for grant under the 2000 Plan.

                                      F-18
<PAGE>

                    TRANSWITCH CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
              (in thousands, except share and per share amounts)

     The Director Plan provides for the automatic grant of options to purchase
shares of common stock, up to an aggregate of 1,050,000 shares, to our non-
employee directors on the anniversary date of each individual board member
joining the Board of Directors. Upon joining our Board, Directors are granted an
option to purchase 37,500 shares, one-third of which vest immediately, one-third
after the first year, and the remaining one-third after the second year.
Annually thereafter, Directors are granted an option to purchase 28,800 shares,
which vest fully after one year.

     The Director Plan is administered by the Compensation Committee of the
Board of Directors. No option granted under the Director Plan may be exercised
after the expiration of five years from the date of grant. The exercise price of
options under the Director Plan must be equal to the fair market value of the
common stock on the date of grant. Options granted under the Director Plan are
generally nontransferable. As of December 31, 2000, 269,176 shares were
available for grant under the Director Plan.



     Information regarding our stock options is set forth as follows:

<TABLE>
<CAPTION>
                                                                            Number            Weighted average
                                                                            -----             ----------------
                                                                         of options            exercise price
                                                                         ----------            --------------
                                                                        outstanding               per share
                                                                       -------------              ---------
<S>                                                                    <C>                    <C>
     Outstanding at December 31, 1997................................      9,766,422              $    1.27
          Granted....................................................      7,250,686                   3.11
          Exercised..................................................     (3,414,888)                  1.09
          Canceled...................................................       (692,790)                  1.75
                                                                          ----------              ---------
     Outstanding at December 31, 1998................................     12,909,430              $    2.65
          Granted....................................................      5,470,116                  11.54
          Exercised..................................................     (3,643,948)                  1.83
          Canceled...................................................       (915,526)                  4.54
                                                                          ----------              ---------
     Outstanding at December 31, 1999................................     13,820,072              $    8.76
          Granted and assumed........................................      6,442,610                  33.55
          Exercised..................................................     (4,173,771)                  5.04
          Canceled...................................................       (255,034)                 13.64
                                                                          ----------              ---------
     Outstanding at December 31, 2000................................     15,833,877              $   25.45
                                                                          ==========              =========
</TABLE>

     The Company has, in connection with the acquisitions of various companies,
assumed the stock option plans of each acquired company, and the related options
are included in the preceding table.


                                     F-19
<PAGE>

                    TRANSWITCH CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
              (in thousands, except share and per share amounts)

     Options outstanding and exercisable at December 31, 2000 are as follows:

<TABLE>
<CAPTION>
                                                       Options outstanding                             Options exercisable
                                                       -------------------                             -------------------
                                                            Weighted
                                                            --------
                                                             average             Weighted                             Weighted
                                                             -------             --------                             --------
                                                            remaining             average                              average
                                                            ---------             -------                              -------
           Range of                       Number           contractual           exercise            Number           exercise
           --------                       ------           -----------           --------            ------           --------
       exercise prices                outstanding             life                 price           exercisable          price
       -----------------              ------------            ----                 -----           ------------         -----
<S>                                   <C>              <C>                      <C>                <C>               <C>
$  0.92 to  1.90...............          964,745              6.14              $   1.33             848,453         $   1.32
   2.06 to  3.92...............        3,692,178              6.98                  2.86           2,143,434             2.79
   4.02 to  7.48...............          617,453              7.49                  5.79             209,363             5.47
   8.18 to 12.92...............        2,863,533              7.53                  9.36             860,016             9.49
  13.90 to 16.76...............        1,118,112              5.71                 15.51             227,562            15.45
  16.92 to 19.92...............        1,837,656              5.70                 19.53             445,327            19.38
  20.26 to 24.88...............          330,550              5.77                 21.62              43,200            21.02
  27.44 to 32.94...............        1,302,850              6.33                 29.56              24,250            30.61
  33.08 to 39.94...............        1,453,800              6.45                 36.86                  --               --
  40.26 to 49.75...............          631,700              6.36                 43.32                  --               --
  50.08 to 59.44...............          956,000              6.62                 52.69                  --               --
  61.88 to 74.31...............          65,3000              6.77                 66.96                  --               --
                                      ----------              ----              --------           ---------         --------
$  0.92 to 74.31...............       15,833,877              6.49              $  25.45           4,801,605         $  13.19
                                      ==========              ====              ========           =========         ========
</TABLE>

     Stock options expire five, seven or ten years from the date of grant and
are generally exercisable ratably over four years from the date of grant.

