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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K

(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended September 30, 2008

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 0-23084





INTEGRATED SILICON SOLUTION,
INC.

(Exact name of Registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 77-0199971                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|1940 Zanker Road, San Jose, California                         |  | 95112                               
|(Address of principal executive offices)                       |  | (zip code)                          

Registrants telephone number, including area code(408) 969-6600

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



|                                          |  |                                          
|----------------------------------------- |  | -----------------------------------------
|Title of each class                       |  | Name of each exchange on which registered
|Common Stock, par value $0.0001 per share |  | Nasdaq Global Market                     

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

None

(Title of Class)





Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes   ̈    No  x

Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes   ̈    No  x

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.
See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   ̈        Accelerated filer  x        Non-accelerated filer   ̈        Smaller reporting company   ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes   ̈    No  x

The
aggregate market value of the common stock held by non-affiliates of the registrant, based upon the price at which the registrants Common Stock was last sold as of March 31, 2008 (the last business day of the registrants second
quarter of fiscal 2008), was approximately $117.4 million. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common 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.

The number of
outstanding shares of the registrants Common Stock on December 10, 2008 was 25,362,725.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Registrants 2009 Annual Meeting of Stockholders are incorporated by reference in Part III
of this Form 10-K.









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TABLE OF CONTENTS



|                                                  |  |                                                                                                                  |  |   
|------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------- |  | --
|Special Note Regarding Forward-Looking Statements |  | 1                                                                                                               
|                                                  |  |                                                                                                                 
|                                                  |  | PART I                                                                                                           |  |   
|                                                  |  |                                                                                                                 
|Item 1.                                           |  | Business                                                                                                         |  | 2 
|                                                  |  |                                                                                                                 
|Item 1A.                                          |  | Risk Factors                                                                                                     |  | 13
|                                                  |  |                                                                                                                 
|Item 1B.                                          |  | Unresolved Staff Comments                                                                                        |  | 24
|                                                  |  |                                                                                                                 
|Item 2.                                           |  | Properties                                                                                                       |  | 24
|                                                  |  |                                                                                                                 
|Item 3.                                           |  | Legal Proceedings                                                                                                |  | 24
|                                                  |  |                                                                                                                 
|Item 4.                                           |  | Submission of Matters to a Vote of Security Holders                                                              |  | 26
|                                                  |  |                                                                                                                 
|                                                  |  | PART II                                                                                                          |  |   
|                                                  |  |                                                                                                                 
|Item 5.                                           |  | Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 27
|                                                  |  |                                                                                                                 
|Item 6.                                           |  | Selected Consolidated Financial Data                                                                             |  | 29
|                                                  |  |                                                                                                                 
|Item 7.                                           |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                            |  | 30
|                                                  |  |                                                                                                                 
|Item 7A.                                          |  | Quantitative and Qualitative Disclosures about Market Risk                                                       |  | 42
|                                                  |  |                                                                                                                 
|Item 8.                                           |  | Financial Statements and Supplementary Data                                                                      |  | 43
|                                                  |  |                                                                                                                 
|Item 9.                                           |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                             |  | 81
|                                                  |  |                                                                                                                 
|Item 9A.                                          |  | Controls and Procedures                                                                                          |  | 81
|                                                  |  |                                                                                                                 
|Item 9B.                                          |  | Other Information                                                                                                |  | 82
|                                                  |  |                                                                                                                 
|                                                  |  | PART III                                                                                                         |  |   
|                                                  |  |                                                                                                                 
|Item 10.                                          |  | Directors, Executive Officers and Corporate Governance                                                           |  | 83
|                                                  |  |                                                                                                                 
|Item 11.                                          |  | Executive Compensation                                                                                           |  | 83
|                                                  |  |                                                                                                                 
|Item 12.                                          |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                   |  | 83
|                                                  |  |                                                                                                                 
|Item 13.                                          |  | Certain Relationships and Related Transactions, and Director Independence                                        |  | 83
|                                                  |  |                                                                                                                 
|Item 14.                                          |  | Principal Accountant Fees and Services                                                                           |  | 83
|                                                  |  |                                                                                                                 
|                                                  |  | PART IV                                                                                                          |  |   
|                                                  |  |                                                                                                                 
|Item 15.                                          |  | Exhibits and Financial Statement Schedules                                                                       |  | 84
|                                                  | 
|SIGNATURES                                        |  | 86                                                                                                              





References in this Annual
Report on Form 10-K to we, us, our and ISSI mean Integrated Silicon Solution, Inc. and all entities owned or controlled by Integrated Silicon Solution, Inc.





All brand names, trademarks and trade names referred to in this report are the property of their respective holders.



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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made forward-looking statements in this report that are subject to risks and uncertainties. Forward-looking statements include information
concerning possible or assumed future results of our operations. Also, when we use words such as believes, expects, anticipates or similar expressions, we are making forward-looking statements. You should note
that an investment in our securities involves certain risks and uncertainties that could affect our future results. Our actual results could differ materially from those anticipated in our forward-looking statements as a result of certain factors,
including those set forth in Risk Factors beginning on page 13 and elsewhere in this report.

We believe it is important to
communicate our expectations to our investors. However, there may be events in the future that we are not able to predict accurately or over which we have no control. The risks described in Risk Factors included in this report, as well
as any other cautionary language in this report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Before you invest in our
common stock, you should be aware that the occurrence of the events described in Risk Factors and elsewhere in this report could harm our business and adversely affect our results.

All forward-looking statements made by us are expressly qualified in their entirety by the cautionary statements set forth in this report. Except as
required by federal securities laws, we are under no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.



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PART I

Item 1. Business

Overview

We are a fabless semiconductor company that designs and markets high performance integrated circuits for the following key markets: (i) digital
consumer electronics, (ii) networking, (iii) mobile communications, (iv) automotive electronics and (v) industrial. Our primary products are high speed and low power SRAM and low and medium density DRAM. In fiscal 2008,
approximately 88% of our revenue was derived from our SRAM and DRAM products. We also design and market application specific standard products (ASSP) primarily EEPROMs and SmartCards focused on our key markets. We target large markets with
our cost-effective, high quality semiconductor products and seek to build long-term relationships with our customers. Part of our strategy is to offer a long term commitment supplying many of the lower density legacy DRAM and SRAM memories that are
of less interest to many of our competitors. Our customers frequently cite our commitment to long-term supply of these memories as one reason they buy products from ISSI.

Our outsourced manufacturing model is based upon a history of joint process technology development relationships with key Asian foundries. We have had such programs with several foundries, including Taiwan
Semiconductor Manufacturing Corporation (TSMC), Chartered Semiconductor Manufacturing, and Semiconductor Manufacturing International Corporation (SMIC). We have an established presence in the important Asian market that includes our design groups in
Shanghai, China and Hsinchu, Taiwan. These locations also have product engineering, sales and marketing, quality assurance, production control, and other operating functions. Our world headquarters are in San Jose, California.

Our customers include leaders in each of our five target markets, including LG Electronics, NEC, Sharp, Panasonic, Samsung, Sony, and Toshiba in digital
consumer electronics; Alcatel-Lucent, Cisco, Foxconn, Fujitsu, Huawei Technologies, Nortel, Polycom, Tellabs, UT Starcom and ZTE in networking; Ericsson, Garmin, LG Electronics, Motorola, Nokia, and VTech in mobile communications; Bosch, Bose,
Continental, Delphi, Harman Becker, Hyundai Autonet, Johnson Controls, Kenwood, Panasonic, Philips (PLDS), and TRW in automotive electronics; and General Electric, Hypercom, Ingenico, Philips, Siemens and Tyco in industrial applications. Due to
their significant size and market influence, these customers generally drive memory volumes in their market segments and help define the direction of future memory needs.

Company Background

We were incorporated in California in October 1988 and changed our state of
incorporation to Delaware in August 1993. Our principal executive offices are located at 1940 Zanker Road, San Jose, California 95112, and our telephone number is (408) 969-6600. On our Investor Relations web site, located at
www.issi.com, we post the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission: our annual report on Form 10-K, our quarterly reports on Form 10-Q,
our current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. All such documents on our Investor Relations web site are available free of
charge.

Market Background

In recent
years, the need for sophisticated semiconductor memory architecture has expanded beyond the PC market and into electronic systems in a wide variety of markets, including digital consumer electronics, networking, mobile communications, automotive
electronics and industrial. Advances in technology have allowed for increasingly complex digital consumer systems, set-top boxes, digital cameras and HDTVs. Significant memory content is often required in these products to manage large amounts of
data that create images and sounds in a digital format. As a result, virtually all electronic systems incorporate semiconductor memory devices to enable and enhance system performance.



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As more consumers and businesses utilize the internet and broadband communications networks and as users
upgrade their equipment, the demand for products that connect to networks has accelerated. Consumers and businesses require high speed access to internet content and other services to transmit and receive large amounts of data, such as highly
graphical web sites, MP3 audio files and streaming multimedia applications. The numerous and complex applications that facilitate connections within networking and broadband products, such as cable and DSL modems, switches and routers, require
optimized high speed memory architectures to maximize bus bandwidth and speed data transfer.

Mobile communication products have gained
broad acceptance among consumers. Applications for cellular communications, wireless local area networks (WLAN) and global positioning systems (GPS) are increasingly able to access a wide range of data services, from internet connectivity to
location detection, and are delivering information to consumers through mobile products. Mobile products connect without wires to a base station that receives and sends data or voice to the mobile device. As more data and user content is accessed
and stored on the mobile devices, advanced memory is required to store and access this information in the mobile products. Additionally, as 3G mobile broadband services proliferate, memory will play a crucial role in ensuring quality of service in
the mobile infrastructure market.

The complexity of automobile electronics is also increasing rapidly. The significant increase in
automotive electronic complexity has resulted in an increase in microcontrollers and memory responsible for delivering control and command functionality. Automobile designers are increasing semiconductor content in automobiles to allow for improved
telematics, digital audio and video entertainment systems, and powertrain functions such as engine control and fuel efficiency management systems. These systems require memory devices that meet the automotive industrys high quality and
reliability standards.

The industrial memory market matches our strategy of providing long term customer support. Memory products are used
in various industrial applications such as power management, imaging, point of sale terminals, bar code scanners, instrumentation and data acquisition systems. We have a wide range of DRAM, SRAM and EEPROM products that meet the needs of the
industrial market segment.

Integrated circuits that address the semiconductor memory market can be segmented into volatile memory, such as
DRAM and SRAM, and non-volatile memory, such as Flash and EEPROM. Volatile memory loses its data if the electricity is turned off, while non-volatile memory retains its data when the electricity is turned off. SRAM is used for applications that
require very high speed access to stored data and it typically requires four to six transistors to store each bit of data. DRAM uses only a single transistor to store each bit of data. As a result, the storage capacity of DRAM tends to be much
greater than that of SRAM. SRAM is faster than DRAM, but more expensive on a cost per bit basis. The same equipment manufacturers that use high performance SRAM may also use low and medium density DRAM and such products can be sold through the same
channels.

System designers use SRAM in the most performance sensitive portions of their memory architecture. High performance SRAM
operates at either very high speed or very low power or both. High speed SRAM is used in applications such as base stations, aggregators, routers, switches, modems and peripherals. Low power SRAM is used in applications such as wireless handheld
devices and mobile phones.

The DRAM market can be segmented into high density devices (currently 1 Gb and above) and low and medium
density devices (currently 512 Mb and below). High density DRAM is used in applications that require high capacity storage, such as PCs and other high-end computing devices. Currently, DRAM in PCs is migrating from 512 Mb to 1 Gb and above. Low and
medium density DRAM is used in applications such as digital consumer electronics, networking, mobile communications, and automotive electronics, which require less memory capacity than PCs and high end computing applications. Large captive memory
manufacturers tend to focus production on higher density DRAM devices, where the volumes are greater and manufacturing economies of scale can be optimized. As a result, to the extent the large, captive memory manufacturers limit or cease production
of low and medium density DRAM, customers may seek a new long-term, steady supply of these products. We focus on providing low and medium density DRAM products to this customer base.



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Memory suppliers compete on the basis of speed, power consumption, density, reliability, and cost, all of
which are a function of process technology and design expertise. Success in the memory market is determined not only by the quality of the device design, but also by the process through which the device is fabricated. Process technology improvements
allow design line widths to be reduced, which in turn allow the integrated circuit design to operate at faster speeds and increased memory density. To meet the demands for high performance memories, a memory supplier must also have a wafer
fabrication strategy allowing it to migrate to the newest generations of process technology on a timely basis. Process technology shifts occur frequently and are developed in high end wafer fabrication facilities that typically cost over $1.0
billion. Although most of the large multinational memory companies fabricate their own semiconductor wafers, fabless suppliers rely on third-party wafer foundries. The fabless model is much less capital intensive, but requires strong relationships
with foundries to secure wafer supply and access to advanced process technology.

We believe the demand for high performance memory
products across a variety of end markets provides a substantial opportunity for a focused supplier of high performance memory integrated circuits.

Strategy

Since our inception in 1988, we have developed a broad range of SRAM products that enable designers to meet the
demanding density, speed, cost, reliability and power consumption requirements of semiconductors used in high technology products. In the late 1990s, we began to establish ourselves as a supplier of low and medium density DRAM products, which
are complementary to our SRAM products. For both product lines, we emphasize our commitment to be a long-term provider of the legacy, smaller density products that are of less interest to some of our larger competitors. Our customers are among the
largest manufacturers in the digital consumer electronics, networking, mobile communications, automotive electronic and industrial markets. Unlike many other fabless semiconductor companies, we employ our own process development team to work
collaboratively with our key foundry suppliers, which are all located in Asia. Our management has extensive experience working with Asian foundries. These factors allow us to build strong relationships with our foundry suppliers and facilitate
access to leading edge process technology and wafer capacity. The key elements of our strategy are:

Target Specific Memory Market
Segments.    The memory markets are large and diverse, but also prone to the economics of demand and supply imbalances which can cause fluctuations in product prices. We work to market and sell our SRAM and DRAM products into
certain specific markets that provide sufficient volume for sales, but which also may provide better stability in prices over time. Examples of the market segments that we target are industrial applications, automotive, die sales, networking,
telecommunications, and some medical equipment.

Commit to Being a Long-Term Supplier of our Products.    We are
a long-term supplier of products to many of our customers. Our fabless model provides us the flexibility to accommodate small volume production runs for products such as low and medium density memories. In contrast, many large captive suppliers will
reduce or cease production of lower density products in periods of tight capacity, as manufacturing such products is less attractive to them than making higher density memories, which typically have higher volumes and greater economies of scale. As
an example, we still supply low density 4 Mb EDO 3.3 volt DRAM and 64K SRAM, while most large captive memory companies ceased production of such devices several years ago.

Continue to Develop and Offer High Performance Products.    We provide cost effective, high performance products, including a
complete family of SRAM products and a range of low and medium density DRAM products. We work with our customers to identify the memory requirements of their next generation products and then focus our development efforts on achieving high
performance standards through advanced process technology, circuit density, high speed, reliability and optimized power consumption. Examples of our high performance product offerings include a 72 Mb synchronous high speed SRAM product targeting
high-end networking applications and a 512 Mb DDR DRAM product targeting the digital consumer electronics and networking markets.



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Expand our Low Cost Asian-Based Development Teams Close to our
Customers.    We intend to continue to capitalize on our extensive experience in Asia. We have established low cost engineering development teams close to our customers through our subsidiaries in Taiwan and China and have a
full complement of research and development and sales and marketing capability in these Asian subsidiaries.

Further Penetrate Industry
Leading Customers.    We leverage our expertise in producing high quality memory products to penetrate our target markets through industry leading accounts, such as LG Electronics, NEC, Sharp, Panasonic, Samsung, Sony, and
Toshiba in digital consumer electronics; Alcatel-Lucent, Cisco, Foxconn, Fujitsu, Huawei Technologies, Nortel, Polycom, Tellabs, UT Starcom and ZTE in networking; Ericsson, Garmin, LG Electronics, Motorola, Nokia, and VTech in mobile communications;
Bosch, Bose, Continental, Delphi, Harman Becker, Hyundai Autonet, Johnson Controls, Kenwood, Panasonic, Philips (PLDS), and TRW in automotive electronics; and General Electric, Hypercom, Ingenico, Philips, Siemens and Tyco in industrial
applications. We target these customers because we believe they drive high volumes in their markets and define the direction of future memory requirements. We believe our success with these market leaders enables us to attract other customers and
broaden our customer base.

Develop Selected Application Specific Standard Products (ASSP) for Key
Markets.    We develop selected ASSP products for use in our key markets. Our goal is to increase product diversification and to offer products that are synergistic with our SRAM and DRAM expertise. Currently, these products
include primarily EEPROM and SmartCards.

Customers and Marketing

Over the years, we have established a strong customer base, including industry leading accounts. Our key customers in each of our target markets are presented in the following table:



|                             |  |                |  |                       |  |                        |  |                 
|---------------------------- |  | -------------- |  | --------------------- |  | ---------------------- |  | ----------------
|Digital Consumer Electronics |  | Networking     |  | Mobile Communications |  | Automotive Electronics |  | Industrial      
|LG Electronics               |  | Alcatel-Lucent |  | Ericsson              |  | Bosch                  |  | General Electric
|NEC                          |  | Cisco          |  | Garmin                |  | Bose                   |  | Hypercom        
|Panasonic                    |  | Foxconn        |  | LG Electronics        |  | Continental            |  | Ingenico        
|Samsung                      |  | Fujitsu        |  | Motorola              |  | Delphi                 |  | Philips         
|Sharp                        |  | Huawei         |  | Nokia                 |  | Harmon Becker          |  | Siemens         
|Sony                         |  | Nortel         |  | VTech                 |  | Johnson Controls       |  | Tyco            
|Toshiba                      |  | Polycom        |  |                       |  | Hyundai Autonet        |  |                 
|                             |  | Tellabs        |  |                       |  | Kenwood                |  |                 
|                             |  | UT Starcom     |  |                       |  | Panasonic              |  |                 
|                             |  | ZTE            |  |                       |  | Philips (PLDS)         |  |                 
|                             |  |                |  |                       |  | TRW                    |  |                 

Our sales and marketing efforts are directed from our San Jose headquarters, but we also have
sales and marketing teams in Asia and a sales team in Europe. We market and sell our products in Asia, the U.S. and Europe through our direct sales force, independent sales representatives and distributors. We have distributors in North America and
in many countries in Europe, including a Pan-European distributor. In Asia, we sell primarily through distributors who work closely with our Asian resident direct sales force. We have sales offices in the U.S., Europe, Taiwan, China, Hong Kong,
Japan, India, Korea, and Singapore. Our marketing group focuses on product strategy, product development road maps, new product introduction, demand assessment and competitive analysis. The group also helps ensure that product launches, channel
marketing programs, and ongoing demand and supply planning occur on a well-managed, timely basis.



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In fiscal 2008, fiscal 2007 and fiscal 2006, no single customer accounted for over 10% of our total net
sales. The percentage of our sales from customers located outside the U.S. was approximately 84%, 82%, and 83% in fiscal 2008, 2007, and 2006, respectively. We measure sales location by the shipping destination, even if the customer is headquartered
in the U.S. We anticipate that sales to international customers will continue to represent a significant percentage of our net sales. The percentages of our sales by region are set forth in the following table:



|       |  |                                |   |  |      |   |  |      |  
|------ |  | ------------------------------ | - |  | ---- | - |  | ---- | -
|       |  | Fiscal Year EndedSeptember 30, |  
|       |  | 2008                           |   |  | 2007 |   |  | 2006 |  
|Asia   |  | 66                             | % |  | 67   | % |  | 73   | %
|Europe |  | 17                             |   |  | 15   |   |  | 10   |  
|U.S.   |  | 16                             |   |  | 18   |   |  | 17   |  
|Other  |  | 1                              |   |  |     |   |  |     |  
|       |  |                                |   |  |      |   |  |      |  
|Total  |  | 100                            | % |  | 100  | % |  | 100  | %
|       |  |                                |   |  |      |   |  |      |  

Information regarding our long-lived assets is contained in Note 15 to our Consolidated Financial
Statements.

Our sales are generally made pursuant to standard purchase orders, which can be revised by our customers to reflect changes in
the customers requirements. Generally, our purchase orders and OEM agreements allow customers to reschedule delivery dates and cancel purchase orders without significant penalties. For these reasons, we believe that our backlog, while useful
for scheduling production, is not necessarily a reliable indicator of future revenues. To meet customer requirements, we often must deliver products on relatively short notice. Accordingly, we must maintain a significant inventory of certain items
to be able to meet these requirements.

Markets and Products

Our memory products are used in a variety of specific applications within the digital consumer electronics, networking, mobile communications, automotive electronics and industrial markets. In particular, our SRAM
products are used in WLANs, cell phones, base stations, networking switches and routers, fiber to the home (FTTH), DSL modems, LCD TVs, set-top boxes, GPS systems, instrumentation, engine control systems, medical equipment, telematics, audio and
video equipment, satellite radio, POS terminals, fax machines, copiers, tape drives, and other applications. Our low and medium density DRAM products are used in WLANs, base stations, FTTH, DSL and cable modems, set top boxes, digital cameras, MP3,
flat panel TVs, LCD TVs, HDTVs, video phones, VOIP, printers, disk drives, tape drives, audio/video equipment, GPS, telematics, infotainment, and other applications. Many of the same customers that purchase our SRAM products also purchase our DRAM
products.

Prior to fiscal 2003, SRAM products generated a majority of our revenue, largely for networking and telecommunications
applications. However, in the last several years, these markets remained relatively flat and, in the same period, we experienced growth in the consumer electronics market for our low and medium density DRAM products. As a result, for the past five
fiscal years, we have derived a majority of our revenue from DRAM products.