Stock-Based Compensation

     In accordance with the provisions of SFAS No. 123, "Accounting for Stock-
Based Compensation" (SFAS No. 123), we apply APB 25 and related interpretations
in accounting for our stock-based awards. Under APB 25, no compensation expense
is recognized in our financial statements for employee stock options because the
exercise price of the option equals the market price of the underlying stock on
the date of grant.

     Pro forma information regarding net income and net income per share is
required by SFAS No. 123 for awards granted or modified after December 31, 1994
as if we had accounted for our stock-based awards to employees under the fair
value method defined in SFAS No. 123. The fair value of our stock-based awards
to employees was estimated using the Black-Scholes option pricing model with the
following weighted average assumptions for the years ended December 31:

<TABLE>
<CAPTION>
                                                                        2000            1999            1998
                                                                        ----            ----            ----
<S>                                                                     <C>             <C>             <C>
     Risk-free interest rate......................................       5.1%            6.7%            5.2%
     Expected life in years.......................................       3.0             3.2             4.1
     Expected volatility..........................................      85.8%           73.0%           68.9%
     Expected dividend yield......................................        --              --              --
</TABLE>

     The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected volatility of the stock price.
Because our stock-based awards have characteristics significantly different from
those of traded options and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock-based awards to employees.



                                     F-20
<PAGE>

                    TRANSWITCH CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
              (in thousands, except share and per share amounts)

     The weighted average fair value of our stock options granted, calculated
using the Black-Scholes option-pricing model, is $19.03 for the year-ended
December 31, 2000, $6.16 for the year-ended December 31, 1999 and $3.82 for the
year-ended December 31, 1998.

     For purposes of pro forma disclosures, the estimated fair value of the
above stock-based awards is amortized to expense over the awards' vesting
period. Our pro forma information is as follows:

<TABLE>
<CAPTION>
                                                                                 Years ended December 31,
                                                                              -----------------------------
                                                                              2000           1999         1998
                                                                            --------       --------     --------
<S>                                                                         <C>            <C>          <C>
     Net income--pro forma................................................  $ (4,113)      $ 13,254     $  1,338
     Basic earnings (loss) per share--pro forma...........................     (0.05)          0.17         0.02
     Diluted earnings (loss) per share--pro forma.........................     (0.05)          0.16         0.02
</TABLE>

     The effects of applying SFAS No. 123 in this pro forma disclosure are not
necessarily indicative of future amounts because it does not take into
consideration pro forma compensation expense related to grants made prior to
1995.

In connection with stock options granted from January 1, 1995 through March 31,
1995, we recorded deferred compensation expense of $618 for the excess of the
deemed value for accounting purposes of the Common Stock issuable upon exercise
of such stock options over the aggregate exercise price of such options. We
recorded compensation expense over the applicable vesting periods (primarily
four years). We recorded compensation expense for these options of $77 for the
year ended December 31, 1999 and $155 for the year ended December 31, 1998. The
value of the deferred compensation was fully amortized as of December 31, 1999.


     As required by SFAS No. 123, we recognized additional compensation expense
relating to stock options granted to non-employees of $57 in 2000, $56 in 1999
and $229 in 1998.


Employee 401(k) Plan

     We sponsor a 401(k) plan known as the TranSwitch Corporation 401(k)
Retirement Plan (the "Plan"). The Plan provides tax-deferred salary deductions
for eligible employees. Employees may contribute from 1% to 20% of their annual
compensation to the Plan, limited to an annual maximum amount as set
periodically by the Internal Revenue Service. We provide matching contributions
equal to 50% of the employees' deferred compensation, up to a maximum of 6%. All
matching contributions vest immediately. Our contribution expense related to the
Plan amounted to $434 for 2000, $307 for 1999 and $230 for 1998.



                                     F-21
<PAGE>

                    TRANSWITCH CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
              (in thousands, except share and per share amounts)

(10) Convertible Notes

     In September 2000, we issued $460 million of 4.5% convertible notes due
September 12, 2005, and received proceeds of $444 million, net of debt issuance
costs. The notes are convertible, at the option of the holder, at any time on or
prior to maturity into shares of our common stock at a conversion price of
$61.93 per share.

     The notes are unsecured and unsubordinated obligations and rank on a parity
in right of payment with all our existing and future unsecured and
unsubordinated indebtedness.

     We may redeem the notes, in whole or in part, at any time on or prior to
September 12, 2003 at a redemption price equal to 100 percent of the principal
amount of notes to be redeemed plus accrued and unpaid interest, if any, to the
date of redemption if the closing price of our common stock has exceeded 150
percent of the conversion price then in effect for at least 20 trading days
within a period of 30 consecutive trading days ("Provisional Redemption").