SRAM.    Our SRAM strategy is to
offer a broad range of devices and to be a complete supplier of our customers SRAM requirements. We offer advanced, leading-edge products, such as our 72 Mb synchronous SRAM, and we also make long-term supply commitments on established SRAM
products, such as a 32K x 8, 5 volt asynchronous SRAM. Our high performance SRAM products generally focus on either high speed or low power applications.



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We offer both asynchronous and synchronous high speed SRAM products. Our high speed asynchronous SRAM
products are used in applications such as LANs, telecommunication equipment and base stations, aggregators, routers, modems, automotive electronics, multimedia products, peripherals, and industrial instrumentation. We have also developed a low power
family of SRAM products for wireless applications. Our high speed synchronous SRAM products are used in a variety of networking and telecommunications applications, such as high performance switches and routers, as well as in automotive
applications. Additional SRAM products under development are expected to include performance-leading features in speed, configuration, power levels, density and packaging. We are also developing certain Psuedo SRAM products as a cost effective
replacement for ultra low power SRAMs.

The following table illustrates our principal SRAM products and the markets in which they can be
used:



|                                             |  |               |  |         |  |         |  |                              |  |            |  |                       |  |                        |  |           
|-------------------------------------------- |  | ------------- |  | ------- |  | ------- |  | ---------------------------- |  | ---------- |  | --------------------- |  | ---------------------- |  | ----------
|Product Description                          |  | Configuration |  | Density |  | Speed   |  | Digital Consumer Electronics |  | Networking |  | Mobile Communications |  | Automotive Electronics |  | Industrial
|Asynchronous SRAM                            |  |               |  |         |  |         |  |                              |  |            |  |                       |  |                        |  |           
|High Speed 5 Volt
(3.3 Volt)                 |  | 128K x 8      |  | 1 Mb    |  | 8 ns    |  | ü                            |  | ü          |  | ü                     |  | ü                      |  | ü         
|High Speed 5 Volt
(3.3 Volt)                 |  | 64K x 16      |  | 1 Mb    |  | 8 ns    |  | ü                            |  | ü          |  | ü                     |  | ü                      |  | ü         
|High Speed (3.3 Volt)                        |  | 128K x 16     |  | 2 Mb    |  | 8 ns    |  | ü                            |  | ü          |  | ü                     |  | ü                      |  | ü         
|High Speed 5 Volt
(3.3 Volt)                 |  | 256K x 16     |  | 4 Mb    |  | 8 ns    |  | ü                            |  | ü          |  | ü                     |  | ü                      |  | ü         
|High Speed 5 Volt
(3.3 Volt)                 |  | 512K x 8      |  | 4 Mb    |  | 8 ns    |  | ü                            |  | ü          |  |                       |  | ü                      |  | ü         
|High Speed (3.3 Volt)                        |  | 512K x 16     |  | 8 Mb    |  | 8 ns    |  | ü                            |  | ü          |  | ü                     |  | ü                      |  | ü         
|High Speed (3.3 Volt)                        |  | 1M x 8        |  | 8 Mb    |  | 8 ns    |  | ü                            |  | ü          |  |                       |  | ü                      |  | ü         
|High Speed (3.3 Volt)                        |  | 1M x 16       |  | 16 Mb   |  | 8 ns    |  |                              |  | ü          |  |                       |  | ü                      |  | ü         
|High Speed (3.3 Volt)                        |  | 2M x 8        |  | 16 Mb   |  | 8 ns    |  |                              |  | ü          |  |                       |  | ü                      |  | ü         
|Low/Ultra Low Power                          |  | 128K x 8      |  | 1 Mb    |  | 45 ns   |  | ü                            |  |            |  |                       |  | ü                      |  | ü         
|Low/Ultra Low Power                          |  | 64K x 16      |  | 1 Mb    |  | 45 ns   |  | ü                            |  |            |  | ü                     |  | ü                      |  | ü         
|Low/Ultra Low Power                          |  | 128K x 16     |  | 2 Mb    |  | 45 ns   |  | ü                            |  |            |  |                       |  | ü                      |  | ü         
|Low/Ultra Low Power                          |  | 256K x 8      |  | 2 Mb    |  | 45 ns   |  | ü                            |  |            |  |                       |  | ü                      |  | ü         
|Low/Ultra Low Power                          |  | 256K x 16     |  | 4 Mb    |  | 45 ns   |  | ü                            |  |            |  |                       |  |                        |  | ü         
|Low/Ultra Low Power                          |  | 512K x 8      |  | 4 Mb    |  | 45 ns   |  |                              |  | ü          |  | ü                     |  |                        |  | ü         
|Low/Ultra Low Power                          |  | 1M x 8        |  | 8 Mb    |  | 45 ns   |  |                              |  |            |  | ü                     |  | ü                      |  | ü         
|Low/Ultra Low Power                          |  | 512K x 16     |  | 8 Mb    |  | 45 ns   |  |                              |  | ü          |  |                       |  |                        |  | ü         
|Synchronous
SRAM                             |  |               |  |         |  |         |  |                              |  |            |  |                       |  |                        |  |           
|Pipeline
Burst/FlowThru                      |  | 128K x 32/36  |  | 4 Mb    |  | 250 Mhz |  | ü                            |  | ü          |  |                       |  | ü                      |  | ü         
|Pipeline
Burst/FlowThru                      |  | 256K x 18     |  | 4 Mb    |  | 250 Mhz |  |                              |  | ü          |  |                       |  |                        |  | ü         
|Pipeline
Burst/FlowThru/No Wait              |  | 256K x 36     |  | 9 Mb    |  | 250 Mhz |  |                              |  | ü          |  |                       |  | ü                      |  | ü         
|Pipeline
Burst/FlowThru/No Wait              |  | 512K x 18     |  | 9 Mb    |  | 250 Mhz |  |                              |  | ü          |  |                       |  |                        |  | ü         
|Pipeline
Burst/FlowThru/No Wait              |  | 256K x 72     |  | 18 Mb   |  | 250 Mhz |  |                              |  | ü          |  |                       |  |                        |  | ü         
|Pipeline
Burst/FlowThru/No Wait              |  | 512K x 36     |  | 18 Mb   |  | 250 Mhz |  |                              |  | ü          |  |                       |  |                        |  | ü         
|Pipeline
Burst/FlowThru/No Wait              |  | 1M x 18       |  | 18 Mb   |  | 250 Mhz |  |                              |  | ü          |  |                       |  |                        |  | ü         
|Quad/DDR II/
Pipeline Burst/FlowThru/No Wait |  | 2M x 18       |  | 36 Mb   |  | 250 Mhz |  |                              |  | ü          |  |                       |  |                        |  | ü         
|Quad/DDR II/Pipeline
Burst/FlowThru/No Wait  |  | 1M x 36       |  | 36 Mb   |  | 250 Mhz |  |                              |  | ü          |  |                       |  |                        |  | ü         
|Quad/DDR
II                                  |  | 4M x 18       |  | 72 Mb   |  | 300 Mhz |  |                              |  | ü          |  |                       |  |                        |  | ü         
|Quad/DDR
II                                  |  | 2M x 36       |  | 72 Mb   |  | 300 Mhz |  |                              |  | ü          |  |                       |  |                        |  | ü         



7



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##### Table of Contents

DRAM.    Our DRAM strategy is to be a long-term supplier of low and medium
density DRAM products. Our DRAM products are not targeted at the main memory DRAM market and we do not compete in markets requiring the highest density DRAM products used in PCs and workstations. Instead, we provide 4, 16, 64, 128, 256 and 512 Mb
DRAM products, including a 1.8 volt low power version of our 16, 64, 128 and 256 Mb synchronous DRAM (SDRAM) products. Applications for our low and medium density DRAM products include products such as WLANs, base stations, FTTH, DSL and cable
modems, set top boxes, digital cameras, MP3, flat panel TVs, LCD TVs, HDTVs, video phones, VOIP, printers, disk drives, tape drives, audio/video equipment, GPS, telematics, infotainment, and other applications. Most of these applications do not
require high density products, and our customers memory component strategy typically follows one or more generations behind the high density DRAM market. Additional DRAM products are under development. For most SDRAM products, we offer both
packaged and known good die (KGD) only solutions. We also offer FBGA packages, which are very small and thin, for all of our synchronous and low power DRAM products.

The following table describes our principal DRAM products and the markets in which they can be used:



|                                      |  |               |  |         |  |                              |   |            |   |                       |  |                        |   |            |   |   |  |   |  
|------------------------------------- |  | ------------- |  | ------- |  | ---------------------------- | - | ---------- | - | --------------------- |  | ---------------------- | - | ---------- | - | - |  | - | -
|Product Description                   |  | Configuration |  | Density |  | Digital Consumer Electronics |   | Networking |   | Mobile Communications |  | Automotive Electronics |   | Industrial
|Synchronous
3.3 Volt                  |  | 1M x 16       |  | 16 Mb   |  | ü                            |   |            | ü |                       |  | ü                      |   |            | ü |   |  | ü |  
|Synchronous
3.3 Volt                  |  | 4M x 16       |  | 64 Mb   |  | ü                            |   |            | ü |                       |  | ü                      |   |            | ü |   |  | ü |  
|Synchronous
3.3 Volt                  |  | 2M x 32       |  | 64 Mb   |  | ü                            |   |            | ü |                       |  |                        |   |            | ü |   |  | ü |  
|Synchronous
3.3 Volt                  |  | 16M x 8       |  | 128 Mb  |  | ü                            |   |            |   |                       |  |                        |   |            | ü |   |  | ü |  
|Synchronous
3.3 Volt                  |  | 8M x 16       |  | 128 Mb  |  | ü                            |   |            | ü |                       |  | ü                      |   |            | ü |   |  | ü |  
|Synchronous
3.3 Volt                  |  | 4M x 32       |  | 128 Mb  |  | ü                            |   |            | ü |                       |  |                        |   |            | ü |   |  | ü |  
|Synchronous
3.3 Volt                  |  | 32M x 8       |  | 256 Mb  |  | ü                            |   |            |   |                       |  |                        |   |            | ü |   |  | ü |  
|Synchronous
3.3 Volt                  |  | 16M x 16      |  | 256 Mb  |  | ü                            |   |            | ü |                       |  |                        |   |            | ü |   |  | ü |  
|Synchronous
3.3 Volt                  |  | 8M x 32       |  | 256 Mb  |  | ü                            |   |            | ü |                       |  |                        |   |            | ü |   |  | ü |  
|Synchronous
3.3 Volt                  |  | 32M x 16      |  | 512 Mb  |  | ü                            |   |            | ü |                       |  | ü                      |   |            | ü |   |  | ü |  
|Synchronous
3.3 Volt                  |  | 16M x 32      |  | 512 Mb  |  | ü                            |   |            | ü |                       |  | ü                      |   |            | ü |   |  | ü |  
|Low Power
Synchronous 1.8 Volt        |  | 1M x 16       |  | 16 Mb   |  | ü                            |   |            |   |                       |  | ü                      |   |            |   |   |  | ü |  
|Low Power
Synchronous 1.8 Volt        |  | 4M x 16       |  | 64 Mb   |  | ü                            |   |            |   |                       |  | ü                      |   |            |   |   |  | ü |  
|Low Power
Synchronous 1.8 Volt        |  | 2M x 32       |  | 64 Mb   |  | ü                            |   |            | ü |                       |  | ü                      |   |            |   |   |  | ü |  
|Low Power
Synchronous 1.8 Volt        |  | 8M x 16       |  | 128 Mb  |  | ü                            |   |            |   |                       |  | ü                      |   |            |   |   |  | ü |  
|Low Power
Synchronous 1.8 Volt        |  | 4M x 32       |  | 128 Mb  |  | ü                            |   |            | ü |                       |  | ü                      |   |            |   |   |  | ü |  
|Low Power
Synchronous 1.8 Volt        |  | 16M x 16      |  | 256 Mb  |  | ü                            |   |            |   |                       |  | ü                      |   |            |   |   |  | ü |  
|Low Power
Synchronous 1.8 Volt        |  | 8M x 32       |  | 256 Mb  |  | ü                            |   |            | ü |                       |  | ü                      |   |            |   |   |  | ü |  
|Double Data
Rate Synchronous 2.5 Volt |  | 8M x 16       |  | 128 Mb  |  | ü                            |   |            | ü |                       |  |                        |   |            | ü |   |  | ü |  
|Double Data
Rate Synchronous 2.5 Volt |  | 4M x 32       |  | 128 Mb  |  | ü                            |   |            | ü |                       |  |                        |   |            | ü |   |  | ü |  
|Double Data
Rate Synchronous 2.5 Volt |  | 16M x 16      |  | 256 Mb  |  |                              | ü |            |   | ü                     |  |                        | ü |            |   | ü |  |   | ü



8



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##### Table of Contents

ASSP and Other Products.    Our ASSP products include high performance serial
EEPROM, SmartCard and selected other products. Applications for our EEPROM products include TVs, networking systems, modems, telephone sets, security systems, video games, automobiles and other consumer products. We currently sell 1 Kb to 256 Kb
Serial EEPROM products. These products are offered in two-wire, microwire and serial peripheral interface protocols. Applications for our Smartcard products include transportation passes, payment cards, health care cards and other cards that store
secure data. We currently sell 1 Kb to 256 Kb SmartCard products. These products are offered in two-wire, secure serial, MCU based and contactless protocols. Sales from our ASSP products constituted approximately 12%, 14% and 9% of our total revenue
in fiscal 2008, 2007, and 2006, respectively.

Product Warranty.    Consistent with semiconductor memory
industry practice, we generally provide a limited warranty that our semiconductor memory devices are in compliance with specifications existing at the time of delivery. Liability for a stated warranty period is usually limited to replacement of
defective items or return of amounts paid.

Manufacturing

We outsource our manufacturing operations, including wafer fabrication, assembly and testing. Since memory products are particularly well suited for the development of advanced process technology, we seek to
participate in developing and refining the process technology used to manufacture many of our products. We believe that this strategy gives us a competitive advantage and enables us to achieve the early introduction of smaller geometries for our
memory products, which results in increased performance and lower manufacturing costs, as well as facilitates access to needed capacity. Our principal manufacturing relationships are with Chartered Semiconductor, Nanya, Powerchip, SMIC, and TSMC.

The manufacturing of our products begins at independent wafer foundries. Once the foundry has completed wafer processing, the wafers are
shipped to subcontractors for wafer testing. They are then cut into individual memory chips, assembled into final packages and tested at our third-party subcontractors in Taiwan, China and the Philippines. Our operations groups in the U.S., China
and Taiwan perform subcontractor management. We are certified to ISO 9001/2000 standards and ISO 14001, the environmental standard, and our quality system is periodically reviewed and approved by both ISO registrars and our customers. We are
compliant to ISO/TS 16949:2002, the automotive standard.

Each of our wafer suppliers also fabricates for other integrated circuit
companies, including certain of our competitors. In addition, some of our wafer suppliers manufacture memories for their own account. Although we are allocated specific wafer capacity from our suppliers, we may not be able to obtain such capacity in
periods of tight supply. There can be no assurance that the foundries we use will not encounter construction or production difficulties or that they will allocate sufficient wafer capacity to satisfy our wafer requirements, especially in times of
wafer capacity shortages. Moreover, there can be no assurance that we would be able to qualify additional manufacturing sources for existing or new products in a timely manner or that such additional manufacturing sources would be able to produce an
adequate supply of wafers. If we were unable to obtain an adequate supply of wafers from our current or any alternative sources in a timely manner, our business and operating results would be harmed.

Our suppliers for wafer testing, assembly, and final test also provide services to other companies. There can be no assurance that these suppliers will
not encounter production difficulties or that they will allocate sufficient capacity to satisfy our requirements. If we were unable to obtain an adequate supply of wafer testing, assembly, or final test services, our business and operating results
would be harmed.



9



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##### Table of Contents

Competition

The semiconductor market is intensely competitive and has been characterized by cyclical market conditions, an oversupply of product, price erosion, rapid technological change and short product life cycles. Key factors impacting our
competitive capabilities include:



| |  |  | the pricing of our products;
| | - |  | ----------------------------



| |  |  | the supply and cost of wafers;
| | - |  | ------------------------------



| |  |  | product design, functionality, performance and reliability;
| | - |  | -----------------------------------------------------------



| |  |  | successful and timely product development;
| | - |  | ------------------------------------------



| |  |  | wafer manufacturing over or under capacity;
| | - |  | -------------------------------------------



| |  |  | access to advanced process technologies at competitive prices;
| | - |  | --------------------------------------------------------------



| |  |  | access to assembly and test capacity; and
| | - |  | -----------------------------------------



| |  |  | time to market.
| | - |  | ---------------

Any of these factors may impact our
ability to compete successfully in the future and our failure to do so could harm our business.

In the market for SRAM products we compete
with several domestic and international semiconductor companies including Cypress, Etron, GSI Technology, Integrated Device Technology, NEC, Renesas Technology, Samsung, Sony, and Toshiba. We also may face significant competition from other domestic
and foreign integrated circuit manufacturers which have advanced technological capabilities but are not currently participating in the SRAM market sector.

In the low to medium density DRAM area we generally compete with Hynix, Micron, Nanya, Oki, Samsung and Winbond. In addition, there are several fabless Taiwanese companies that are competitors, including ESMT and
Etron. Other large DRAM manufacturers could address the low and medium density DRAM market in the future.

In the EEPROM market, our
primary competitors include Atmel, Microchip, ON Semiconductor and STMicroelectronics. We also compete with many small to medium-sized companies in one or more segments of the market.

Certain of our competitors offer broader product lines and have greater financial, technical, marketing, distribution and other resources than us. In
industry down cycles, such as the current cycle, they may be willing to sell below fully absorbed costs at prices we cannot match. We may not be able to compete successfully against any of these competitors.

The process technology used by our manufacturing sources, including process technology that we have developed jointly with our foundries, can be used by
such foundries to produce products for other companies, including our competitors. Although we believe that our participation in the development of the processes provides us the advantage of early access to such processes, the knowledge of the wafer
manufacturer may be used to benefit our competitors.

Research and Development

Rapid technological change and continuing price competition require research and development efforts on both new products and advanced processes employing
smaller geometries. Our research and development activities are focused primarily on the development of new memory circuit designs at the smallest die size and utilization of advanced process technologies. We currently have design teams in San Jose,
California, Taiwan and China. Our research and development expenditures in fiscal 2008, 2007, and 2006 were $20.8 million, $20.2 million, and $21.6 million, respectively.



10



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##### Table of Contents

New SRAM products in development include a die shrink on our 4Meg Asynchronous SRAM, a 16Mb Asynchronous
SRAM, a 36Mb Synchronous SRAM, and a 72Mb Synchronous SRAM. New DRAM products in development include 1.8 volt, low power 128Mb, 256Mb and 512Mb SDRAMs and DDR/DDR2 DRAMs. We are developing new products on advanced 72 and 65 nanometer process
technology as well as 0.09 micron, 0.11 micron, 0.13 micron, and 0.14 micron process technology. In nonvolatile memory, we are currently designing a 256K density serial EEPROM and a 2Kb serial presence detect (SPD) EEPROM with a temperature sensor.
In addition, new contact and contactless SmartCard products are in development.

Patents and Intellectual Property

As of September 30, 2008, we held 97 U.S. patents. These patents expire between 2010 and 2027. We do not believe that the expiration of any
particular patent in the short-term will have a material impact on our business. We have three additional patent applications pending and expect to continue to file patent applications where appropriate to protect our proprietary technologies. In
addition, we hold eight Taiwan patents which expire between 2021 and 2024 and have three patent applications which are pending. We also have four patent applications in China which are pending. Although patents are an important element of our
intellectual property, we believe that our continued success depends primarily on factors such as the technological skills and innovation of our personnel rather than on our patents. The process of seeking patent protection can be expensive and time
consuming. There can be no assurance that patents will be issued from pending or future applications or that, if patents are issued, they will not be challenged, invalidated or circumvented, or that any rights granted thereunder will provide
meaningful protection or other commercial advantage to us. Moreover, there can be no assurance that any patent rights will be upheld in the future or that we will be able to preserve any of our other intellectual property rights.

In the semiconductor industry, it is not unusual for companies to receive notices alleging infringement of patents or other intellectual property rights
of others. We have been, and from time-to-time expect to be, notified of claims that we may be infringing patents, maskwork rights or copyrights owned by third parties. If it appears necessary or desirable, we may seek licenses under patents that we
are alleged to be infringing. Although patent holders commonly offer such licenses, licenses may not be offered and the terms of any offered licenses may not be acceptable to us. The failure to obtain a license under a key patent or intellectual
property right from a third party for technology used by us could harm our business.

Part of our outsourcing strategy includes licensing
product designs. To control our R&D expenses, we occasionally license some of our SRAM and DRAM designs from other companies or our foundries. We also license our own designs to other companies.

Employees

As of September 30, 2008, we had 449
employees worldwide, including 70 employees in the U.S., 125 in China, 225 in Taiwan, 9 in Hong Kong, 2 in Europe, 4 in India, 9 in Japan, 3 in Korea, and 2 in Singapore. Our future success will largely be dependent on our ability to attract, retain
and motivate highly qualified technical and management personnel. The employment market for such personnel is competitive and there can be no assurance that we will successfully staff all necessary positions. Our employees are not represented by any
collective bargaining agreements, we have never experienced a work stoppage and we believe our employee relations are good.



11



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##### Table of Contents

Executive Officers of the Registrant

Our executive officers and their ages as of December 1, 2008 are as follows:



|                        |  |     |  |                                                                         
|----------------------- |  | --- |  | ------------------------------------------------------------------------
|Name                    |  | Age |  | Position                                                                
|Jimmy S.M. Lee          |  | 53  |  | Executive Chairman of the Board of Directors                            
|Scott D. Howarth        |  | 48  |  | President and Chief Executive Officer                                   
|John M. Cobb            |  | 52  |  | Vice President and Chief Financial Officer                              
|Kong Yeu Han            |  | 53  |  | Vice Chairman                                                           
|Chang-Chaio (James) Han |  | 55  |  | Executive Vice President, GM ISSI-Taiwan and SRAM/DRAM Business Division

Set forth below is certain information relating to our executive officers.

Jimmy S.M. Lee has served as our Executive Chairman since April 2008 and as Chairman, Chief Executive Officer and a director from October 1988,
when he co-founded ISSI, until March 2008. He reassumed the role of President in November 2005 until December 2007. From 1985 to 1988, Mr. Lee was engineering manager at International CMOS Technology, a semiconductor company, and from 1983 to
1985, he was a design manager at Signetics Corporation, a semiconductor company. He has served as a director of Chrontel, a video optics company, since July 1995 and as a director of Alpha & Omega Semiconductor, Inc., a developer of
advanced power semiconductor solutions, since March 2006. Mr. Lee holds an M.S. degree in electrical engineering from Texas Tech University and a B.S. degree in electrical engineering from National Taiwan University.

Scott D. Howarth has served as our Chief Executive Officer since April 2008, as a director since October 2008 and as our President since December
2007. He also served as our Chief Financial Officer from February 2006 until May 2008. From September 2001 to February 2006, Mr. Howarth was the Vice President of Finance and Administration and Chief Financial Officer of Chrontel, Inc., a
fabless video optics company. Prior to joining Chrontel, Mr. Howarth was acting Chief Financial Officer at Securecom Networks, a start-up that was acquired. From 1984 to 2000, he was employed with Intel Corporation in both finance and operation
positions, and held several group controller positions in the company. Mr. Howarth holds an MBA degree in Finance and a B.S. degree in Mining Engineering from the University of Idaho.

John M. Cobb has served as our Vice President of Finance and Administration and Chief Financial Officer since May 2008. He served as Vice
President Finance and Administration and Chief Financial Officer of Power Integrations, Inc., a power conversion semiconductor company, from 2001 through 2006. From 1990 to 2000, Mr. Cobb held various senior level financial positions at Quantum
Corporation, a computer storage company, most recently as Vice President Finance and Chief Financial Officer of the companys hard disk drive group. Mr. Cobb holds a B.S. degree in accounting from Villanova University.

Kong Yeu Han has served as our Vice Chairman since May 2005 and as a director since August 2005. He served as Chief Executive Officer of
ICSI from January 1999 to May 2005. Mr. Han was a co-founder of ISSI and served as the Companys Executive Vice President from April 1995 to December 1998, as Vice President from December 1988 to March 1995, and as General Manager,
ISSI-Taiwan from September 1990 to December 1998. Mr. Han holds an M.S. degree in electrical engineering from the University of California, Santa Barbara and a B.S. degree in electrical engineering from National Taiwan University.

Chang-Chaio (James) Han has served as the Companys Executive Vice President and as General Manager, ISSI-Taiwan and SRAM/DRAM Business
Division since May 2005. He served as President of ICSI from October 2003 to April 2005, and as Vice President of Design of ICSI from July 1998 to October 2003. Mr. Han holds a PhD degree in electrical engineering from Case Western Reserve
University and MS and BS degrees in electrical engineering from National Taiwan University.

Officers serve at the discretion of the Board
and are appointed annually. There are no family relationships among the directors or officers of ISSI.



12



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##### Table of Contents

Item 1A. Risk Factors

Declining general economic conditions and any continued downturn in the markets we serve are expected to continue to adversely affect our business and financial results.

Substantially all of our products are incorporated into products for the digital consumer electronics, networking, mobile communications, automotive
electronics and industrial markets. Historically, these markets have experienced cyclical depressed business conditions, often in connection with, or in anticipation of, a decline in general economic conditions or due to adverse supply and demand
conditions in such markets. Industry downturns have resulted in reduced demand and declining average selling prices for our products which adversely affected our business. Due to the recent tightening of the credit markets and concerns regarding the
availability of credit, our current or potential customers have delayed or reduced purchases of our products which is adversely affecting our revenues and harming our business and financial results. In addition, the recent turmoil in the
financial markets is having an adverse effect on the U.S. and world economies, which is negatively impacting the spending patterns of businesses including our current and potential customers. There can be no assurances that the government
responses to the disruptions in the financial markets will restore confidence in the U.S. and global markets. Many economists and other experts are predicting a recession in the U.S. and global economies or have stated that they believe a
recession has already begun. We are unable to predict how deep or how long any recession will last. We expect our business to be adversely impacted by any significant or prolonged downturn in the U.S. or global economies. In
particular, we currently expect our revenue for the quarter ending December 31, 2008 to decline from our revenue in the quarter ended September 30, 2008. The uncertainty regarding the U.S. and global economies has also made it
more difficult for us to forecast and manage our business. Although we are taking actions in the December quarter relating to controlling our expenses and inventory levels, there can be no assurance that these actions will be sufficient to
address the impact of any economic slowdown and allow us to meet our operating objectives.

Our sales depend on DRAM and SRAM products and reduced
demand for these products or a decline in average selling prices could harm our business.

In fiscal 2008, fiscal 2007 and fiscal 2006,
approximately 88%, 86% and 91%, respectively, of our net sales were derived from the sale of DRAM and SRAM products, which are subject to unit volume fluctuations and declines in average selling prices that could harm our business. The significant
declines in average selling prices for DRAM products during fiscal 2008, contributed to a significant decline in our DRAM revenue in fiscal 2008 compared to fiscal 2007. We experienced a sequential decline in revenue from $58.5 million in our June
2008 quarter to $55.3 million in our September 2008 quarter. This decline in revenue was primarily the result of our strategic decision to reduce our low margin commodity DRAM shipments. In addition, we experienced a sequential decline in revenue
from $62.1 million in our December 2006 quarter to $60.0 million in our March 2007 quarter. This decline in revenue was primarily the result of a decrease in unit shipments of our SRAM products. From time to time, we have turned down some orders for
DRAM products that had unfavorable margins as a result of the decrease in the average selling prices in the market. We may not be able to offset any future price declines for our products by higher volumes or by higher prices on newer products.
Historically, average selling prices for semiconductor memory products have declined, and we expect that average selling prices for our products will decline in the future. Our ability to maintain or increase revenues will depend upon our ability to
increase unit sales volume of existing products and introduce and sell new products that compensate for the anticipated declines in the average selling prices of our existing products.

Our operating results are expected to continue to fluctuate and may not meet our financial guidance or published analyst forecasts. This may cause the price of our common stock to decline significantly.

Our future quarterly and annual operating results are subject to fluctuations due to a wide variety of factors, including:



| |  |  | economic slowness and low end-user demand;
| | - |  | ------------------------------------------



| |  |  | the cyclicality of the semiconductor industry;
| | - |  | ----------------------------------------------



13



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##### Table of Contents

| |  |  | declines in average selling prices of our products;
| | - |  | ---------------------------------------------------



| |  |  | oversupply of memory products in the market;
| | - |  | --------------------------------------------



| |  |  | inventory write-downs for lower of cost or market or excess and obsolete;
| | - |  | -------------------------------------------------------------------------



| |  |  | excess inventory levels at our customers;
| | - |  | -----------------------------------------



| |  |  | decreases in the demand for our products;
| | - |  | -----------------------------------------



| |  |  | our ability to control or reduce our operating expenses;
| | - |  | --------------------------------------------------------



| |  |  | shortages in foundry, assembly or test capacity;
| | - |  | ------------------------------------------------



| |  |  | disruption in the supply of wafers, assembly or test services;
| | - |  | --------------------------------------------------------------



| |  |  | changes in our product mix which could reduce our gross margins;
| | - |  | ----------------------------------------------------------------



| |  |  | cancellation of existing orders or the failure to secure new orders;
| | - |  | --------------------------------------------------------------------



| |  |  | a failure to introduce new products and to implement technologies on a timely basis;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | market acceptance of ours and our customers products;
| | - |  | ------------------------------------------------------



| |  |  | a failure to anticipate changing customer product requirements;
| | - |  | ---------------------------------------------------------------



| |  |  | fluctuations in manufacturing yields at our suppliers;
| | - |  | ------------------------------------------------------



| |  |  | fluctuations in product quality resulting in rework, replacement, or loss due to damages;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | a failure to deliver products to customers on a timely basis;
| | - |  | -------------------------------------------------------------



| |  |  | the timing of significant orders;
| | - |  | ---------------------------------



| |  |  | increased expenses associated with new product introductions, masks or process changes;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | the ability of customers to make payments to us;
| | - |  | ------------------------------------------------



| |  |  | the outcome of any pending or future litigation; and
| | - |  | ----------------------------------------------------



| |  |  | the commencement of any future litigation or antidumping proceedings.
| | - |  | ---------------------------------------------------------------------

We have incurred significant losses in certain recent periods, and there can be no assurance that we will be able to achieve or sustain profitability in the future.

Though we were profitable in each of the first three quarters of fiscal 2008, we incurred a loss of $17.8 million in fiscal 2008, which included charges
for the impairment of goodwill of $25.3 million. We incurred losses of $14.2 million in fiscal 2006. Though we were profitable in fiscal 2007, we would not have been profitable in fiscal 2007 except that we achieved significant income from
non-operating activities such as gains on the sale of investments and interest income in such fiscal year. There is no assurance that we will achieve or maintain profitability in future periods. Our ability to maintain profitability on a quarterly
or fiscal year basis in the future will depend on a variety of factors, including the need for future inventory write-downs, our ability to increase net sales, maintain or expand gross margins, introduce new products on a timely basis, secure
sufficient wafer fabrication capacity and control operating expenses, including stock-based compensation as required by SFAS 123R. Adverse developments with respect to these or other factors could result in quarterly or annual operating losses in
the future.

We have used and plan to use a significant amount of our cash resources to repurchase shares of our common stock and such
repurchases present potential risks and disadvantages to us and our continuing stockholders.

From September 2007 through
September 2008, we repurchased shares of our common stock in the open market under Rule 10b-18 and pursuant to our tender offers. In particular, in September 2007, we repurchased 1,181,148 shares of our common stock in a tender offer at an
aggregate price of approximately $7.4 million. On



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December 3, 2007, we announced an additional tender offer for up to 10,000,000 shares of our common stock at a price of $7.00 per share. Under this
offer, in January 2008, we repurchased 10,000,000 shares at an aggregate price of $70 million. At September 30, 2008, we had outstanding authorization from our Board to purchase up to an additional $9.8 million of our common stock from
time to time. In this regard, in October 2008, we repurchased an additional $2.6 million of our common stock. Although our Board of Directors has determined that these repurchase programs are in the best interests of our stockholders, these
repurchases expose us to a number of risks including:



| |  |  | the use of a substantial portion of our existing cash reserves, which may reduce our ability to engage in significant cash acquisitions or to pursue other business
opportunities that could create significant value to our stockholders;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the risk that we would not be able to replenish our cash reserves by raising debt or equity financing in the future on terms acceptable to us, or at all;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the risk that these repurchases have reduced our public float, which is the number of our shares owned by non-affiliate stockholders and
available for trading in the securities markets, and likely reduced the number of our stockholders, which may reduce the volume of trading in our shares and may result in lower stock prices and reduced liquidity in the trading of
our shares; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the risk that our stock price could decline and that we would be able to repurchase shares of our common stock at a lower price per share than the prices
we pay in our repurchase programs.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our long term investments are invested in auction rate securities and if auctions continue to fail
for amounts we have invested, our investment will not be liquid. If the issuer is unable to successfully close future auctions and their credit rating deteriorates, we may be required to further adjust the carrying value of our investment
through an impairment charge to earnings.

In February 2008, all the auctions of our auction-rate securities failed as a result of
negative conditions in the global credit markets. Each of these securities had been subject to auction processes for which there had been insufficient bidders on the scheduled rollover dates. The failure resulted in the interest rates on these
investments resetting at the maximum rate allowed per security. Until the auctions are successful, a buyer is found outside of the auction process or the notes are redeemed, the investments are not liquid. In the event we need to access these funds,
we will not be able to do so without a loss of principal, unless a future auction on these investments is successful. We currently believe these securities are not significantly impaired, primarily due to the government backing of the underlying
securities. However, it could take until the final maturity of the underlying notes (up to 40 years) to realize our investments recorded value. Therefore, as of September 30, 2008, we have recorded a temporary impairment charge of
$1.5 million against other comprehensive income in our consolidated balance sheet. If the issuers are unable to successfully close future auctions and their credit ratings deteriorate, we may be required to further adjust the carrying value of these
investments and record an impairment charge to earnings for an other than temporary decline in the fair values. In November 2008, we elected to participate in the Auction Rate Securities Rights offering issued by the broker through which we
purchased our $20.0 million in auction rate securities. These rights will entitle us to sell our auction rate securities to the broker for a price equal to par value plus accrued but unpaid dividends beginning in June 2010.

Shifts in industry-wide capacity may cause our results to fluctuate. These shifts may occur quickly with little or no advance notice. Such shifts have historically
resulted in significant inventory write-downs.

The semiconductor industry is highly cyclical and is subject to significant downturns
resulting from excess capacity, overproduction, reduced demand or technological obsolescence. Shifts in industry-wide capacity from shortages to oversupply or from oversupply to shortages may result in significant fluctuations in our quarterly or
annual operating results. These shifts in industry conditions can occur quickly with little or no advance notice to us. We are currently in an industry downturn and there is excess capacity in the marketplace. Adverse changes in industry conditions
are likely to result in a decline in average selling prices and the stated value of inventory. In fiscal 2008, in fiscal 2007 and in fiscal 2006, we recorded inventory write-downs of $11.3 million, $10.3 million,



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and $16.5 million, respectively. The inventory write-downs related to valuing our inventory at the lower-of-cost-or-market, and adjusting our inventory
valuation for certain excess and obsolete products.

We write down to zero dollars the carrying value of inventory on hand that has aged
over one year to cover estimated excess and obsolete exposures, unless adjustments are made based on managements judgments for newer products, end of life products, planned inventory increases or strategic customer supply. In making such
judgments to write down inventory, management takes into account the product life cycles which can range from six to 30 months, the stage in the life cycle of the product, the impact of competitors announcements and product introductions on
our products. Future additional inventory write-downs may occur due to lower of cost or market accounting, excess inventory or inventory obsolescence.

Our transition to lead-free parts may result in excess inventory of products packaged using traditional methods.

Customers
are requiring that we offer our products in lead-free packages. Governmental regulations in certain countries and customers intention to produce products that are less harmful to the environment has resulted in a requirement from many of our
customers to purchase integrated circuits that do not contain lead. We have responded by offering our products in lead-free versions. While the lead-free versions of our products are expected to be more friendly to the environment, the ultimate
impact is uncertain. The transition to lead-free products may produce sudden changes in demand depending on the packaging method used, which may result in excess inventory of products packaged using traditional methods. This may have an adverse
effect on our results of operations.

If we are unable to obtain an adequate supply of wafers, our business will be harmed.

If we are unable to obtain an adequate supply of wafers from our current suppliers or any alternative sources in a timely manner, our business will be
harmed. Our principal manufacturing relationships are with Nanya, Powerchip Semiconductor, SMIC, TSMC, and Chartered Semiconductor Manufacturing. Each of our wafer foundries also supplies wafers to other semiconductor companies, including certain of
our competitors or for their own account. Although we are allocated specific wafer capacity from our suppliers, we may not be able to obtain such capacity in periods of tight supply. If any of our suppliers experience manufacturing failures or yield
shortfalls, choose to prioritize capacity for other uses, or reduce or eliminate deliveries to us, we may not be able to obtain enough wafers to meet the market demand for our products which would adversely affect our revenues. Once a product is in
production at a particular foundry, it is time consuming and costly to have such product manufactured at a different foundry. In addition, we may not be able to qualify additional manufacturing sources for existing or new products in a timely manner
and we cannot be certain that other manufacturing sources would be able to deliver an adequate supply of wafers to us or at the same cost.

Our gross
margins may decline even in periods of increasing revenue.

Our gross margin is affected by a variety of factors, including our mix of
products sold, average selling prices for our products and cost of wafers. Even when our revenues are increasing, our gross margin may be adversely affected if such increased revenue is from products with lower margins such as DRAM for commodity
markets or declining average selling prices. During periods of strong demand, wafer capacity is likely to be in short supply and we will likely have to pay higher prices for wafers, which would adversely affect our gross margin unless we are able to
increase our product prices to offset such costs. To maintain our gross margins when average selling prices are declining, we must introduce new products with higher margins or reduce our cost per unit. There can be no assurance that we will be able
to increase unit sales volumes, introduce and sell new products or reduce our cost per unit.



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We may encounter difficulties in effectively integrating newly acquired businesses.

From time to time, we may acquire other companies or assets that we believe to be complementary to our business. Acquisitions may result in use of our
cash resources, potentially dilutive issuances of equity securities, incurrence of debt and contingent liabilities, amortization expenses related to intangible assets, and the possible impairment of goodwill, which could harm our profitability. In
addition, acquisitions involve numerous risks, including:



| |  |  | higher than estimated acquisition expenses;
| | - |  | -------------------------------------------



| |  |  | difficulties in successfully assimilating the operations, technologies and personnel of the acquired company;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | difficulties in continuing to develop the new technologies and deliver products to market on time;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | diversion of managements attention from other business concerns;
| | - |  | -----------------------------------------------------------------



| |  |  | risks of entering markets in which we have no, or limited, direct prior experience;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | the risk that the markets for acquired products do not develop as expected; and
| | - |  | -------------------------------------------------------------------------------



| |  |  | the potential loss of key employees and customers as a result of the acquisition.
| | - |  | ---------------------------------------------------------------------------------

There is no assurance that any future acquisitions will contribute positively to our business or operating results.

We rely on third-party contractors to assemble and test our products and our failure to successfully manage our relationships with these contractors could damage our
relationships with our customers, decrease our sales and limit our growth.

We rely on third-party contractors located in Asia to
assemble and test our products. There are significant risks associated with our reliance on these third-party contractors, including:



| |  |  | reduced control over product quality;
| | - |  | -------------------------------------



| |  |  | potential price increases;
| | - |  | --------------------------



| |  |  | reduced control over delivery schedules;
| | - |  | ----------------------------------------



| |  |  | possible capacity shortages;
| | - |  | ----------------------------



| |  |  | their inability to increase production and achieve acceptable yields on a timely basis;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | absence of long-term agreements;
| | - |  | --------------------------------



| |  |  | limited warranties on products supplied to us;
| | - |  | ----------------------------------------------



| |  |  | financial viability of our contractors; and
| | - |  | -------------------------------------------



| |  |  | general risks related to conducting business internationally.
| | - |  | -------------------------------------------------------------

If any of these risks are realized, our business and results of operations could be adversely affected until our subcontractor is able to remedy the problem or until we are able to secure an alternative subcontractor.

The loss of a significant customer or a reduction in orders from one or more large customers could adversely affect our operating results.

As sales to our customers are executed pursuant to purchase orders and no purchasing contracts typically exist, our customers can cease
doing business with us at any time. We may not be able to retain our key customers, such customers may cancel or reschedule orders, and in the event of canceled orders, such orders may not be replaced by other sales. In addition, sales to any
particular customer may fluctuate significantly from quarter to quarter, and such fluctuating sales could harm our business and financial results.



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We have significant international sales and operations and risks related to our international activities could harm
our operating results.

In fiscal 2008, approximately 16% of our net sales was attributable to customers located in the U.S., 17% was
attributable to customers located in Europe and 66% was attributable to customers located in Asia. In fiscal 2007, approximately 18% of our net sales was attributable to customers located in the U.S., 15% was attributable to customers located in
Europe and 67% was attributable to customers located in Asia. In fiscal 2006, approximately 17% of our net sales was attributable to customers located in the U.S., 10% was attributable to customers located in Europe and 73% was attributable to
customers located in Asia. We anticipate that sales to international sites will continue to represent a significant percentage of our net sales. Although our international sales are largely denominated in U.S. dollars, we do have sales transactions
in New Taiwan dollars, in Hong Kong dollars and in Chinese renminbi. In addition, our wafer foundries and assembly and test subcontractors are in primarily located in Taiwan and China. A substantial majority of our employees are located outside of
the U.S and the expenses for our foreign operations are generally denominated in local currency. As a result, a devaluation of the New Taiwan dollar or Chinese renminbi could substantially increase the cost of our operations in Taiwan or China.

We are subject to the risks of conducting business internationally, including:



| |  |  | global economic conditions, particularly in Taiwan and China;
| | - |  | -------------------------------------------------------------



| |  |  | duties, tariffs and other trade barriers and restrictions;
| | - |  | ----------------------------------------------------------



| |  |  | foreign currency fluctuations;
| | - |  | ------------------------------



| |  |  | changes in trade policy and regulatory requirements;
| | - |  | ----------------------------------------------------



| |  |  | transportation delays;
| | - |  | ----------------------



| |  |  | the burdens of complying with foreign laws;
| | - |  | -------------------------------------------



| |  |  | imposition of foreign currency controls;
| | - |  | ----------------------------------------



| |  |  | language barriers;
| | - |  | ------------------



| |  |  | difficulties in hiring and retaining experienced engineers in countries such as China and Taiwan;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | difficulties in collecting foreign accounts receivable;
| | - |  | -------------------------------------------------------



| |  |  | political instability, including any changes in relations between China and Taiwan;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | public health outbreaks such as SARS or avian flu; and
| | - |  | ------------------------------------------------------



| |  |  | earthquakes and other natural disasters.
| | - |  | ----------------------------------------

Strong
competition in the semiconductor memory market may harm our business.