     Upon any Provisional Redemption, we will make an additional payment with
respect to the notes called for redemption in an amount equal to $135 per $1,000
principal amount of notes, less the amount of any interest actually paid on the
notes before the provisional redemption date. We will make these additional
payments, at each holder's option, either in cash or our common stock or a
combination of both.


(11) Earnings Per Share

     Basic earnings per share for the years ended December 31, 2000, 1999 and
1998 follows:

<TABLE>
<CAPTION>
                                                                                  Years ended December 31,
                                                                                  ------------------------
                                                                              2000           1999         1998
                                                                            --------       --------     --------
     <S>                                                                    <C>            <C>          <C>
     Net income.........................................................    $ 38,355       $ 25,334     $  6,157
     Weighted average shares (in thousands).............................      81,681         76,676       63,174
     Basic earnings per share...........................................    $   0.47       $   0.33     $   0.10
</TABLE>

     Diluted earnings per share for the years ended December 31, 2000, 1999, and
1998 follows:

<TABLE>
<CAPTION>
                                                                                           Years ended December 31,
                                                                                           ------------------------
                                                                                       2000           1999         1998
                                                                                     --------       --------     --------
     <S>                                                                             <C>            <C>          <C>
     Net income..................................................................    $ 38,355       $ 25,334     $  6,157
                                                                                     ========       ========     ========
     Weighted average common shares outstanding for the period
        (in thousands)...........................................................      81,681         76,676       63,174
     Stock options, net of assumed treasury share repurchases (in
        thousands)...............................................................       5,878          4,920        4,308
                                                                                     --------       --------     --------
     Adjusted weighted average shares outstanding for the period
        (in thousands)...........................................................      87,559         81,596       67,482
                                                                                     ========       ========     ========
     Diluted earnings per share..................................................    $   0.44       $   0.31     $   0.09
                                                                                     ========       ========     ========
</TABLE>

     For purposes of calulating the dilutive earnings per share for the
year-ended December 31, 2000, the assumed conversion of convertible debt is not
taken into consideration as it is anti-dilutive. Had the assumed conversion of
convertible debt been considered for purposes of calculating diluted earnings
per share, $3,786 of interest expense (after tax) would have been added to net
income and 2,476,000 additional shares of common stock would have been assumed
outstanding for the year-ended December 31, 2000.

                                      F-22
<PAGE>

                    TRANSWITCH CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
              (in thousands, except share and per share amounts)


(12) Commitments and Contingencies

Line of Credit

     In July 2000, we extended the time frame of our line of credit agreement
with Silicon Valley Bank which allows us access up to $8,000 for working capital
purposes, bearing interest at prime +3/4% due on July 13, 2001, and $2,000 for
equipment purchases, bearing interest at prime +1% due on July 13, 2001. The
line is secured by our accounts receivable. We have a pledge that we will seek
Silicon Valley Bank's approval prior to allowing another party to secure our
assets.

     The agreement contains certain financial restrictions and covenants which,
among other things, include provisions for maintaining a minimum amount of cash,
net worth and profitability.

     At December 31, 2000 and 1999, no amounts were outstanding under this
agreement.

Development Agreements

From time to time, we have entered into agreements with third parties for the
development and/or licensing of products for its manufacture and sale, or the
licensing of technology that we may use in the manufacture of products, for
which royalties are paid based upon actual sales of these products. We
recognized royalty expense of $185 in 2000, $612 in 1999 and $594 in 1998 under
these agreements. These amounts are included in Cost of Revenues in the
Consolidated Statements of Income.

Lease Agreements

     Total rental expense under all operating lease agreements aggregated $1,284
in 2000, $1,153 in 1999 and $838 in 1998. Future minimum operating lease
commitments that have remaining, non-cancelable lease terms in excess of one
year at December 31, 2000 follow:

     2001..............................................................   $2,305
     2002..............................................................    2,270
     2003..............................................................    1,875
     2004..............................................................      983
     2005..............................................................      874
     Thereafter........................................................      947
                                                                          ------
                                                                          $9,254
                                                                          ======

                                      F-23
<PAGE>

                    TRANSWITCH CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
              (in thousands, except share and per share amounts)

(13) Supplemental Cash Flow Information

     The following represents supplemental cash flow information:

<TABLE>
<CAPTION>
                                                                                             2000      1999      1998
                                                                                           --------  --------  --------
     <S>                                                                                   <C>       <C>       <C>
     Cash paid for interest.............................................................   $     24        62       129
     Cash paid for income taxes.........................................................   $  1,276       669       355
</TABLE>

     The following represents a supplemental schedule of non-cash investing and
financing activities:

<TABLE>
<CAPTION>
                                                                                             2000      1999      1998
                                                                                           --------  --------  --------
     <S>                                                                                   <C>       <C>       <C>
     Tax benefit realized from the exercise of stock options............................   $ 35,229     8,266        --
     Capital lease obligations in connection with property and equipment................   $    340        --       547
</TABLE>

(14) Quarterly Information (Unaudited)

<TABLE>
<CAPTION>
                                                          First        Second      Third       Fourth
                                                          -----        ------      -----       ------
                                                         Quarter       Quarter     Quarter     Quarter        Year
                                                         -------       -------     -------     -------        ----
<S>                                                      <C>           <C>         <C>         <C>          <C>
Year ended December 31, 2000
Net revenues......................................       $ 27,359      34,072      42,600      51,052       155,083
Cost of revenues..................................          8,777      10,412      12,506      14,452        46,147
Net income........................................          6,478       7,949       9,135      14,793        38,355
Net income per common share:
     Basic........................................       $   0.08        0.10        0.11        0.18          0.47
     Diluted......................................       $   0.07        0.09        0.11        0.17          0.44
Common dividends per share........................             --          --          --          --            --
Market price of common stock
     High.........................................       $  67.25       48.75       67.86       74.69         74.69
     Low..........................................       $  19.21       22.56       33.19       24.50         19.21
Year ended December 31, 1999
Net revenues......................................       $ 14,933      16,459      19,044      23,097        73,533
Cost of revenues..................................          5,371       5,796       6,516       7,527        25,210
Net income........................................          3,259       4,566       9,957       7,552        25,334
Net income per common share:
     Basic........................................       $   0.04        0.06        0.13        0.10          0.33
     Diluted......................................       $   0.04        0.05        0.12        0.09          0.31
Common dividends per share........................             --          --          --          --            --
Market price of common stock
     High.........................................       $  10.61       15.88       21.67       24.20         24.20
     Low..........................................       $   6.61        7.78       13.42       12.40          6.61
</TABLE>

                                      F-24
<PAGE>

The Board of Directors
TranSwitch Corporation:

The audits referred to in our report dated January 18, 2001 included the related
financial statement schedule for each of the years in the three-year period
ended December 31, 2000, included in the TranSwitch Corporation 2000 Annual
Report on Form 10-K. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

/s/ KPMG LLP
March 30, 2001

<PAGE>

                                                                     Schedule II
                            TranSwitch Corporation
                       Valuation and Qualifying Accounts
                                (in thousands)

<TABLE>
<CAPTION>
                                                                     Additions
                                                                     ---------
                                            Balance at       Charges to       Charges                          Balance
                                             Beginning       Costs and        to Other                          at End
Description                                  of Period        Expenses        Accounts       Deductions       of Period
-----------                                  ---------        --------        --------       ----------       ---------
<S>                                       <C>             <C>             <C>              <C>             <C>
Year ended December 31, 2000
Allowance for losses on:
     Accounts receivable                  $        294    $        500    $          -     $       (190)   $        604
     Inventory                                   1,519             825               -             (553)          1,791
     Sales returns and allowance                 1,494           9,017          (1,275)          (8,186)          1,050
     Stock rotation                                  -           2,839           1,275           (2,564)          1,550
     Warranty                                      425             200               -             (121)            504
Deferred tax valuation allowance                   833               -               -                -             833
                                          ------------    ------------    ------------     ------------    ------------
                                          $      4,565    $     13,381    $          -     $    (11,614)   $      6,332
                                          ============    ============    ============     ============    ============

Year ended December 31,1999:
Allowance for losses on:
     Accounts receivable                  $        261    $         47    $          -     $        (14)   $        294
     Inventory                                   1,543             539               -             (563)          1,519
     Sales returns and allowance                 1,049           5,977               -           (5,532)          1,494
     Warranty                                      661              61               -             (297)            425
Deferred tax valuation allowance                14,825               -               -          (13,992)            833
                                          ------------    ------------    ------------     ------------    ------------
                                          $     18,339    $      6,624    $          -     $    (20,398)   $      4,565
                                          ============    ============    ============     ============    ============

Year ended December 31,1998:
Allowance for losses on:
     Accounts receivable                  $        218    $         50    $          -     $         (7)   $        261
     Inventory                                   1,278             503               -             (238)          1,543
     Sales returns and allowance                   649           2,053               -           (1,653)          1,049
     Warranty                                      532             628               -             (499)            661
Deferred tax valuation allowance                14,867               -               -              (42)         14,825
                                          ------------    ------------    ------------     ------------    ------------
                                          $     17,544    $      3,234    $          -     $     (2,439)   $     18,339
                                          ============    ============    ============     ============    ============
</TABLE>

                                      S-1