The semiconductor memory market is intensely competitive and has
been characterized by an oversupply of product, price erosion, rapid technological change, short product life cycles, cyclical market patterns, and heightened foreign and domestic competition. Many of our competitors offer broader product lines and
have greater financial, technical, marketing, distribution and other resources than us. We may not be able to compete successfully against any of these competitors. Our ability to compete successfully in the memory market depends on factors both
within and outside of our control, including:



| |  |  | the pricing of our products;
| | - |  | ----------------------------



| |  |  | the supply and cost of wafers;
| | - |  | ------------------------------



| |  |  | product design, functionality, performance and reliability;
| | - |  | -----------------------------------------------------------



| |  |  | successful and timely product development;
| | - |  | ------------------------------------------



| |  |  | the performance of our competitors and their pricing policies;
| | - |  | --------------------------------------------------------------



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| |  |  | wafer manufacturing over or under capacity;
| | - |  | -------------------------------------------



| |  |  | real or perceived imbalances in supply and demand for our products;
| | - |  | -------------------------------------------------------------------



| |  |  | the rate at which OEM customers incorporate our products into their systems;
| | - |  | ----------------------------------------------------------------------------



| |  |  | the success of our customers products and end-user demand;
| | - |  | -----------------------------------------------------------



| |  |  | access to advanced process technologies at competitive prices;
| | - |  | --------------------------------------------------------------



| |  |  | achievement of acceptable yields of functional die;
| | - |  | ---------------------------------------------------



| |  |  | the capacity of our third-party contractors to assemble and test our products;
| | - |  | ------------------------------------------------------------------------------



| |  |  | the gain or loss of significant customers;
| | - |  | ------------------------------------------



| |  |  | the nature of our competitors;
| | - |  | ------------------------------



| |  |  | our financial strength and the financial strength of our competitors; and
| | - |  | -------------------------------------------------------------------------



| |  |  | general economic conditions.
| | - |  | ----------------------------

In
addition, we are vulnerable to technology advances utilized by competitors to manufacture higher performance or lower cost products. We may not be able to compete successfully in the future as to any of these factors. Our failure to compete
successfully in these or other areas could harm our business and financial results.

Our revenues and business would be harmed if we are not able to
successfully develop, introduce and sell new products and develop and implement new manufacturing technologies in a timely manner. Our research and development expenses could increase and our business could be harmed if the implementation of these
new manufacturing technologies is unsuccessful.

We operate in highly competitive, quickly changing markets which are characterized by
rapid obsolescence of existing products. As a result, our future success depends on our ability to develop and introduce new products that our customers choose to buy in significant quantities. If we fail to introduce new products in a timely manner
or if our customers products do not achieve commercial success, our business and results of operations could be seriously harmed. The design and introduction of new products is challenging as such products typically incorporate more functions
and operate at faster speeds than prior products. Increasing complexity generally requires smaller features on a chip. This makes developing new generations of products substantially more difficult than prior generations. The cost to develop
products utilizing these new technologies is expensive and requires significant research and development spending and, as a result, our research and development expenses could increase in the future. Further, new products may not work properly in
our customers applications. If we are unable to design, introduce, market and sell new products successfully, our business and financial results would be seriously harmed.

Our products are complex and could contain defects, which could reduce sales of those products or result in claims against us.

We develop complex and evolving products. Despite testing by us and our customers, errors may be found in existing or new products. This could result in a delay in recognition or loss of revenues, loss of market share
or failure to achieve market acceptance. The occurrence of defects could also cause us to incur significant warranty, support and repair costs, could divert the attention of our engineering personnel from our product development efforts, and could
harm our relationships with our customers. The occurrence of these problems could result in the delay or loss of market acceptance of our products and would likely harm our business. Defects, integration issues or other performance problems in our
products could result in financial or other damages to our customers. Our customers could also seek and obtain damages from us for their losses. From time to time, we have been involved in disputes regarding product warranty issues. Although we seek
to limit our liability, a product liability claim brought against us, even if unsuccessful, would likely be time consuming and could be costly to defend.



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Potential intellectual property claims and litigation could subject us to significant liability for damages and could
invalidate our proprietary rights.

In the semiconductor industry, it is not unusual for companies to receive notices alleging
infringement of patents or other intellectual property rights. We have been, and from time-to-time expect to be, notified of claims that we may be infringing patents, maskwork rights or copyrights owned by third-parties. If it appears necessary or
desirable, we may seek licenses under patents that we are alleged to be infringing. However, licenses may not be offered and the terms of any offered licenses may not be acceptable to us.

The failure to obtain a license under a key patent or intellectual property right from a third party for technology used by us could cause us to incur
substantial liabilities and to suspend the manufacture of the products utilizing the invention or to attempt to develop non-infringing products, any of which could harm our business. Furthermore, we may become involved in protracted litigation
regarding the alleged infringement by us of third-party intellectual property rights or litigation to assert and protect our patents or other intellectual property rights. Any litigation relating to patent infringement or other intellectual property
matters could result in substantial cost and diversion of our resources, which could harm our business.

We may be unable to effectively protect our
intellectual property, which would negatively impact our ability to compete.

We believe that the protection of our intellectual
proprietary rights will continue to be important to the success of our business. We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We also enter
into confidentiality or license agreements with our employees, consultants and business partners, and control access to and distribution of our documentation and other proprietary information. Despite these efforts, unauthorized parties may attempt
to copy or otherwise obtain and use our proprietary technology. Monitoring unauthorized use of our technology is difficult, and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in
foreign countries where the laws may not protect our proprietary rights as fully as do the laws of the U.S. Many U.S. companies have encountered substantial infringement problems in foreign countries, including countries in which we design and sell
our products. We cannot be certain that patents will be issued as a result of our pending applications nor can we be certain that any issued patents would protect or benefit us or give us adequate protection from competing products. For example,
issued patents may be circumvented or challenged and declared invalid or unenforceable. We also cannot be certain that others will not develop our unpatented proprietary technology or effective competing technologies on their own.

We are subject to pending legal proceedings related to SRAM products.

We have been named as a defendant in a number of civil antirust complaints filed against semiconductor companies on behalf of purchasers of SRAM products throughout the United States. The complaints allege that the
defendants conspired to raise the price of SRAM in violation of Section 1 of the Sherman Act, the California Cartwright Act, and several other State antitrust, unfair competition and consumer protection statutes. We have also been named as a
defendant in several class action lawsuits filed in Canadian courts alleging violation of the Canadian Competition Act and other unlawful conduct. We believe that we have meritorious defenses to the allegations in the complaints, and we intend to
defend these lawsuits vigorously. However, the litigation is in the preliminary stage and we cannot predict its outcome. Multidistrict antitrust litigation is particularly complex and can extend for a protracted time, which can substantially
increase the cost of such litigation. The defense of these lawsuits is also expected to divert the efforts and attention of some of our key management and technical personnel. As a result, our defense of this litigation, regardless of its
eventual outcome, will likely be costly and time consuming. Should the outcome of the litigation be adverse to us, we could be required to pay significant monetary damages, which could adversely affect our business, financial condition, operating
results and cash flows.



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We have been named as a party to several lawsuits related to our historical stock option practices and related
accounting which could result in an unfavorable outcome and have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price for our securities.

Several shareholder derivative lawsuits have been filed against certain of our current directors and officers and certain former directors and officers
relating to our historical stock option practices and related accounting. We are named as nominal defendant in such matters. See Item 3Legal Proceedings for a more detailed description of these proceedings. We may become the
subject of additional private or government actions in the future. Litigation may be time-consuming, expensive and disruptive to our normal business operations, and the outcome of litigation is difficult to predict. The defense of these derivative
lawsuits has resulted in significant legal and accounting expenditures and the diversion of our managements time and attention from the operation of our business. All or a portion of any amount we may be required to pay in settlement of these
actions or to satisfy a judgment or settlement in any future actions may not be covered by insurance.

We have entered into indemnification
agreements with each of our present and former directors and officers. Under those agreements, we are required to indemnify each such director or officer against expenses, including attorneys fees, judgments, fines and settlements, paid by
such individual in connection with the pending litigation subject to applicable Delaware law.

We have acquired equity positions for strategic reasons
in other companies which may significantly decrease in value.

Over the last several years, we have acquired equity positions for
strategic reasons in other technology companies and we may make similar equity purchases in the future. In this regard, we own shares in SMIC with a cost basis of approximately $3.4 million and a market value at September 30, 2008 of
approximately $0.9 million. The market value of SMIC shares is subject to fluctuation and our carrying value will be subject to adjustments to reflect the current market value. In the event the decline in the market value of our SMIC shares below
our cost basis is determined to be other-than-temporary, we may be required to recognize a loss on our investment through operating results. In addition, we own shares in Ralink with a cost basis of approximately $0.5 million and a market value at
September 30, 2008 of approximately $2.2 million. The market value of Ralink shares is subject to fluctuation and our carrying value will be subject to adjustments to reflect the current market value.

We may experience difficulties in complying with Sarbanes-Oxley Section 404 in future periods.

We concluded that our internal control over financial reporting was effective at September 30, 2008. A key element of Section 404 compliance
involves an analysis of management information systems (MIS). We are in the process of implementing a new worldwide MIS system and we are continuing to use our current systems until the new system is fully implemented. If in the future we are unable
to assert that our internal control over financial reporting is effective (or if our auditors are unable to express an opinion on the effectiveness of our internal controls), we could lose investor confidence in the accuracy and completeness of our
financial reports, which would likely have an adverse effect on our stock price.

Our reported financial results may be adversely affected by changes in
accounting principles generally accepted in the United States.

We prepare our financial statements in conformity with accounting
principles generally accepted in the U.S. These accounting principles are subject to interpretation by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, the Securities and Exchange Commission and
various bodies formed to interpret and create appropriate accounting policies. A change in these policies or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed
before the announcement of a change. For example, beginning in the first quarter of fiscal 2006, with the adoption of SFAS 123R, we now record a charge to earnings for employee stock option grants for all stock



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options unvested at and granted after October 1, 2005. This accounting pronouncement has and is expected to continue to negatively impact our financial
results. Technology companies generally, and our company specifically, rely on stock options as a major component of our employee compensation packages. Because we are required to expense options, we may be less likely to sustain profitability and
we have decreased the use of option grants. Decreasing or eliminating option grants may negatively impact our ability to attract and retain qualified employees.

Our results of operations could vary as a result of the methods, estimates, and judgments we use in applying our accounting policies.

The methods, estimates, and judgments we use in applying our accounting policies have a significant impact on our results of operations (see Critical Accounting Policies in Part II, Item 7 of this
Form 10-K). Such methods, estimates, and judgments are, by their nature, subject to substantial risks, uncertainties, and assumptions, and factors may arise over time that lead us to change our methods, estimates, and judgments. Changes in those
methods, estimates, and judgments could significantly affect our results of operations. In particular, the calculation of share-based compensation expense under SFAS 123R, requires us to use valuation methodologies (which were not developed for use
in valuing employee stock options) and a number of assumptions, estimates, and conclusions regarding matters such as expected forfeitures, expected volatility of our share price, the expected dividend rate with respect to our common stock, and the
exercise behavior of our employees. Furthermore, there are no means, under applicable accounting principles, to compare and adjust our expense if and when we learn about additional information that may affect the estimates that we previously made,
with the exception of changes in expected forfeitures of share-based awards. Factors may arise over time that lead us to change our estimates and assumptions with respect to future share-based compensation arrangements, resulting in variability in
our share-based compensation expense over time. Changes in forecasted share-based compensation expense could impact our gross margin percentage; research and development expenses; and selling, general and administrative expenses.

We depend on our ability to attract and retain our key technical and management personnel.

Our success depends upon the continued service of our key technical and management personnel. Several of our important manufacturing and other
subcontractor relationships are based on personal relationships between our senior executive officers and such parties. In particular, our Executive Chairman has long-term relationships with our key foundries. If we were to lose the services of any
key executives, it may negatively impact the related business relationships since we have no long-term contractual agreements with such parties. Our success also depends on our ability to continue to attract, retain and motivate qualified technical
personnel, particularly experienced circuit designers and process engineers. The competition for such employees is intense. We have no employment contracts or key person life insurance policies with or for any of our employees. The loss of the
service of one or more of our key personnel could harm our business.

Our stock price is expected to continue to be volatile.

The trading price of our common stock has been and is expected to be subject to wide fluctuations in response to:



| |  |  | quarter-to-quarter variations in our operating results;
| | - |  | -------------------------------------------------------



| |  |  | general conditions or cyclicality in the semiconductor industry or the end markets that we serve;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | new or revised earnings estimates or guidance by us or industry analysts;
| | - |  | -------------------------------------------------------------------------



| |  |  | comments or recommendations issued by analysts who follow us, our competitors or the semiconductor industry;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | aggregate valuations and movement of stocks in the broader semiconductor industry;
| | - |  | ----------------------------------------------------------------------------------



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| |  |  | announcements regarding our share repurchase program and the timing and amount of shares we purchase under such program;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | announcements of new products, strategic relationships or acquisitions by us or our competitors;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | increases or decreases in available wafer capacity;
| | - |  | ---------------------------------------------------



| |  |  | governmental regulations, trade laws and import duties;
| | - |  | -------------------------------------------------------



| |  |  | announcements related to future or existing litigation involving us or any of our competitors;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | announcements of technological innovations by us or our competitors;
| | - |  | --------------------------------------------------------------------



| |  |  | additions or departures of senior management; and
| | - |  | -------------------------------------------------



| |  |  | other events or factors, many of which are beyond our control.
| | - |  | --------------------------------------------------------------

In addition, stock markets have recently experienced extreme price and trading volume volatility. This volatility has had a substantial effect on the market prices of securities of many companies for reasons
frequently unrelated to the operating performance of the specific companies. These broad market fluctuations have adversely affected the market price of our common stock and may continue to do so in the future.

Foundry capacity can be limited, and we may be required to enter into costly arrangements to secure foundry capacity.

If we are not able to obtain additional foundry capacity as required, our relationships with our customers would be harmed and our future sales would be
adversely impacted. In order to secure foundry capacity, we have entered into in the past, and may enter into in the future, various arrangements with suppliers, which could include:



| |  |  | purchases of equity or debt securities in foundries;
| | - |  | ----------------------------------------------------



| |  |  | joint ventures;
| | - |  | ---------------



| |  |  | process development relationships with foundries;
| | - |  | -------------------------------------------------



| |  |  | contracts that commit us to purchase specified quantities of wafers over extended periods;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | increased prices for wafers;
| | - |  | ----------------------------



| |  |  | option payments or other prepayments to foundries; and
| | - |  | ------------------------------------------------------



| |  |  | nonrefundable deposits with, or loans to, foundries in exchange for capacity commitments.
| | - |  | -----------------------------------------------------------------------------------------

We may not be able to make any such arrangements in a timely fashion or at all, and such arrangements, if any, may not be on terms favorable to us. Once
we make commitments to secure foundry capacity, we may incur significant financial penalties if we subsequently determine that we are not able to utilize all of that capacity. Such penalties may be substantial and could harm our financial results.

Our foundries may experience lower than expected yields which could adversely affect our business.

The manufacture of integrated circuits is a highly complex and technically demanding process. Production yields and device reliability can be affected by
a large number of factors. As is typical in the semiconductor industry, our outside foundries have from time to time experienced lower than anticipated manufacturing yields and device reliability problems, particularly in connection with the
introduction of new products and changes in such foundrys processing steps. There can be no assurance that our foundries will not experience lower than expected manufacturing yields or device reliability problems in the future, which could
materially and adversely affect our business and operating results.



23



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Business disruptions could seriously harm our future revenue and financial condition and increase our costs and
expenses.

Our worldwide operations could be subject to natural disasters and other business disruptions, which could seriously harm our
revenue and financial condition and increase our costs and expenses. Our corporate headquarters, and a portion of our research and development activities, are located in San Jose, California, and our other critical business operations and many of
our suppliers are located in Asia, near major earthquake faults. The ultimate impact on us, our significant suppliers and our general infrastructure of being located near major earthquake faults is unknown, but our revenue, profitability and
financial condition could suffer in the event of a major earthquake or other natural disaster. Losses and interruptions could also be caused by earthquakes, power shortages, telecommunications failures, water shortages, tsunamis, floods, typhoons,
fires, extreme weather conditions, medical epidemics and other natural or manmade disasters.

Terrorist attacks, threats of further attacks, acts of war
and threats of war may negatively impact all aspects of our operations, revenues, costs and stock price.

Terrorist acts, conflicts or
wars, as well as future events occurring in response or connection to them, including future terrorist attacks against U.S. targets, rumors or threats of war, actual conflicts involving the U.S. or its allies (such as the war in Iraq), conflict
between China and Taiwan, or trade disruptions impacting our domestic or foreign suppliers or our customers, may impact our operations and may, among other things, cause delays or losses in the delivery of wafers or other products to us and
decreased sales of our products. More generally, these events have affected, and are expected to continue to affect, the general economy and customer demand for products sold by our customers. Any of these occurrences could have a significant impact
on our operating results, revenues and costs, which in turn may result in increased volatility in our common stock price and a decline in the price of our common stock.

Item 1B. Unresolved Staff Matters

None.

Item 2. Properties

Our
headquarters consists of approximately 30,000 square feet of office space located in San Jose, California. We relocated our headquarters to this facility in February 2007. Our lease on this facility expires in June 2013. Our China subsidiary
occupies approximately 31,000 square feet on a month to month lease. In Taiwan we now own and occupy our building in Hsinchu which consists of approximately 375,000 square feet, a portion of which is leased to other companies. The land upon which
our building in Hsinchu is situated is leased under an operating lease that expires in March 2016. We also lease field sales offices in the U.S., Asia and Europe. We believe our existing facilities are adequate to meet our current needs and that we
can renew our existing leases or obtain alternative space on terms that would not have a material impact on our financial results.

Item 3. Legal Proceedings

Shareholder Derivative Actions

On July 18, 2006 and July 26, 2006, two purported shareholder derivative actions were filed against certain current and former directors and officers of ISSI in the United States District Court for the
Northern District of California, entitled (1) Rick Tope v. Jimmy S.M. Lee, et al., Case No. C06-04387, and (2) Murray Donnelly v. Jimmy S.M. Lee, et al., Case No. C06-04545. The complaints purport to assert claims against the
individual defendants on behalf of ISSI for breach of fiduciary duty, violations of Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 promulgated thereunder, unjust enrichment, and restitution based
upon its alleged stock option grant practices from 1995 through 2002. We are named solely as a nominal defendant. The complaints seek damages in an unspecified amount against the individual defendants, disgorgement of stock options or proceeds,
equitable relief, attorneys fees, and other unspecified relief. The



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##### Table of Contents

Court consolidated the two derivative actions on August 22, 2006, under the caption In re Integrated Silicon Solution, Inc. Shareholder Derivative
Litigation, Master File No. C-06-04387 RMW. Plaintiffs filed a consolidated complaint on November 27, 2006, based upon the same underlying facts and circumstances alleged in the prior complaints. In addition to the claims asserted and the
relief sought in the original complaints, the consolidated complaint purports to assert claims against the individual defendants for aiding and abetting and violating Sections 14(a) and 20(a) of the Exchange Act and seeks an accounting. We are again
named solely as a nominal defendant.

On October 31, 2006, another purported shareholder derivative action was filed against certain
current and former directors and officers of ISSI in the Superior Court of California for the County of Santa Clara, entitled Alex Chuzhoy v. Jimmy S.M. Lee, et al., Case No. 1:06-CV-074031. The complaint purports to assert claims
against the individual defendants on behalf of ISSI for insider trading in violation of California Corporations Code Sections 25402 / 25502.5, breach of fiduciary duty including in connection with the alleged insider selling and misappropriation,
abuse of control, gross mismanagement, constructive fraud, corporate waste, unjust enrichment, and rescission, based upon our alleged stock option grant practices from 1995 through 2002. We are named solely as a nominal defendant. The complaint
seeks damages in an unspecified amount against the individual defendants, an accounting, certain corporate governance changes, a constructive trust over the defendants stock options or proceeds, punitive damages, attorneys fees, and
other unspecified relief.

On March 19, 2008, we and the individual defendants agreed with the plaintiffs-shareholders to settle both
the federal and state shareholder derivative actions. The settlement is subject to preliminary and final approval of the United States District Court for the Northern District of California. We and our insurers have agreed to pay up to
$2.1 million to plaintiffs counsel for their attorneys fees and the reimbursement of their expenses and costs, subject to approval of the federal court.

SRAM Antitrust Litigation

Thirty-three purported class action lawsuits were filed by U.S.
Direct-Purchaser and U.S. Indirect-Purchaser Plaintiffs against us and other SRAM suppliers in various U.S. federal courts alleging violations of the Sherman Act, violations of state unfair competition laws, and unjust enrichment relating to the
sale and pricing of SRAM products. The U.S. lawsuits have been consolidated in a single federal court for coordinated pre-trial proceedings. The U.S. lawsuits seek treble damages for the alleged damages sustained by purported class members, in
addition to restitution, costs and attorneys fees, as well as an injunction against the allegedly unlawful conduct. As of August 30, 2007, we were voluntarily dismissed from all lawsuits brought by the U.S. Indirect-Purchaser Plaintiffs
pursuant to a Tolling Agreement between us and the U.S. Indirect-Purchaser Plaintiffs. The U.S. Indirect-Purchaser Plaintiffs agreed not to name us as a defendant unless the Tolling Agreement is terminated according to terms specified in that
agreement. On January 9, 2008, we were voluntarily dismissed without prejudice from one of the lawsuits brought by the U.S. Direct-Purchaser Plaintiffs. We remain a defendant in three lawsuits brought by the U.S. Direct-Purchaser Plaintiffs.

Three purported class action lawsuits were filed against us and other SRAM suppliers in three Canadian courts alleging violation of the
Canadian Competition Act and other unlawful conduct. The Canadian complaints seek compensatory and punitive damages, in addition to declaratory relief, restitution, and costs. As of March 20, 2008, we entered into a Tolling Agreement with the
Canadian Plaintiffs. Pursuant to the Tolling Agreement, all three Canadian lawsuits have been discontinued as to us.

We are committed to
defending ourselves against these claims and have instructed our counsel to contest these actions vigorously. Given the preliminary stage of these proceedings and the inherent uncertainty in litigation, we are unable to predict the outcome of these
suits. The final resolution of these alleged violations of federal or state antitrust laws could have a material adverse effect on our business, results of operations, or financial condition.



25



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##### Table of Contents

SRAM Antitrust Civil Investigative Demand

In May 2007, we received a civil investigative demand (CID) from the Attorney General of the State of Florida. The CID is issued pursuant to
the Florida Antitrust Act in the course of an official investigation to determine whether there is, has been, or may be a violation of state or federal antitrust laws. Although not alleging any wrongdoing, the CID seeks documents and data relating
to our business. As of January 14, 2008 and effective as of May 7, 2007, our obligation to respond to the CID was suspended pursuant to the terms of a Tolling Agreement between us and the Attorney General of Florida. We intend to cooperate
fully with the Attorney General of Florida in this investigation. Because the investigation is at an early stage, we cannot predict the outcome of the investigation and its effect, if any, on its business.

Other Legal Proceedings

In the ordinary course of
our business, as is common in the semiconductor industry, we have been involved in a limited number of other legal actions, both as plaintiff and defendant, and could incur uninsured liability in any one or more of them. Although the
outcome of these actions is not presently determinable, we believe that the ultimate resolution of these matters will not have a material adverse effect on our financial position, cash flows or results of operations. However, no assurances can be
given with respect to the extent or outcome of any such litigation in the future.

Item 4. Submission of Matters to a Vote
of Security Holders

None



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##### Table of Contents

PART II

Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for Common Stock

Our common stock has been
quoted on the Nasdaq Global Market under the symbol ISSI since our initial public offering in February 1995. Prior to such date, there was no public market for our common stock. The following table sets forth, for the fiscal quarters indicated, the
high and low sale prices per share for our common stock as reported on the Nasdaq Global Market. These prices are over-the-counter market quotations which reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.



|                 |  |      |      |     |   |     
|---------------- |  | ---- | ---- | --- | - | ----
|                 |  | High |      | Low
|Fiscal Year 2007 |  |      |      |     |   |     
|First Quarter    |  | $    | 6.37 |     | $ | 5.10
|Second Quarter   |  | $    | 6.37 |     | $ | 5.43
|Third Quarter    |  | $    | 6.49 |     | $ | 5.38
|Fourth Quarter   |  | $    | 6.95 |     | $ | 5.24
|                 |  |     
|Fiscal Year 2008 |  |      |      |     |   |     
|First Quarter    |  | $    | 7.08 |     | $ | 5.55
|Second Quarter   |  | $    | 6.94 |     | $ | 5.46
|Third Quarter    |  | $    | 6.34 |     | $ | 5.42
|Fourth Quarter   |  | $    | 5.57 |     | $ | 2.31

Holders of Record

As of December 3, 2008 there were approximately 158 stockholders of record of our common stock.

Dividends

We have never declared or paid cash dividends. We currently intend to retain any earnings for use in our business and do not anticipate
paying any cash dividends on our capital stock in the foreseeable future.

Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities by the Issuer and
Affiliated Purchasers



|                                     |  |                               |  |                          |      |                                                               |        |                                                            |   |            |    
|------------------------------------ |  | ----------------------------- |  | ------------------------ | ---- | ------------------------------------------------------------- | ------ | ---------------------------------------------------------- | - | ---------- | ---
|Period                               |  | TotalNumber ofSharesPurchased |  | AveragePricePaidPerShare |      | TotalNumber ofSharesPurchasedas Part ofPubliclyAnnouncedPlans |        | Dollar Valueof sharesThat MayYet BePurchasedUnder thePlans |  
|July 1, 2008July 31, 2008           |  |                              |  | $                        |     |                                                               |       |                                                            | $ | 10,000,000 | (1)
|August 1, 2008August 31, 2008       |  |                              |  | $                        |     |                                                               |       |                                                            | $ | 10,000,000 | (1)
|September 1, 2008September 30, 2008 |  | 74,182                        |  | $                        | 3.03 |                                                               | 74,182 |                                                            | $ | 9,775,451  | (1)
|                                     |  |                               |  |                          |      |                                                               |        |                                                            |   |            |    
|Total                                |  | 74,182                        |  | $                        | 3.03 |                                                               | 74,182 |                                                            |   |            |    
|                                     |  |                               |  |                          |      |                                                               |        |                                                            |   |            |    



|(1) | On November 28, 2007, we announced that our board of directors had approved the repurchase of up to $80 million of our shares of common stock. We used $70 million to repurchase
10 million shares of our common stock through a self-tender offer which expired on January 3, 2008. The additional $10 million will be used for the repurchase of additional shares, from time to time, through open-market transactions under
Rule 10b-18.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Stock Performance Graph

The following graph sets forth our total cumulative stockholder return compared to the Standard & Poors 500 Index and the Philadelphia Semiconductor Index (SOX), for the period
September 30, 2003 through September 30, 2008. Total stockholder return assumes $100 invested at the beginning of the period in our common stock, the stocks represented in the Standard & Poors 500 Index and the stocks
represented in the Philadelphia Semiconductor Index, respectively. Total return also assumes reinvestment of dividends; we have paid no dividends on our common stock.

Comparison of Five-Year Cumulative Return

September 30, 2003 to September 30, 2008

LOGO



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##### Table of Contents

Item 6. Selected Consolidated Financial Data

The selected consolidated financial data set forth below should be read in conjunction with Managements Discussion and Analysis of Financial
Condition and Results of Operations and our Consolidated Financial Statements and the Notes thereto included elsewhere in this report. The consolidated statement of operations data set forth below for the three year period ended September 30,
2008 and the consolidated balance sheet data set forth below at September 30, 2008 and 2007 have been derived from our audited financial statements included elsewhere in this report. The consolidated statement of operations data set for below
for the fiscal years ended September 30, 2005 and September 30, 2004 and the consolidated balance sheet data set forth below at September 30, 2006 and September 30, 2005 have been derived from our audited financial statements not
included in this report. The data for the consolidated balance sheet as of September 30, 2004 is derived from the books and records of the Company. Our historical results are not necessarily indicative of the results to be expected for any
future period.



|                                                                         |  |                                       |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|------------------------------------------------------------------------ |  | ------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                         |  | Fiscal Years Ended September 30,      |        
|                                                                         |  | 2008                                  |         |   | 2007 |   |         | 2006 |  |   | 2005 (2) |   |  | 2004 |        
|                                                                         |  | (In thousands, except per share data) |        
|Consolidated Statement of Operations Data:                               |  |                                       |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Net sales                                                                |  | $                                     | 235,229 |   |      | $ | 245,395 |      |  | $ | 217,492  |   |  | $    | 181,438 |   |  | $ | 181,012 |  
|Cost of sales                                                            |  |                                       | 182,033 |   |      |   | 196,959 |      |  |   | 188,386  |   |  |      | 165,718 |   |  |   | 154,344 |  
|                                                                         |  |                                       |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Gross profit                                                             |  |                                       | 53,196  |   |      |   | 48,436  |      |  |   | 29,106   |   |  |      | 15,720  |   |  |   | 26,668  |  
|                                                                         |  |                                       |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Operating expenses                                                       |  |                                       |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Research and development                                                 |  |                                       | 20,848  |   |      |   | 20,174  |      |  |   | 21,617   |   |  |      | 20,365  |   |  |   | 22,442  |  
|Selling, general and administrative                                      |  |                                       | 31,429  |   |      |   | 32,660  |      |  |   | 28,328   |   |  |      | 24,171  |   |  |   | 17,752  |  
|Acquired in-process technology                                           |  |                                       |        |   |      |   |        |      |  |   | 499      |   |  |      | 2,764   |   |  |   |        |  
|Impairment of goodwill                                                   |  |                                       | 25,338  |   |      |   |        |      |  |   |         |   |  |      | 4,400   |   |  |   |        |  
|                                                                         |  |                                       |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Total operating expenses                                                 |  |                                       | 77,615  |   |      |   | 52,834  |      |  |   | 50,444   |   |  |      | 51,700  |   |  |   | 40,194  |  
|                                                                         |  |                                       |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Operating loss                                                           |  |                                       | (24,419 | ) |      |   | (4,398  | )    |  |   | (21,338  | ) |  |      | (35,980 | ) |  |   | (13,526 | )
|Other income (expense), net                                              |  |                                       | 6,916   |   |      |   | 20,025  |      |  |   | 7,057    |   |  |      | 7,054   |   |  |   | 12,112  |  
|Provision (benefit) for income taxes                                     |  |                                       | 197     |   |      |   | 4       |      |  |   | (33      | ) |  |      | (268    | ) |  |   | 436     |  
|Equity in net income (loss) of affiliates/minority interest              |  |                                       | (63     | ) |      |   | (262    | )    |  |   | 6        |   |  |      | (11,147 | ) |  |   | 2,405   |  
|                                                                         |  |                                       |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Net income (loss)                                                        |  | $                                     | (17,763 | ) |      | $ | 15,361  |      |  | $ | (14,242  | ) |  | $    | (39,805 | ) |  | $ | 555     |  
|                                                                         |  |                                       |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Basic net income (loss) per share (1)                                    |  | $                                     | (0.60   | ) |      | $ | 0.41    |      |  | $ | (0.38    | ) |  | $    | (1.09   | ) |  | $ | 0.02    |  
|                                                                         |  |                                       |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Diluted net income (loss) per share (1)                                  |  | $                                     | (0.60   | ) |      | $ | 0.40    |      |  | $ | (0.38    | ) |  | $    | (1.09   | ) |  | $ | 0.02    |  
|                                                                         |  |                                       |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Consolidated Balance Sheet Data:                                         |  |                                       |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Cash, cash equivalents, restricted cash and short-term investments       |  | $                                     | 50,015  |   |      | $ | 133,815 |      |  | $ | 113,333  |   |  | $    | 124,212 |   |  | $ | 138,965 |  
|Total assets                                                             |  |                                       | 175,951 |   |      |   | 262,715 |      |  |   | 260,278  |   |  |      | 284,116 |   |  |   | 300,864 |  
|Total long-term obligations and current portion of long-term obligations |  |                                       |        |   |      |   |        |      |  |   |         |   |  |      |        |   |  |   |        |  
|Stockholders equity                                                     |  |                                       | 127,390 |   |      |   | 213,751 |      |  |   | 203,192  |   |  |      | 222,886 |   |  |   | 262,949 |  



|(1) | See Note 1 of Notes to Consolidated Financial Statements for an explanation of the basis used to calculate net income (loss) per share.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------

|(2) | See Company Background section in Managements Discussion and Analysis of Financial Condition and Results of Operations for discussion regarding comparability of fiscal 2005
results.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

Company Background

At
September 30, 2005, we owned approximately 83% of Integrated Circuit Solution, Inc. (ICSI). ICSI is a fabless semiconductor company whose principal products are DRAM and controller chips. In fiscal 2006, we purchased additional
shares of ICSI for approximately $13.9 million increasing our ownership percentage to approximately 98% at September 30, 2006. In fiscal 2007, we purchased additional shares of ICSI for approximately $0.3 million. At September 30, 2008, we
owned approximately 98% of ICSI. Our financial results for fiscal 2008, fiscal 2007 and fiscal 2006 reflect accounting for ICSI on a consolidated basis.

In December 2006, we sold our remaining investment in Key Stream Corp. (KSC), a semiconductor company. Our financial results for fiscal 2007, until we sold our investment, and for 2006 reflect accounting for KSC on
the equity basis.

In February 2006, we sold approximately 77% of our shares in Signia Technologies Inc. (Signia), a developer of wireless
semiconductors, thereby reducing our ownership percentage to approximately 16%. Thereafter, we accounted for Signia on the cost method. Our financial results for fiscal 2006 reflect accounting for Signia on a consolidated basis through
February 28, 2006. In October 2007, Signia was acquired by and merged into Terax Communication Technologies Inc (Terax). At September 30, 2008, we owned approximately 1% of Terax.

Overview

We are a fabless semiconductor company that
designs and markets high performance integrated circuits for the following key markets: (i) digital consumer electronics, (ii) networking, (iii) mobile communications, (iv) automotive electronics and (v) industrial. Our
primary products are high speed and low power SRAM and low and medium density DRAM. In fiscal 2008, approximately 88% of our revenue was derived from our SRAM and DRAM products. We also design and market application specific standard products
(ASSP) primarily EEPROMs and SmartCards focused on our key markets. We were founded in October 1988 and initially focused on high performance, low cost SRAM for PC cache memory applications. In 1997, we introduced our first low and medium
density DRAM products. Prior to fiscal 2003, our SRAM product family generated a majority of our revenue. However, sales of our low and medium density DRAM products have represented a majority of our net sales in each year since fiscal 2003.

In order to control our operating expenses, in recent years we limited our headcount increases in the U.S. and transferred various
functions to Taiwan and China. Our acquisition of ICSI was a key part of this strategy. We believe this strategy has enabled us to limit our operating expenses while simultaneously locating these functions closer to our manufacturing partners and
our customers. As a result of these efforts, we currently have significantly more employees in Asia than we do in the U.S. We intend to continue these strategies going forward.

As a fabless semiconductor company, our business model is less capital intensive because we rely on third parties to manufacture, assemble and test our
products. Because of our dependence on third-party wafer foundries, our ability to increase our unit sales volumes depends on our ability to increase our wafer capacity allocation from current foundries, add additional foundries and improve yields
of good die per wafer.

The average selling prices of our SRAM and DRAM products are very sensitive to supply and demand conditions in our
target markets and have generally declined over time. We experienced declines in the average selling prices for many of our products in fiscal 2006, in fiscal 2007 and in fiscal 2008. We expect average selling prices for our products to decline in
the future, principally due to increased market competition and an increased supply of competitive products in the market. Any future decreases in our average selling prices could have an adverse impact on our revenue growth rate, gross margins and
operating margins. Our ability to maintain or increase revenues will be highly dependent upon our ability to increase unit sales volumes of existing products



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and to introduce and sell new products in quantities sufficient to compensate for the anticipated declines in average selling prices of existing products.
Declining average selling prices will adversely affect our gross margins unless we are able to offset such declines with commensurate reductions in per unit costs or changes in product mix in favor of higher margin products.

Revenue from product sales to our direct customers is recognized upon shipment provided that persuasive evidence of a sales arrangement exists, the price
is fixed and determinable, title has transferred, collection of resulting receivables is reasonably assured, there are no customer acceptance requirements and there are no remaining significant obligations. A portion of our sales is made to
distributors under agreements that provide the possibility of certain sales price rebates and limited product return privileges. Given the uncertainties associated with credits that will be issued to these distributors, we defer recognition of such
sales until our products are sold by the distributors to their end customers. Revenue from sales to distributors who do not have sales price rebates or product return privileges is recognized at the time our products are sold by us to the
distributors.

We market and sell our products in Asia, the U.S. and Europe and other locations through our direct sales force,
distributors and sales representatives. The percentage of our sales shipped outside the U.S. was approximately 84%, 82% and 83% in fiscal 2008, 2007 and 2006, respectively. We measure sales location by the shipping destination, even if the customer
is headquartered in the U.S. We anticipate that sales to international customers will continue to represent a significant percentage of our net sales. The percentages of our net sales by region are set forth in the following table:



|       |  |                                 |   |  |      |   |  |      |  
|------ |  | ------------------------------- | - |  | ---- | - |  | ---- | -
|       |  | Fiscal Years EndedSeptember 30, |  
|       |  | 2008                            |   |  | 2007 |   |  | 2006 |  
|Asia   |  | 66                              | % |  | 67   | % |  | 73   | %
|Europe |  | 17                              |   |  | 15   |   |  | 10   |  
|U.S.   |  | 16                              |   |  | 18   |   |  | 17   |  
|Other  |  | 1                               |   |  |     |   |  |     |  
|       |  |                                 |   |  |      |   |  |      |  
|Total  |  | 100                             | % |  | 100  | % |  | 100  | %
|       |  |                                 |   |  |      |   |  |      |  

Our sales are generally made by purchase orders. Because industry practice allows customers to
reschedule or cancel orders on relatively short notice, backlog is not a good indicator of our future sales. Cancellations of customer orders or changes in product specifications could result in the loss of anticipated sales without allowing us
sufficient time to reduce our inventory and operating expenses.

Since a significant portion of our revenue is from the digital consumer
electronics market, our business may be subject to seasonality, with increased revenues in the third and fourth calendar quarters of each year, when customers place orders to meet year-end holiday demand. However, due to the complex nature of the
markets we serve, it difficult for us to assess the impact of seasonal factors on our business.

We are subject to the risks of conducting
business internationally, including economic conditions in Asia, particularly Taiwan and China, changes in trade policy and regulatory requirements, duties, tariffs and other trade barriers and restrictions, the burdens of complying with foreign
laws and, possibly, political instability. All of our foundries and assembly and test subcontractors are located in Asia. Although our international sales are largely denominated in U.S. dollars, we do have sales transactions in New Taiwan dollars,
in Hong Kong dollars and in Chinese renminbi. In addition, we have foreign operations where expenses are generally denominated in the local currency. Such transactions expose us to the risk of exchange rate fluctuations. We monitor our exposure to
foreign currency fluctuations, but have not adopted any hedging strategies to date. There can be no assurance that exchange rate fluctuations will not harm our business and operating results in the future.

Due to the recent tightening of the credit markets and concerns regarding the availability of credit, our current or potential customers have delayed or
reduced purchases of our products which is adversely affecting our revenues and harming our business and financial results. In addition, the recent turmoil in the financial



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markets has had and is expected to continue to have an adverse effect on the U.S. and world economies, which is negatively impacting the
spending patterns of businesses including our current and potential customers. There can be no assurances that the government responses to the disruptions in the financial markets will restore confidence in the U.S. and global
markets. Many economists and other experts are predicting a recession in the U.S. and global economies or have stated that they believe a recession has already begun. We are unable to predict how deep or how long any
recession will last. We expect our business to be adversely impacted by any significant or prolonged downturn in the U.S. or global economies. In particular, we currently expect our revenue for the quarter ending December 31,
2008 to decline from our revenue in the quarter ended September 30, 2008. In the past, industry downturns have resulted in reduced demand and declining average selling prices for our products which adversely affected our
business. We are experiencing and expect to continue to experience these adverse business conditions. The uncertainty regarding the U.S. and global economies has also made it more difficult for us to forecast and manage our
business. Although we are taking actions in the December quarter relating to controlling our expenses and inventory levels, there can be no assurance that these actions will be sufficient to address the impact of any economic slowdown
and allow us to meet our operating objectives.

Fiscal Year Ended September 30, 2008 Compared to Fiscal Year Ended September 30, 2007

Net Sales.    Net sales consist principally of total product sales less estimated sales returns. Net sales
decreased by 4% to $235.2 million in fiscal 2008 from $245.4 million in fiscal 2007. The decrease in net sales of $10.2 million can be attributed primarily to declines in DRAM revenue and sales of our application specific standard products (ASSP),
specifically our Flash controller products, partially offset by an increase in SRAM revenue. The decline in our DRAM revenue can be attributed primarily to a decline in both unit shipments and average selling prices of our 128 Mb DRAM products in
fiscal 2008 compared to fiscal 2007. The decline in our ASSP revenue is primarily due to a decrease in shipments of our Flash controller products in fiscal 2008 compared to fiscal 2007 partially offset by an increase in shipments of our EEPROM and
Smartcard products over such periods. An increase in unit shipments of our SRAM products in fiscal 2008 compared to fiscal 2007 more than offset a decline in average selling prices for such products resulting in an overall increase in SRAM revenue.
We anticipate that our revenue will decline in the December 2008 quarter compared to the September 2008 quarter as a result of the deterioration in the global economic environment. In addition, we anticipate that the average selling prices of our
existing products will generally decline over time, although the rate of decline may fluctuate for certain products. There can be no assurance that any future price declines will be offset by higher volumes or by higher prices on newer products.

In fiscal 2008 and fiscal 2007, no single customer accounted for over 10% of our net sales.

Gross profit.    Cost of sales includes die cost from the wafers acquired from foundries, subcontracted package, assembly and
test costs, costs associated with in-house product testing, quality assurance and import duties. Gross profit increased by $4.8 million to $53.2 million in fiscal 2008 from $48.4 million in fiscal 2007. Our gross margin increased to 22.6% in fiscal
2008 from 19.7% in fiscal 2007 primarily as a result of a shift in our product mix to higher margin SRAM products from low margin commodity DRAM products. The increase in gross profit in fiscal 2008 compared to fiscal 2007 can be attributed to
increased unit shipments of our SRAM and DRAM products which was partially offset by a reduction in shipments of ASSP products, specifically our Flash controller products. In addition, declines in the cost of our SRAM products more than offset
declines in the average selling prices of our SRAM products in fiscal 2008 which contributed to an increase in our SRAM gross margin. Declines in the cost of our DRAM products more than offset declines in the average selling prices of our DRAM
products in fiscal 2008 as we limited our shipments of lower margin commodity DRAM products. This contributed to an increase in our DRAM gross margin. In addition, our gross profit for fiscal 2008 benefited from approximately $0.8 million of revenue
for a DRAM development project. Our gross profit for fiscal 2008 included inventory write-downs of $11.3 million compared to $10.3 million of inventory write-downs in fiscal 2007. The inventory write-downs were for lower of cost or market accounting
and excess and obsolescence issues on certain of our products. Our gross profit for fiscal 2008 and fiscal 2007 benefited from the sale of $3.1



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million and $3.2 million, respectively, of previously written down products. In addition, our gross profit in fiscal 2008 benefited by a $1.0 million credit
for the reversal of previously accrued liabilities for which we are no longer obligated. We believe that the average selling prices of our products will decline over time and, unless we are able to reduce our cost per unit to the extent necessary to
offset such declines, the decline in average selling prices will result in a material decline in our gross margin. In addition, product costs could increase if our suppliers raise prices, which could result in a material decline in our gross margin.
In the past, foundries have raised wafer prices when demand for end products increases. Although we have product cost reduction programs in place that involve efforts to reduce internal costs and supplier costs, there can be no assurance that
product costs will be reduced or that such reductions will be sufficient to offset the expected declines in average selling prices. We do not believe that such cost reduction efforts are likely to have a material adverse impact on the quality of our
products or the level of service provided by us.

Research and development.    Research and development expenses
increased by 3% to $20.8 million in fiscal 2008 from $20.2 million in fiscal 2007. As a percentage of net sales, research and development expenses increased to 8.9% in fiscal 2008 from 8.2% in fiscal 2007. The increase in research and development
expenses of $0.6 million can be attributed to an increase in expenditures for the development of our SRAM and ASSP products in fiscal 2008 compared to fiscal 2007 partially offset by a decrease in expenditures for the development costs of our DRAM
products. The $0.6 million increase includes the impact of the weaker U.S. dollar which resulted an increase in our expenses denominated in foreign currencies. The cost of developing new products utilizing newer technologies could result in an
increase in our research and development expenses in future periods. We expect the dollar amount of our research and development expenses to remain relatively constant and expect such expenses to fluctuate as a percentage of net sales depending on
our overall level of sales.

Selling, general and administrative.    Selling, general and administrative
expenses decreased by 4% to $31.4 million in fiscal 2008 from $32.7 million in fiscal 2007. As a percentage of net sales, selling, general and administrative expenses increased to 13.4% in fiscal 2008 from 13.3% in fiscal 2007. The decrease in
selling, general and administrative expenses of $1.3 million was primarily attributable to a decrease in legal expenses and accounting fees attributable to our stock option backdating investigation which was completed in fiscal 2007 offset by
expenses incurred in fiscal 2008 related to our $70 million stock repurchase and an increase in selling related expenses in an effort to expand our sales channels. In addition, the weaker U.S. dollar in fiscal 2008 compared to fiscal 2007 has
resulted in an increase in our expenses denominated in foreign currencies. We expect the dollar amount of our selling, general and administrative expenses to remain relatively constant and expect such expenses to fluctuate as a percentage of net
sales depending on our overall level of sales.

Impairment of goodwill.    In September 2008, we performed an
assessment of impairment for our goodwill. In the fourth quarter of fiscal 2008, we experienced a significant decline in our stock price. As a result of the decline in our stock price, our market capitalization fell significantly below the recorded
value of our consolidated net assets. Based on the results of our assessment of goodwill for impairment, we determined that the fair value of our equity was less than the book value of our equity and an impairment existed. Therefore, we performed
the second step of the impairment test to determine the implied fair value of goodwill. Specifically, we hypothetically allocated the estimated fair value of our equity as determined in the first step to recognized and unrecognized net assets,
including allocations to intangible assets. The analysis indicated that there would be no remaining implied value attributable to goodwill and accordingly, we wrote off all $25.3 million of our goodwill.

Interest and other income, net.    Interest and other income, net was $5.2 million in fiscal 2008 compared to $8.2 million in
fiscal 2007. The $5.2 million of interest and other income in fiscal 2008 was comprised primarily of interest income of $3.0 million, $1.7 million in rental income from the lease of excess space in our Taiwan facility and $0.5 million in exchange
gains. The $8.2 million of interest and other income, net in fiscal 2007 is comprised primarily of interest income of $4.5 million, a $2.3 million gain in connection with the settlement of a commercial dispute, $1.7 million in rental income from the
lease of excess space in our Taiwan facility partially offset by $0.5 million expense estimated for the settlement of derivative lawsuits.



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Gain on sale of investments.The gain on the sale of investments was $1.8
million in fiscal 2008 compared to $12.0 million in fiscal 2007. In fiscal 2008, we sold approximately 0.3 million shares of Ralink for approximately $1.8 million and recorded a pre-tax gain of approximately $1.6 million. In addition, in fiscal
2008, we sold 22.0 million shares of SMIC for approximately $2.7 million which resulted in a pre-tax gain of approximately $0.2 million. In fiscal 2007, we sold approximately 1.5 million shares of Ralink for approximately $8.9 million and
recorded a pre-tax gain of approximately $7.9 million. In addition, in fiscal 2007, we sold approximately 212.8 million shares of SMIC for approximately $24.4 million which resulted in a pre-tax gain of approximately $3.8 million. In fiscal
2007, we also sold our remaining shares of KSC for approximately $1.2 million which resulted in a pre-tax gain of approximately $0.3 million.

Provision for income taxes.    For fiscal 2008, we recorded an income tax provision of $197,000 consisting of federal and state minimum taxes and foreign withholding taxes. For fiscal 2007, we recorded an income
tax provision of $4,000 consisting of federal and state minimum taxes and foreign withholding taxes net of the reversal of previously provided taxes.

We have recorded a valuation allowance against our deferred tax assets due to our operating loss history and our expectation of future taxable income. We review the realization of these deferred tax assets on an
ongoing basis. Any release of the valuation allowance would have a favorable impact on the provision for income taxes within our statement of operations.

We adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109 (FIN 48), on October 1, 2007. FIN 48 prescribes a
comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns.

As of the date of adoption of FIN 48, we had $3.0 million of unrecognized tax benefits which included $2.9 million of unrecognized tax benefits that were
previously included in the deferred tax asset account which carried a full valuation allowance. The unrecognized tax benefit as of the date of adoption had no effect on the beginning balance of accumulated deficit or the net balance
sheet. We historically classified unrecognized tax benefits in current taxes payable and as a result of the adoption had reclassified $140,000 from current to long term liabilities.

Minority interest in net income of consolidated subsidiary.    The minority interest in net income of consolidated subsidiary
was $0.1 million in fiscal 2008 compared to $0.2 million in fiscal 2007. The minority interest in net income of consolidated subsidiary for fiscal 2008 and fiscal 2007 represents the minority shareholders proportionate share of the net income
of ICSI.

Equity in net loss of affiliated companies.Equity in net loss of affiliated companies was $0.1
million in fiscal 2007. This related to our equity interest in KSC which we sold in December 2006.

Fiscal Year Ended September 30, 2007 Compared
to Fiscal Year Ended September 30, 2006

Net Sales.    Net sales increased by 13% to $245.4 million in
fiscal 2007 from $217.5 million in fiscal 2006. The increase in net sales of $27.9 million can be attributed primarily to higher sales of our ASSP products and our SRAM products. An increase in unit shipments of our SRAM products in fiscal 2007
compared to fiscal 2006 more than offset a decline in average selling prices for such products resulting in an overall increase in SRAM revenue. Sales of ASSP products also increased in fiscal 2007 compared to fiscal 2006, but such products
accounted for only about 13% of our total sales in fiscal 2007. In addition, an increase in unit shipments of our DRAM products, specifically our 128 Mb and 256 Mb DRAM products, in fiscal 2007 compared to fiscal 2006 more than offset a decrease in
average selling prices resulting in an overall increase in DRAM revenue.

In fiscal 2007 and fiscal 2006, no single customer accounted for
over 10% of our net sales.



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Gross profit.    Gross profit increased by $19.3 million to $48.4 million in
fiscal 2007 from $29.1 million in fiscal 2006. Our gross margin increased to 19.7% in fiscal 2007 from 13.4% in fiscal 2006. Our gross profit for fiscal 2007 included inventory write-downs of $10.3 million compared to $16.5 million of inventory
write-downs in fiscal 2006. The inventory write-downs were for excess and obsolescence issues and lower of cost or market accounting on certain of our products. Our gross profit for fiscal 2007 and fiscal 2006, benefited from the sale of $3.2
million and $3.0 million, respectively, of previously written down products. The increase in gross profit in fiscal 2007 compared to fiscal 2006 can be attributed to increased unit shipments of our SRAM and ASSP products which more than offset
declines in average selling prices for such products. In addition, declines in the cost of our SRAM products more than offset declines in the average selling prices of our SRAM products in fiscal 2007 which contributed to an increase in our SRAM
gross margin. Our DRAM gross margin increased in fiscal 2007 compared to fiscal 2006 as a result of a shift in product mix to higher density higher margin products.

Research and development.    Research and development expenses decreased by 7% to $20.2 million in fiscal 2007 from $21.6 million in fiscal 2006. As a percentage of net sales, research and
development expenses decreased to 8.2% in fiscal 2007 from 9.9% in fiscal 2006. The decrease in research and development expenses can be attributed to a decrease in maskwork expenses in fiscal 2007 compared to fiscal 2006 and a decrease in expenses
for our Bluetooth and Flash controller development projects which we exited in the March 2006 quarter. These factors were partially offset by an increase in development costs for new DRAM and SRAM products as well as an increase in costs of
associated with the development for products for automotive and industrial applications.

Selling, general and
administrative.    Selling, general and administrative expenses increased by 15% to $32.7 million in fiscal 2007 from $28.3 million in fiscal 2006. As a percentage of net sales, selling, general and administrative
expenses increased to 13.3% in fiscal 2007 from 13.0% in fiscal 2006. The increase in selling, general and administrative expenses was mainly attributable to approximately $4.7 million in legal expenses and accounting fees in fiscal 2007
attributable to our stock option backdating investigation and shareholder derivative lawsuits compared to approximately $1.1 million of such expenses in fiscal 2006. In addition, there was an increase in selling commissions associated with higher
revenues in fiscal 2007 compared fiscal 2006.

Acquired in-process technology charge.    In fiscal 2006, we
incurred a $0.5 million acquired in-process technology charge (IPR&D) in connection with our purchase of additional shares of ICSI. The $0.5 million allocated to IPR&D was expensed in fiscal 2006 as it was deemed to have no future
alternative use.

Interest and other income (expense), net.    Interest and other income (expense), net was $8.2
million in fiscal 2007 compared to $4.9 million in fiscal 2006. The $8.2 million of interest and other income (expense), net in fiscal 2007 is comprised primarily of interest income of $4.5 million, a $2.3 million gain in connection with the
settlement of a commercial dispute, $1.7 million in rental income from the lease of excess space in our Taiwan facility partially offset by $0.5 million expense estimated for the settlement of derivative lawsuits. The $4.9 million of interest and
other income (expense), net in fiscal 2006 is comprised primarily of interest income of $2.7 million, $0.9 million in foreign currency exchange gains, $0.9 million in rental income from the lease of excess space in our Taiwan facility, and
$0.5 million from the sale of assets from our Bluetooth business offset by an impairment charge of approximately $(0.4) million related to our investment in Signia.

Gain on sale of investments.The gain on the sale of investments was $12.0 million in fiscal 2007 compared to $2.5 million in fiscal 2006. In fiscal 2007, we sold approximately
1.5 million shares of Ralink (a cost method equity investment) for approximately $8.9 million and recorded a pre-tax gain of approximately $7.9 million. In addition, in fiscal 2007, we sold approximately 212.8 million shares of SMIC for
approximately $24.4 million which resulted in a pre-tax gain of approximately $3.8 million. We also sold our remaining shares of KSC for approximately $1.2 million which resulted in a pre-tax gain of approximately $0.3 million. In fiscal 2006, we
sold our shares in E-CMOS for approximately $1.5 million which resulted in a pre-tax gain of $0.3 million. In addition, we sold approximately 77% of our shares in Signia for approximately $4.6 million which resulted in a pre-tax gain of $2.2
million. In addition, in September 2006, we sold a cost method equity investment for approximately $0.1 million resulting in a gain of approximately $26,000.



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Provision (benefit) for income taxes.For fiscal 2007, we recorded an
income tax provision of $4,000 consisting of federal and state minimum taxes and foreign withholding taxes net of the reversal of previously provided taxes. For fiscal 2006, we recorded an income tax benefit of $33,000 consisting of the reversal of
previously provided taxes that are no longer necessary offset by foreign withholding tax, taxes in certain foreign jurisdictions and state minimum taxes.

We have recorded a valuation allowance against our deferred tax assets due to our operating loss history and our expectation of future taxable income. We review the realization of these deferred tax assets on an
ongoing basis. Any release of the valuation allowance would have a favorable impact on the provision for income taxes within our statement of operations.

Minority interest in net (income) loss of consolidated subsidiaries.The minority interest in net (income) loss of consolidated subsidiaries was income of $0.2 million in fiscal 2007
compared to a loss of $0.7 million in fiscal 2006. The minority interest in net income of consolidated subsidiaries for fiscal 2007 represents the minority shareholders proportionate share of the net income of ICSI. The minority interest in
net loss of consolidated subsidiaries for fiscal 2006 represents the minority shareholders proportionate share of the net loss of ICSI for such period and the minority shareholders proportionate share of the net loss of Signia for the
five months ended February 28, 2006. Effective March 2006, we account for Signia on the cost basis.

Equity in net loss of
affiliated companies.    Equity in net loss of affiliated companies was $0.1 million in fiscal 2007 compared to $0.7 million in fiscal 2006. This related to our equity interest in KSC which we sold in December 2006.

Liquidity and Capital Resources

As of
September 30, 2008, our principal sources of liquidity included cash, cash equivalents and short-term investments of approximately $50.0 million. During fiscal 2008, operating activities provided cash of approximately $10.5 million compared to
$22.4 million provided in fiscal 2007. The cash provided by operations in fiscal 2008 was primarily due to our net loss of $17.8 million adjusted for non-cash items of $31.8 million, primarily the impairment of our goodwill of $25.3 million,
decreases in accounts receivable of $2.3 million and other assets of $1.0 million and increases in accrued liabilities of $1.3 million. This was partially offset by increases in inventories of $6.5 million, and decreases in accounts payable of $1.7
million. The cash provided by operations in fiscal 2007 was primarily due to decreases in inventories of $21.2 million.

In fiscal 2008, we
generated $48.3 million from investing activities compared to $0.8 million generated in fiscal 2007. In fiscal 2008, we generated $48.4 million from the net sales of available-for-sale securities. We also generated approximately $1.8 million from
the sale of shares of Ralink, resulting in a pre-tax gain of approximately $1.6 million and generated approximately $2.7 million from the sale of shares of SMIC, resulting in a pre-tax gain of approximately $0.2 million. In fiscal 2007, we generated
approximately $28.2 million from the sale of shares of SMIC, resulting in a pre-tax gain of approximately $3.8 million, generated approximately $8.9 million from the sale of shares of Ralink, resulting in a pre-tax gain of approximately $7.9 million
and generated approximately $1.2 million from our sale of shares of KCS, resulting in a pre-tax gain of approximately $0.3 million. We used $32.9 million for net purchases of available-for-sale securities and $0.3 million for the purchase of
additional shares of ICSI.

In fiscal 2008, we made capital expenditures of approximately $4.6 million for computer software and hardware
and engineering tools compared to $4.4 million in fiscal 2007. We expect to spend approximately $2.0 million to $4.5 million to purchase capital equipment during the next twelve months, principally for the purchase of additional test equipment,
design and engineering tools, and computer software and hardware. We expect to fund our capital expenditures from our existing cash and cash equivalent balances.



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We used $70.5 million for financing activities during fiscal 2008 compared to $7.0 million used in fiscal
2007. In fiscal 2008, we used $71.1 million for the repurchase and retirement of our common stock and $12.6 million for the repayment of short-term borrowings. Our sources of financing in fiscal 2008 were borrowings of $12.0 million under lines of
credit and proceeds from the issuance of common stock of $1.2 million from stock option exercises and sales under our employee stock purchase plan. In fiscal 2007, we used $28.9 million for the repayment of short-term borrowings and $7.4 million for
the repurchase and retirement of our common stock. Our sources of financing for fiscal 2007 were borrowings of $27.2 million under lines of credit, borrowings of $0.6 million under equipment financing loans and proceeds from the issuance of common
stock of $1.5 million from stock option exercises.

We have $12.9 million available through a number of short-term lines of credit with
various financial institutions in Taiwan. These lines of credit expire at various times through September 2009. As of September 30, 2008, we had no outstanding borrowings under these short-term lines of credit.

Included within our investment portfolio are $20.0 million par value of AAA rated investments in auction-rate securities, for which all of the underlying
assets are student loans which are backed by the federal government under the Federal Family Education Loan Program. Liquidity for these securities is typically provided by an auction process that resets the applicable interest rate at
pre-determined intervals, usually every 7-35 days. Because of the short interest rate reset period, we have historically recorded them as current available-for-sale securities.

In February 2008, all the auctions of our auction-rate securities failed as a result of negative conditions in the global credit markets. Each of these
securities had been subject to auction processes for which there had been insufficient bidders on the scheduled rollover dates. The failure resulted in the interest rates on these investments resetting at the maximum rate allowed per security. Until
the auctions are successful, a buyer is found outside of the auction process or the notes are redeemed, the investments are not liquid. In the event we need to access these funds, we will not be able to do so without a loss of principal, unless a
future auction on these investments is successful. As the liquidity of these securities has been negatively impacted by the uncertainty in the credit markets, we have classified these auction-rate securities as long-term available-for-sale
securities as of September 30, 2008. We currently believe these securities are not permanently impaired, primarily due to the government backing of the underlying securities. However, it could take until the final maturity of the underlying
notes (up to 40 years) to realize our investments recorded value. Therefore, as of September 30, 2008, we recorded a temporary impairment charge of $1.5 million against other comprehensive income in our consolidated balance sheet. If
the issuers are unable to successfully close future auctions and their credit ratings deteriorate, we may be required to further adjust the carrying value of these investments and record an impairment charge to earnings for an other than temporary
decline in the fair values. Based on our ability to access our cash and other short-term investments, our expected operating cash flows, and our other sources of cash, we do not anticipate the lack of liquidity on these investments will affect our
ability to operate our business as usual. In November 2008, we elected to participate in the Auction Rate Securities Rights offering issued by the broker through which we purchased our $20.0 million in auction rate securities. These rights will
entitle us to sell our auction rate securities to the broker for a price equal to par value plus accrued but unpaid dividends beginning in June 2010.

In November 2006, we entered into a lease for approximately 30,000 square feet of office space in San Jose and relocated our headquarters there in February 2007. The lease on this building expires in June 2013.
Outside of the U.S., we have operations in leased sites in China and Hong Kong. In addition to these sites, we lease sales offices in the U.S., Europe and Asia. These leases expire at various dates through 2011. In Taiwan, we own and occupy the ICSI
building. The land upon which the ICSI building is situated is leased under an operating lease that expires in March 2016. Our outstanding commitments under these leases were approximately $3.9 million at September 30, 2008.

We generally warrant our products against defects in materials and workmanship for a period of 12 months. Liability for a stated warranty period is
usually limited to the replacement of defective items or return of amounts paid. Warranty expense has historically been immaterial to our financial statements.



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Our contractual cash obligations at September 30, 2008 are outlined in the table below:



|                                          |  |                        |        |                 |   |          |  |          |       |                  |   |       |  |   |    
|----------------------------------------- |  | ---------------------- | ------ | --------------- | - | -------- |  | -------- | ----- | ---------------- | - | ----- |  | - | ---
|                                          |  | Payments Due by Period
|Contractual Obligations                   |  | Total                  |        | Less than1 year |   | 1-3years |  | 3-5years |       | More than5 years
|                                          |  | (In thousands)        
|Operating leases                          |  | $                      | 3,866  |                 | $ | 742      |  | $        | 1,365 |                  | $ | 1,219 |  | $ | 540
|Purchase obligations with wafer foundries |  |                        | 19,924 |                 |   | 19,924   |  |          |      |                  |   |      |  |   |   
|Non-cancelable purchase commitments       |  |                        |       |                 |   |         |  |          |      |                  |   |      |  |   |   
|                                          |  |                        |        |                 |   |          |  |          |       |                  |   |       |  |   |    
|Total contractual cash obligations        |  | $                      | 23,790 |                 | $ | 20,666   |  | $        | 1,365 |                  | $ | 1,219 |  | $ | 540
|                                          |  |                        |        |                 |   |          |  |          |       |                  |   |       |  |   |    

On November 28, 2007, we announced that our board of directors had approved the repurchase of
up to $80 million of our shares of common stock. We used $70 million of the authorization to repurchase 10 million shares of our common stock through a self-tender offer which expired on January 3, 2008. We repurchased and retired an
additional $0.2 million of shares of our common stock in September 2008. At September 30, 2008, we had outstanding authorization from our Board to purchase up to an additional $9.8 million of our common stock from time to time. In this regard,
through October 2008 we repurchased an additional $2.6 million of our common stock.

We believe our existing funds will satisfy our
anticipated working capital and other cash requirements through at least the next 12 months. We may from time to time take actions to further increase our cash position through equity or debt financings, sales of shares of investments, bank
borrowings, or the disposition of certain assets. From time to time, we may also commit to acquisitions or equity investments, including strategic investments in wafer fabrication foundries or assembly and test subcontractors. To the extent we enter
into such transactions, any such transaction could require us to seek additional equity or debt financing to fund such activities. There can be no assurance that any such additional financing could be obtained on terms acceptable to us, if at all.

Off-Balance Sheet Arrangements

As of
September 30, 2008, we did not have any off-balance sheet arrangements, as defined in Item 303 (a)(4)(ii) of SEC Regulation S-K.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally
accepted in the U.S. requires management to make difficult and subjective estimates, judgments and assumptions. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. The estimates and judgments that we use in applying our accounting policies have a significant impact on the
results we report in our financial statements. We base our estimates and judgments on our historical experience combined with knowledge of current conditions and our beliefs of what could occur in the future, considering the information available at
the time. Actual results could differ from those estimates and such differences may be material to our financial statements. We reevaluate our estimates and judgments on an ongoing basis.

Our critical accounting policies which are impacted by our estimates are: (i) the valuation of our inventory, which impacts cost of goods sold and
gross profit; (ii) the valuation of our allowance for sales returns and allowances, which impacts net sales; (iii) the valuation of our allowance for doubtful accounts, which impacts general and administrative expense; (iv) accounting
for acquisitions and goodwill, which impacts operating expense when we record impairments and (v) accounting for stock-based compensation which impacts costs of goods sold, research and development expense and selling, general and
administrative expense. Each of these policies is described in more detail below. We also have other key accounting policies that may not require us to



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make estimates and judgments that are as subjective or difficult. For instance, our policies with regard to revenue recognition, including the deferral of
revenues on sales to distributors with sales price rebates and product return privileges. These policies are described in the notes to our financial statements contained elsewhere in this Report on Form 10-K.

Valuation of inventory.    Our inventories are stated at the lower of cost or market value. Determining market value requires
us to project unit prices and volumes for future periods in which we expect to sell inventory on hand as of the balance sheet date. As a result of these estimates, we may record a charge to cost of goods sold, which decreases our gross profit, in
advance of when the inventory is actually sold to reflect market values, net of sales commission costs, that are below our manufacturing costs. Conversely, if we sell inventory that has previously been written down to the lower of cost or market at
more favorable prices than we had forecasted at the time of the write-down, our gross profit may be higher. In addition to lower of cost or market write-downs, we also analyze inventory to determine whether any of it is excess, obsolete or
defective. We write down to zero dollars (which is a charge to cost of goods sold) the carrying value of inventory on hand that has aged over one year to cover estimated excess and obsolete exposures, unless adjustments are made based on our
judgments for newer products, end of life products, planned inventory increases or strategic customer supply. In making such judgments to write down inventory, we take into account the product life cycles which can range from six to 30 months, the
stage in the life cycle of the product, and the impact of competitors announcements and product introductions on our products. Once established, these adjustments are considered permanent.

Valuation of allowance for sales returns and allowances.    Net sales consist principally of total product sales less
estimated sales returns and allowances. To estimate sales returns and allowances, we analyze potential customer specific product application issues, potential quality and reliability issues and historical returns. We evaluate quarterly the adequacy
of the allowance for sales returns and allowances. This allowance is reflected as a reduction to accounts receivable in our consolidated balance sheets. Increases to the allowance are recorded as a reduction to net sales. Because the allowance for
sales returns and allowances is based on our judgments and estimates, particularly as to product application, quality and reliability issues, our allowances may not be adequate to cover actual sales returns and other allowances. If our allowances
are not adequate, our net sales could be adversely affected.

Valuation of allowance for doubtful
accounts.    We maintain an allowance for doubtful accounts for losses that we estimate will arise from our customers inability to make required payments for goods and services purchased from us. We make our estimates
of the uncollectibility of our accounts receivable by analyzing historical bad debts, specific customer creditworthiness and current economic trends. Once an account is deemed unlikely to be fully collected, we write down the carrying value of the
receivable to the estimated recoverable value, which results in a charge to general and administrative expense, which decreases our profitability.

Accounting for acquisitions and goodwill.    We account for acquisitions using the purchase accounting method in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations. Under this method, the total consideration paid, excluding, if any, the contingent consideration that has not been earned, is allocated over the fair value of the net assets acquired, including in-process research and
development, with any excess allocated to goodwill. Goodwill is defined as the excess of the purchase price over the fair value allocated to the net assets. Our judgments as to fair value of the assets will, therefore, affect the amount of goodwill
that we record. Management is responsible for the valuation of tangible and intangible assets. For tangible assets acquired in any acquisition, such as plant and equipment, the useful lives are estimated by considering comparable lives of similar
assets, past history, the intended use of the assets and their condition. In estimating the useful life of the acquired intangible assets with definite lives, we consider the industry environment and unique factors relating to each product relative
to our business strategy and the likelihood of technological obsolescence. Acquired intangible assets primarily include core and current technology, customer relationships and customer contracts. We are currently amortizing our acquired intangible
assets with definite lives over periods generally ranging from six months to six years.



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We perform goodwill impairment tests on an annual basis and between annual tests in certain circumstances
where indicators of impairment may exist. For instance, in response to changes in industry and market conditions, we could be required to strategically realign our resources and consider restructuring, disposing of, or otherwise exiting businesses,
which could result in an impairment of tangible and intangible assets, including goodwill. In this regard, in fiscal 2008, we recorded charges for impairment of goodwill in the amount of $25.3 million.

Accounting for stock-based compensation.    Effective October 1, 2005, we adopted the fair value recognition provisions
of SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123R), using the modified prospective transition method and therefore have not restated results for prior periods. Under SFAS 123R, stock option cost is calculated on
the date of grant using the Black-Scholes valuation model. The compensation cost is then recognized on a straight-line basis over the requisite service period of the option, which is generally the option vesting term of four years. We use the
Black-Scholes valuation model to determine the fair value of our stock options at the date of grant. The Black-Scholes valuation model requires us to estimate key assumptions such as expected term, volatility, dividend yield and risk free interest
rates that determine the stock option fair value. In addition, SFAS 123R requires forfeitures to be estimated at the time of grant. In subsequent periods, if actual forfeitures differ from the estimate, the forfeiture rate may be revised. We
estimate our expected forfeitures rate based on our historical activity and judgment regarding trends. We utilized the simplified calculation of expected life under the provisions of the Securities and Exchange Commissions (SEC) Staff
Accounting Bulletin 107 through December 2007. For option grants subsequent to December 2007, the expected term is based upon historical exercise data. If we determined that another method used to estimate expected life was more reasonable than our
current method, or if another method for calculating these inputs assumptions was prescribed by authoritative guidance, the fair value calculated could change materially.

Impact of Recently Issued Accounting Standards

In September 2006, the FASB issued SFAS
No. 157, Fair Value Measurements (SFAS No. 157) which establishes a framework for measuring fair value and enhance disclosures about fair value measurements. In February 2008, the FASB issued FSP No. FAS 157-1,
Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13, which amends SFAS
No. 157 to exclude accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under SFAS No. 13. In February 2008, the FASB issued FSP No. FAS 157-2, Effective Date of
FASB Statement No. 157, which delays the effective date of SFAS No. 157 until the beginning of fiscal 2010 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually). In October 2008, the FASB also issued FSP No. FAS 157-3, Determining the Fair Value of a Financial Asset when the Market for That Asset Is Not Active, which
clarifies the application of SFAS No. 157 for financial assets in a market that is not active. The measurement and disclosure requirements are effective for us beginning in the first quarter of fiscal 2009. We do not expect that the
adoption of SFAS No. 157 for financial assets and financial liabilities will have a significant impact on our financial statements. We are evaluating the impact that the adoption in fiscal 2010 of SFAS No. 157 for non-financial assets
and non-financial liabilities will have on our financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities (SFAS No. 159) which permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and
losses on items for which the fair value option has been elected be reported in earnings. SFAS 159 is effective for us beginning in the first quarter of fiscal 2009, although earlier adoption is permitted. The impact of the adoption of SFAS
No. 159 on our financial statements will depend on the extent to which we elect to measure eligible items at fair value.



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##### Table of Contents

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. This Statement
replaces SFAS No. 141, Business Combinations. This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business
combinations and for an acquirer to be identified for each business combination. This Statement also establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and c) determines what information to disclose to
enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) will apply prospectively to business combinations for which the acquisition date is on or after our fiscal year
beginning October 1, 2010. The impact of the adoption of SFAS No. 141(R) will depend on the nature and extent of business combinations occurring on or after the beginning of fiscal 2010.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. This Statement amends ARB
51 to establish accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated financial statements. We have not yet determined the impact, if any, that SFAS No. 160 will have on our consolidated financial statements. SFAS No. 160 is effective
for our fiscal year beginning October 1, 2010.



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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Our financial market risk includes foreign currency transactions, exposure to changes in interest rates on our investments and our investments in
marketable equity securities.

We anticipate that international sales will continue to account for a significant portion of our
consolidated revenue. Our international sales are largely denominated in U.S. dollars and therefore are not subject to material foreign currency exchange risk. However, we have operations in China, Europe, Taiwan, Hong Kong, India, Japan, Korea and
Singapore where our expenses are denominated in each countrys local currency and are subject to foreign currency exchange risk. In fiscal 2008, fiscal 2007 and fiscal 2006, we recorded exchange gains of approximately $0.5 million, $0.1 million
and $0.9 million, respectively. In recent periods, the weaker U.S. dollar has resulted in an increase in our operating expenses denominated in foreign currencies. We could be negatively impacted by exchange rate fluctuations in the future. We do not
currently engage in any hedging activities.

We had cash, cash equivalents and short-term investments of $47.8 million at
September 30, 2008 excluding $2.2 million of Ralink stock included in short-term investments. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without increasing risk. We
invest primarily in high-quality, short-term debt instruments and instruments issued by high quality financial institutions and companies, including money market instruments. A hypothetical one percentage point decrease in interest rates would
result in approximately a $0.5 million decrease in our interest income. Included within our investment portfolio are $20.0 million par value of AAA rated investments in auction-rate securities. The underlying assets of these auction rate securities
are student loans which are backed by the federal government under the Federal Family Education Loan Program. We have experienced some market risk and liquidity issues related to auction-rate securities. See the Liquidity and Capital
Resources section in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations for more detail on these investments.

We own ordinary shares in SMIC which has been a publicly traded company since March 2004. SMICs ordinary shares are traded on the Hong Kong Stock
Exchange and SMIC American Depository Receipts (ADR) are traded on the New York Stock Exchange. Each SMIC ADR represents fifty (50) ordinary shares. We use the weighted-average cost method to determine the cost basis of shares of
SMIC. In fiscal 2008, we sold shares of SMIC and recorded gross proceeds of approximately $2.7 million and a pre-tax gain of approximately $0.2 million. Since SMICs IPO, we account for our shares in SMIC under the provisions of FASB 115 and
mark the shares to the market value with the offset recorded in accumulated other comprehensive income. The cost basis of our shares in SMIC is approximately $3.4 million and the market value at September 30, 2008 was approximately $0.9
million. The cost basis of our shares in SMIC is approximately $3.4 million and the market value at December 5, 2008 was approximately $0.7 million. The market value of SMIC shares is subject to fluctuations and our carrying value will be
subject to adjustments to reflect changes in SMICs market value in future periods. In the event the decline in the market value of our SMIC shares below our cost basis is determined to be other-than-temporary, we may be required to recognize a
loss on our investment through operating results.

We own shares in Ralink Technology, Co. (Ralink). On April 8, 2008, Ralink
completed an initial public offering (IPO). Ralinks common shares are traded on the Taiwan Stock Exchange. In fiscal 2008, we sold shares of our Ralink stock and recorded gross proceeds of approximately $1.8 million and a pre-tax gain of
approximately $1.6 million. Since Ralinks IPO, we account for our shares in Ralink under the provisions of FASB 115 and have marked our investment to the market value as of September 30, 2008 by increasing short-term investments and by
increasing accumulated other comprehensive income in the equity section of our balance sheet. The cost basis of our shares in Ralink is approximately $0.5 million and the market value at September 30, 2008 was approximately $2.2 million. The
cost basis of our shares in Ralink is approximately $0.5 million and the market value at December 5, 2008 was approximately $1.2 million. The market value of Ralink shares is subject to fluctuations and our carrying value will be subject to
adjustments to reflect the current market value. Certain of our shares in Ralink with a market value at September 30, 2008 of approximately $0.2 million are subject to lockup restrictions and therefore are not freely tradable. The lockup
restrictions will lapse as to 50% of the shares in each of October 2008 and April 2009. Thus, all of our shares in Ralink will be freely tradable in April 2009.



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Item 8. Financial Statements and Supplementary Data

INTEGRATED SILICON SOLUTION, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                                      |  |   
|------------------------------------------------------------------------------------------------------------------------------------- |  | --
|Reports of Independent Registered Public Accounting Firm                                                                              |  | 44
|                                                                                                                                      | 
|Financial Statements:                                                                                                                 |  |   
|                                                                                                                                      | 
|Consolidated Statements of OperationsFor Fiscal Years Ended September 30, 2008, September 
30, 2007, and September 30, 2006           |  | 47
|                                                                                                                                      | 
|Consolidated Balance SheetsAs of September 30, 2008 and September 30, 2007                                                            |  | 48
|                                                                                                                                      | 
|Consolidated Statements of Stockholders EquityFor Fiscal Years Ended September 30, 2008, 
September 30, 2007, and September 30, 2006 |  | 49
|                                                                                                                                      | 
|Consolidated Statements of Cash FlowsFor Fiscal Years Ended September 30, 2008, September 
30, 2007, and September 30, 2006           |  | 50
|                                                                                                                                      | 
|Notes to Consolidated Financial Statements                                                                                            |  | 51



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Integrated Silicon Solution, Inc.

We have audited the accompanying consolidated balance sheets of Integrated Silicon Solution, Inc. (a Delaware corporation) and
subsidiaries as of September 30, 2008 and September 30, 2007, and the related consolidated statements of operations, stockholders equity, and cash flows for each of the two years in the period ended September 30, 2008. These
financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 Integrated Silicon Solution, Inc. and subsidiaries as of September 30, 2008 and September 30, 2007 and the results of their operations and their cash flows for each of the two years in the period ended
September 30, 2008 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note
12 to the consolidated financial statements, effective October 1, 2007 Integrated Silicon Solution, Inc. and subsidiaries adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income TaxesAn Interpretation of FASB
Statement No. 109. As discussed in Note 13 to the consolidated financial statements, effective October 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans.

We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Integrated Silicon Solution, Inc. and subsidiaries internal control over financial reporting as of September 30, 2008, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)and our report dated December 15, 2008 expressed an unqualified opinion on the effectiveness of the
Companys internal control over financial reporting.

/s/    GRANT THORNTON LLP

San Jose, California

December 15, 2008



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders,

Integrated Silicon Solution, Inc.

We have audited Integrated Silicon Solution, Inc.s (a Delaware Corporation) internal control over financial reporting as of
September 30, 2008, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Integrated Silicon Solution, Inc.s management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on Integrated Silicon Solution, Inc.s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.

A companys internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

In our opinion, Integrated Silicon Solution, Inc. maintained, in all material respects, effective internal control over
financial reporting as of September 30, 2008, based on criteria established in Internal ControlIntegrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the accompanying consolidated balance sheet of Integrated Silicon Solution Inc. as of September 30, 2008, and the related consolidated statements of operations, stockholders equity, and cash flows for the year ended
September 30, 2008, and our report dated December 15, 2008 expressed an unqualified opinion on those consolidated financial statements.

/s/    GRANT THORNTON LLP

San Jose, California

December 15, 2008



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

Integrated Silicon Solution, Inc.

We have audited the accompanying consolidated statements of operations, stockholders equity, and cash flows of Integrated Silicon Solution, Inc. for the year ended September 30, 2006. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Integrated Silicon Solution, Inc. for the year
ended September 30, 2006, in conformity with U.S. generally accepted accounting principles.

/s/    ERNST & YOUNG LLP

San Jose, California

May 24, 2007



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##### Table of Contents

INTEGRATED SILICON SOLUTION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                    |  | Years Ended September 30,             |        
|                                                                                                    |  | 2008                                  |         |   | 2007 |   |         | 2006 | 
|                                                                                                    |  | (in thousands, except per share data) |        
|Net sales                                                                                           |  | $                                     | 235,229 |   |      | $ | 245,395 |      |  | $ | 217,492 |  
|Cost of sales                                                                                       |  |                                       | 182,033 |   |      |   | 196,959 |      |  |   | 188,386 |  
|                                                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |  
|Gross profit                                                                                        |  |                                       | 53,196  |   |      |   | 48,436  |      |  |   | 29,106  |  
|                                                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |  
|Operating expenses                                                                                  |  |                                       |         |   |      |   |         |      |  |   |         |  
|Research and development                                                                            |  |                                       | 20,848  |   |      |   | 20,174  |      |  |   | 21,617  |  
|Selling, general and administrative                                                                 |  |                                       | 31,429  |   |      |   | 32,660  |      |  |   | 28,328  |  
|Acquired in-process technology charge                                                               |  |                                       |        |   |      |   |        |      |  |   | 499     |  
|Impairment of goodwill                                                                              |  |                                       | 25,338  |   |      |   |        |      |  |   |        |  
|                                                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |  
|Total operating expenses                                                                            |  |                                       | 77,615  |   |      |   | 52,834  |      |  |   | 50,444  |  
|                                                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |  
|Operating loss                                                                                      |  |                                       | (24,419 | ) |      |   | (4,398  | )    |  |   | (21,338 | )
|Interest and other income, net                                                                      |  |                                       | 5,198   |   |      |   | 8,188   |      |  |   | 4,855   |  
|Interest expense                                                                                    |  |                                       | (96     | ) |      |   | (195    | )    |  |   | (278    | )
|Gain on sales of investments, net                                                                   |  |                                       | 1,814   |   |      |   | 12,032  |      |  |   | 2,480   |  
|                                                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |  
|Income (loss) before income taxes, minority interest and equity in net loss of affiliated companies |  |                                       | (17,503 | ) |      |   | 15,627  |      |  |   | (14,281 | )
|Provision (benefit) for income taxes                                                                |  |                                       | 197     |   |      |   | 4       |      |  |   | (33     | )
|                                                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |  
|Income (loss) before minority interest and equity in net loss of affiliated companies               |  |                                       | (17,700 | ) |      |   | 15,623  |      |  |   | (14,248 | )
|Minority interest in net (income) loss of consolidated subsidiaries                                 |  |                                       | (63     | ) |      |   | (170    | )    |  |   | 693     |  
|Equity in net loss of affiliated companies                                                          |  |                                       |        |   |      |   | (92     | )    |  |   | (687    | )
|                                                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |  
|Net income (loss)                                                                                   |  | $                                     | (17,763 | ) |      | $ | 15,361  |      |  | $ | (14,242 | )
|                                                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |  
|Basic net income (loss) per share                                                                   |  | $                                     | (0.60   | ) |      | $ | 0.41    |      |  | $ | (0.38   | )
|                                                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |  
|Shares used in basic per share calculation                                                          |  |                                       | 29,541  |   |      |   | 37,631  |      |  |   | 37,419  |  
|                                                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |  
|Diluted net income (loss) per share                                                                 |  | $                                     | (0.60   | ) |      | $ | 0.40    |      |  | $ | (0.38   | )
|                                                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |  
|Shares used in diluted per share calculation                                                        |  |                                       | 29,541  |   |      |   | 37,975  |      |  |   | 37,419  |  
|                                                                                                    |  |                                       |         |   |      |   |         |      |  |   |         |  



See the accompanying
notes to consolidated financial statements



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INTEGRATED SILICON SOLUTION, INC.

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                            |  |                                  |          |   |      |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                                                                            |  | As of September 30,              |         
|                                                                                                                                            |  | 2008                             |          |   | 2007 |  
|                                                                                                                                            |  | (in thousands, except par value) |         
|ASSETS                                                                                                                                      |  |                                  |          |   |      |   |          |  
|Current assets:                                                                                                                             |  |                                  |          |   |      |   |          |  
|Cash and cash equivalents                                                                                                                   |  | $                                | 42,175   |   |      | $ | 53,722   |  
|Short-term investments                                                                                                                      |  |                                  | 7,840    |   |      |   | 80,093   |  
|Accounts receivable, net of allowance for doubtful accounts of $1,519 in 2008 and $1,465 in 2007                                            |  |                                  | 34,741   |   |      |   | 37,030   |  
|Inventories                                                                                                                                 |  |                                  | 39,222   |   |      |   | 32,056   |  
|Other current assets                                                                                                                        |  |                                  | 4,717    |   |      |   | 6,134    |  
|                                                                                                                                            |  |                                  |          |   |      |   |          |  
|Total current assets                                                                                                                        |  |                                  | 128,695  |   |      |   | 209,035  |  
|Property, equipment and leasehold improvements, net                                                                                         |  |                                  | 24,555   |   |      |   | 23,284   |  
|Long-term investments                                                                                                                       |  |                                  | 19,304   |   |      |   |         |  
|Goodwill                                                                                                                                    |  |                                  |         |   |      |   | 25,338   |  
|Purchased intangible assets, net                                                                                                            |  |                                  | 2,000    |   |      |   | 3,538    |  
|Other assets                                                                                                                                |  |                                  | 1,397    |   |      |   | 1,520    |  
|                                                                                                                                            |  |                                  |          |   |      |   |          |  
|Total assets                                                                                                                                |  | $                                | 175,951  |   |      | $ | 262,715  |  
|                                                                                                                                            |  |                                  |          |   |      |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                        |  |                                  |          |   |      |   |          |  
|Current liabilities:                                                                                                                        |  |                                  |          |   |      |   |          |  
|Short-term debt and notes                                                                                                                   |  | $                                |         |   |      | $ | 614      |  
|Accounts payable                                                                                                                            |  |                                  | 35,171   |   |      |   | 36,509   |  
|Accrued compensation and benefits                                                                                                           |  |                                  | 3,729    |   |      |   | 3,588    |  
|Accrued expenses                                                                                                                            |  |                                  | 8,157    |   |      |   | 6,734    |  
|                                                                                                                                            |  |                                  |          |   |      |   |          |  
|Total current liabilities                                                                                                                   |  |                                  | 47,057   |   |      |   | 47,445   |  
|Other long-term liabilities                                                                                                                 |  |                                  | 715      |   |      |   | 793      |  
|                                                                                                                                            |  |                                  |          |   |      |   |          |  
|Total liabilities                                                                                                                           |  |                                  | 47,772   |   |      |   | 48,238   |  
|Commitments and contingencies (See Note 16)                                                                                                 |  |                                  |          |   |      |   |          |  
|Minority interest                                                                                                                           |  |                                  | 789      |   |      |   | 726      |  
|Stockholders equity:                                                                                                                       |  |                                  |          |   |      |   |          |  
|Preferred stock, $0.0001 par value: Authorized shares5,000 in 2008 and 2007. No shares outstanding                                         |  |                                  |         |   |      |   |         |  
|Common stock, $0.0001 par value: Authorized shares70,000 in 2008 and 2007. Issued and outstanding shares26,727 in 2008 and 36,655
in 2007 |  |                                  | 3        |   |      |   | 4        |  
|Additional paid-in capital                                                                                                                  |  |                                  | 310,712  |   |      |   | 376,998  |  
|Accumulated deficit                                                                                                                         |  |                                  | (180,431 | ) |      |   | (162,668 | )
|Accumulated other comprehensive loss                                                                                                        |  |                                  | (2,894   | ) |      |   | (583     | )
|                                                                                                                                            |  |                                  |          |   |      |   |          |  
|Total stockholders equity                                                                                                                  |  |                                  | 127,390  |   |      |   | 213,751  |  
|                                                                                                                                            |  |                                  |          |   |      |   |          |  
|Total liabilities and stockholders equity                                                                                                  |  | $                                | 175,951  |   |      | $ | 262,715  |  
|                                                                                                                                            |  |                                  |          |   |      |   |          |  



See the accompanying
notes to consolidated financial statements



48



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##### Table of Contents

INTEGRATED SILICON SOLUTION, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY



|                                                                                                        |  |                |   |  |                          |    |   |                    |   |         |                                            |  |   |                                 |   |  |                          |         |   |  |   |        |   |  |   |         |  
|------------------------------------------------------------------------------------------------------- |  | -------------- | - |  | ------------------------ | -- | - | ------------------ | - | ------- | ------------------------------------------ |  | - | ------------------------------- | - |  | ------------------------ | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                                                                                        |  | Common Stock   |   |  | AdditionalPaid-InCapital |    |   | AccumulatedDeficit |   |         | AccumulatedOtherComprehensiveIncome (Loss) |  |   | DeferredStock-BasedCompensation |   |  | TotalStockholdersEquity |        
|                                                                                                        |  | Shares         |   |  | Amount                   |    |   |                    |   |         |                                           
|                                                                                                        |  | (in thousands) |  
|Balance at September 30, 2005                                                                           |  | 37,200         |   |  | $                        | 4  |   |                    | $ | 376,477 |                                            |  | $ | (163,787                        | ) |  | $                        | 14,109  |   |  | $ | (3,917 | ) |  | $ | 222,886 |  
|Components of comprehensive loss:                                                                       |  |                |   |  |                          |    |   |                    |   |         |                                            |  |   |                                 |   |  |                          |         |   |  |   |        |   |  |   |         |  
|Net loss                                                                                                |  |               |   |  |                          |   |   |                    |   |        |                                            |  |   | (14,242                         | ) |  |                          |        |   |  |   |       |   |  |   | (14,242 | )
|Change in cumulative translation adjustment, net of tax                                                 |  |               |   |  |                          |   |   |                    |   |        |                                            |  |   |                                |   |  |                          | (528    | ) |  |   |       |   |  |   | (528    | )
|Change in unrealized gain on investments, net of tax                                                    |  |               |   |  |                          |   |   |                    |   |        |                                            |  |   |                                |   |  |                          | (11,402 | ) |  |   |       |   |  |   | (11,402 | )
|                                                                                                        |  |                |   |  |                          |    |   |                    |   |         |                                            |  |   |                                 |   |  |                          |         |   |  |   |        |   |  |   |         |  
|Total comprehensive loss                                                                                |  |                |   |  |                          |    |   |                    |   |         |                                            |  |   |                                 |   |  |                          |         |   |  |   |        |   |  |   | (26,172 | )
|                                                                                                        |  |                |   |  |                          |    |   |                    |   |         |                                            |  |   |                                 |   |  |                          |         |   |  |   |        |   |  |   |         |  
|Adjustment to stockholders equity due to disproportional acquisition of investee companies new shares |  |               |   |  |                          |   |   |                    |   | 3       |                                            |  |   |                                |   |  |                          |        |   |  |   |       |   |  |   | 3       |  
|Stock options exercised                                                                                 |  | 198            |   |  |                          |   |   |                    |   | 769     |                                            |  |   |                                |   |  |                          |        |   |  |   |       |   |  |   | 769     |  
|Shares issued under stock purchase plan                                                                 |  | 214            |   |  |                          |   |   |                    |   | 1,067   |                                            |  |   |                                |   |  |                          |        |   |  |   |       |   |  |   | 1,067   |  
|Reversal of deferred stock-based compensation                                                           |  |               |   |  |                          |   |   |                    |   | (3,917  | )                                          |  |   |                                |   |  |                          |        |   |  |   | 3,917  |   |  |   |        |  
|Stock-based compensation                                                                                |  |               |   |  |                          |   |   |                    |   | 4,639   |                                            |  |   |                                |   |  |                          |        |   |  |   |       |   |  |   | 4,639   |  
|                                                                                                        |  |                |   |  |                          |    |   |                    |   |         |                                            |  |   |                                 |   |  |                          |         |   |  |   |        |   |  |   |         |  
|Balance at September 30, 2006                                                                           |  | 37,612         |   |  |                          | 4  |   |                    |   | 379,038 |                                            |  |   | (178,029                        | ) |  |                          | 2,179   |   |  |   |       |   |  |   | 203,192 |  
|Components of comprehensive income:                                                                     |  |                |   |  |                          |    |   |                    |   |         |                                            |  |   |                                 |   |  |                          |         |   |  |   |        |   |  |   |         |  
|Net income                                                                                              |  |               |   |  |                          |   |   |                    |   |        |                                            |  |   | 15,361                          |   |  |                          |        |   |  |   |       |   |  |   | 15,361  |  
|Change in cumulative translation adjustment, net of tax                                                 |  |               |   |  |                          |   |   |                    |   |        |                                            |  |   |                                |   |  |                          | 742     |   |  |   |       |   |  |   | 742     |  
|Change in unrealized gain on investments, net of tax                                                    |  |               |   |  |                          |   |   |                    |   |        |                                            |  |   |                                |   |  |                          | (4,461  | ) |  |   |       |   |  |   | (4,461  | )
|                                                                                                        |  |                |   |  |                          |    |   |                    |   |         |                                            |  |   |                                 |   |  |                          |         |   |  |   |        |   |  |   |         |  
|Total comprehensive income                                                                              |  |                |   |  |                          |    |   |                    |   |         |                                            |  |   |                                 |   |  |                          |         |   |  |   |        |   |  |   | 11,642  |  
|                                                                                                        |  |                |   |  |                          |    |   |                    |   |         |                                            |  |   |                                 |   |  |                          |         |   |  |   |        |   |  |   |         |  
|Adjustment for initially applying SFAS No. 158, net of tax                                              |  |               |   |  |                          |   |   |                    |   |        |                                            |  |   |                                |   |  |                          | 957     |   |  |   |       |   |  |   | 957     |  
|Stock options exercised                                                                                 |  | 224            |   |  |                          |   |   |                    |   | 1,461   |                                            |  |   |                                |   |  |                          |        |   |  |   |       |   |  |   | 1,461   |  
|Stock-based compensation                                                                                |  |               |   |  |                          |   |   |                    |   | 3,940   |                                            |  |   |                                |   |  |                          |        |   |  |   |       |   |  |   | 3,940   |  
|Shares repurchased and retired                                                                          |  | (1,181         | ) |  |                          |   |   |                    |   | (7,441  | )                                          |  |   |                                |   |  |                          |        |   |  |   |       |   |  |   | (7,441  | )
|                                                                                                        |  |                |   |  |                          |    |   |                    |   |         |                                            |  |   |                                 |   |  |                          |         |   |  |   |        |   |  |   |         |  
|Balance at September 30, 2007                                                                           |  | 36,655         |   |  |                          | 4  |   |                    |   | 376,998 |                                            |  |   | (162,668                        | ) |  |                          | (583    | ) |  |   |       |   |  |   | 213,751 |  
|Components of comprehensive loss:                                                                       |  |                |   |  |                          |    |   |                    |   |         |                                            |  |   |                                 |   |  |                          |         |   |  |   |        |   |  |   |         |  
|Net loss                                                                                                |  |               |   |  |                          |   |   |                    |   |        |                                            |  |   | (17,763                         | ) |  |                          |        |   |  |   |       |   |  |   | (17,763 | )
|Change in cumulative translation adjustment, net of tax                                                 |  |               |   |  |                          |   |   |                    |   |        |                                            |  |   |                                |   |  |                          | 296     |   |  |   |       |   |  |   | 296     |  
|Change in unrealized gain on investments, net of tax                                                    |  |               |   |  |                          |   |   |                    |   |        |                                            |  |   |                                |   |  |                          | (2,472  | ) |  |   |       |   |  |   | (2,472  | )
|Change in retirement plan obligations, net of tax                                                       |  |               |   |  |                          |   |   |                    |   |        |                                            |  |   |                                |   |  |                          | (135    | ) |  |   |       |   |  |   | (135    | )
|                                                                                                        |  |                |   |  |                          |    |   |                    |   |         |                                            |  |   |                                 |   |  |                          |         |   |  |   |        |   |  |   |         |  
|Total comprehensive loss                                                                                |  |                |   |  |                          |    |   |                    |   |         |                                            |  |   |                                 |   |  |                          |         |   |  |   |        |   |  |   | (20,074 | )
|                                                                                                        |  |                |   |  |                          |    |   |                    |   |         |                                            |  |   |                                 |   |  |                          |         |   |  |   |        |   |  |   |         |  
|Stock options exercised                                                                                 |  | 105            |   |  |                          |   |   |                    |   | 415     |                                            |  |   |                                |   |  |                          |        |   |  |   |       |   |  |   | 415     |  
|Shares issued under stock purchase plan                                                                 |  | 170            |   |  |                          |   |   |                    |   | 734     |                                            |  |   |                                |   |  |                          |        |   |  |   |       |   |  |   | 734     |  
|Stock-based compensation                                                                                |  |               |   |  |                          |   |   |                    |   | 3,646   |                                            |  |   |                                |   |  |                          |        |   |  |   |       |   |  |   | 3,646   |  
|Shares repurchased and retired                                                                          |  | (10,203        | ) |  |                          | (1 | ) |                    |   | (71,081 | )                                          |  |   |                                |   |  |                          |        |   |  |   |       |   |  |   | (71,082 | )
|                                                                                                        |  |                |   |  |                          |    |   |                    |   |         |                                            |  |   |                                 |   |  |                          |         |   |  |   |        |   |  |   |         |  
|Balance at September 30, 2008                                                                           |  | 26,727         |   |  | $                        | 3  |   |                    | $ | 310,712 |                                            |  | $ | (180,431                        | ) |  | $                        | (2,894  | ) |  | $ |       |   |  | $ | 127,390 |  
|                                                                                                        |  |                |   |  |                          |    |   |                    |   |         |                                            |  |   |                                 |   |  |                          |         |   |  |   |        |   |  |   |         |  

See the accompanying notes to consolidated financial statements



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INTEGRATED SILICON SOLUTION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                               |  |                           |         |   |      |   |          |      |  |   |         |  
|---------------------------------------------------------------------------------------------- |  | ------------------------- | ------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                                                                               |  | Years Ended September 30, |        
|                                                                                               |  | 2008                      |         |   | 2007 |   |          | 2006 | 
|                                                                                               |  | (in thousands)            |        
|Cash flows from operating activities:                                                          |  |                           |         |   |      |   |          |      |  |   |         |  
|Net income (loss)                                                                              |  | $                         | (17,763 | ) |      | $ | 15,361   |      |  | $ | (14,242 | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities:       |  |                           |         |   |      |   |          |      |  |   |         |  
|Stock-based compensation                                                                       |  |                           | 3,646   |   |      |   | 3,940    |      |  |   | 4,639   |  
|Depreciation and amortization                                                                  |  |                           | 3,487   |   |      |   | 3,042    |      |  |   | 3,523   |  
|Amortization of intangibles                                                                    |  |                           | 1,538   |   |      |   | 2,027    |      |  |   | 1,755   |  
|Acquired in-process technology charge                                                          |  |                           |        |   |      |   |         |      |  |   | 499     |  
|Net gain on sale of investments                                                                |  |                           | (1,814  | ) |      |   | (12,032  | )    |  |   | (2,480  | )
|Impairment of investments                                                                      |  |                           |        |   |      |   |         |      |  |   | 426     |  
|Impairment of goodwill                                                                         |  |                           | 25,338  |   |      |   |         |      |  |   |        |  
|Loss (gain) on sale of property, equipment and leasehold improvements                          |  |                           |        |   |      |   | 18       |      |  |   | (575    | )
|Provision for bad debts                                                                        |  |                           | 59      |   |      |   | (184     | )    |  |   | (338    | )
|Net foreign currency transaction gains                                                         |  |                           | (509    | ) |      |   | (53      | )    |  |   | (881    | )
|Equity in net loss of affiliated companies                                                     |  |                           |        |   |      |   | 92       |      |  |   | 687     |  
|Minority interest in net income (loss) of consolidated subsidiaries                            |  |                           | 63      |   |      |   | 170      |      |  |   | (693    | )
|Changes in operating assets and liabilities:                                                   |  |                           |         |   |      |   |          |      |  |   |         |  
|Accounts receivable and accounts receivable from related parties                               |  |                           | 2,326   |   |      |   | (4,762   | )    |  |   | (3,246  | )
|Inventories                                                                                    |  |                           | (6,454  | ) |      |   | 21,181   |      |  |   | 7,118   |  
|Other assets                                                                                   |  |                           | 995     |   |      |   | 284      |      |  |   | (351    | )
|Accounts payable and accounts payable to related parties                                       |  |                           | (1,667  | ) |      |   | (3,989   | )    |  |   | 4,272   |  
|Accrued expenses and other liabilities                                                         |  |                           | 1,271   |   |      |   | (2,655   | )    |  |   | 2,458   |  
|                                                                                               |  |                           |         |   |      |   |          |      |  |   |         |  
|Net cash provided by operating activities                                                      |  |                           | 10,516  |   |      |   | 22,440   |      |  |   | 2,571   |  
|Cash flows from investing activities:                                                          |  |                           |         |   |      |   |          |      |  |   |         |  
|Acquisition of property, equipment and leasehold improvements                                  |  |                           | (4,597  | ) |      |   | (4,402   | )    |  |   | (1,702  | )
|Proceeds from sale of assets                                                                   |  |                           |        |   |      |   |         |      |  |   | 1,288   |  
|Purchases of available-for-sale securities                                                     |  |                           | (68,559 | ) |      |   | (102,900 | )    |  |   | (58,900 | )
|Sales of available-for-sale securities                                                         |  |                           | 116,928 |   |      |   | 69,971   |      |  |   | 77,363  |  
|Cash impact of deconsolidation of Signia Technologies, Inc. (Signia)                           |  |                           |        |   |      |   |         |      |  |   | (149    | )
|Investment in Integrated Circuit Solution, Inc. (ICSI), net of cash and cash equivalents       |  |                           |        |   |      |   | (307     | )    |  |   | (13,860 | )
|Proceeds from sale of Ralink equity securities                                                 |  |                           | 1,809   |   |      |   | 8,938    |      |  |   |        |  
|Proceeds from sale of Keystream Corporation (KSC) equity securities                            |  |                           |        |   |      |   | 1,237    |      |  |   |        |  
|Proceeds from sale of Signia equity securities                                                 |  |                           |        |   |      |   |         |      |  |   | 4,620   |  
|Proceeds from sale of Semiconductor Manufacturing International Corp. (SMIC) equity securities |  |                           | 2,713   |   |      |   | 28,234   |      |  |   |        |  
|Proceeds from sale of E-CMOS equity securities                                                 |  |                           |        |   |      |   |         |      |  |   | 1,454   |  
|Proceeds from the sale of other equity securities                                              |  |                           |        |   |      |   |         |      |  |   | 126     |  
|                                                                                               |  |                           |         |   |      |   |          |      |  |   |         |  
|Net cash provided by investing activities                                                      |  |                           | 48,294  |   |      |   | 771      |      |  |   | 10,240  |  
|Cash flows from financing activities:                                                          |  |                           |         |   |      |   |          |      |  |   |         |  
|Repurchases and retirements of common stock                                                    |  |                           | (71,082 | ) |      |   | (7,441   | )    |  |   |        |  
|Proceeds from issuance of stock through compensation plans                                     |  |                           | 1,149   |   |      |   | 1,461    |      |  |   | 1,836   |  
|Proceeds from borrowings under equipment financing loans                                       |  |                           |        |   |      |   | 606      |      |  |   |        |  
|Proceeds from borrowings under short-term lines of credit                                      |  |                           | 11,955  |   |      |   | 27,259   |      |  |   | 60,866  |  
|Principal payments of notes payable, equipment financing and long-term obligations             |  |                           | (12,569 | ) |      |   | (28,893  | )    |  |   | (65,866 | )
|Decrease in restricted cash                                                                    |  |                           |        |   |      |   |         |      |  |   | 150     |  
|                                                                                               |  |                           |         |   |      |   |          |      |  |   |         |  
|Net cash used in financing activities                                                          |  |                           | (70,547 | ) |      |   | (7,008   | )    |  |   | (3,014  | )
|Effect of exchange rate changes on cash and cash equivalents                                   |  |                           | 190     |   |      |   | 201      |      |  |   | 37      |  
|                                                                                               |  |                           |         |   |      |   |          |      |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                           |  |                           | (11,547 | ) |      |   | 16,404   |      |  |   | 9,834   |  
|Cash and cash equivalents at beginning of year                                                 |  |                           | 53,722  |   |      |   | 37,318   |      |  |   | 27,484  |  
|                                                                                               |  |                           |         |   |      |   |          |      |  |   |         |  
|Cash and cash equivalents at end of year                                                       |  | $                         | 42,175  |   |      | $ | 53,722   |      |  | $ | 37,318  |  
|                                                                                               |  |                           |         |   |      |   |          |      |  |   |         |  
|Supplemental disclosures of cash flow information:                                             |  |                           |         |   |      |   |          |      |  |   |         |  
|Cash paid for income taxes                                                                     |  | $                         | 257     |   |      | $ | 13       |      |  | $ | 187     |  
|                                                                                               |  |                           |         |   |      |   |          |      |  |   |         |  
|Cash paid for interest expense                                                                 |  | $                         | 27      |   |      | $ | 157      |      |  | $ | 195     |  
|                                                                                               |  |                           |         |   |      |   |          |      |  |   |         |  

See the accompanying notes to consolidated financial statements



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##### Table of Contents

INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.    Organization and Significant Accounting Policies

Organization

Integrated Silicon Solution, Inc. (the Company) was incorporated in California on October 27, 1988 and reincorporated in Delaware on
August 9, 1993. The Company is a fabless semiconductor company that designs and markets high performance integrated circuits for the following key markets: (i) digital consumer electronics, (ii) networking, (iii) mobile
communications, (iv) automotive electronics and (v) industrial. The Companys primary products are high speed and low power SRAM and low and medium density DRAM. The Company also designs and markets application specific standard
products (ASSP) primarily EEPROMs and SmartCards focused on its key markets.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Integrated Silicon Solution, Inc. and its wholly and majority owned
subsidiaries, after elimination of all significant intercompany accounts and transactions.

The Companys financial results for fiscal
2008, fiscal 2007 and fiscal 2006 reflect accounting for Integrated Circuit Solution, Inc. (ICSI) on a consolidated basis. At September 30, 2008, the Company owned approximately 98% of ICSI.

In February 2006, the Company sold approximately 77% of its shares in Signia Technologies Inc. (Signia), a developer of wireless semiconductors, thereby
reducing its ownership percentage to approximately 16%. Thereafter, the Company accounted for its investment in Signia on the cost method. The Companys financial results for fiscal 2006 reflect accounting for Signia on a consolidated basis
through February 28, 2006. In October 2007, Signia was acquired and merged into Terax Communication Technologies Inc (Terax). At September 30, 2008, the Company owned approximately 1% of Terax.

In December 2006, the Company sold its remaining investment in Key Stream Corp. (KSC), a semiconductor company. KSC was an equity investment of ICSI. The
Companys financial results for fiscal 2007, until the sale of its KSC investment and for fiscal 2006 reflect accounting for KSC using the equity method.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original
maturity of 90 days or less at the date of purchase to be cash equivalents. Cash and cash equivalents are maintained at various financial institutions.

Investments

Under Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities, all affected debt and equity securities must be classified as held-to-maturity, trading, or available-for-sale and equity securities must be classified as trading or available-for-sale.
Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designation as of each balance sheet date.

At September 30, 2008 and 2007, all marketable debt and equity securities were designated as available-for-sale. Available-for-sale securities are reported at fair value with unrealized gains or losses, net of
tax, reported in a separate component of stockholders equity. The amortized cost for available-for-sale debt securities is adjusted for the amortization of premiums and accretion of discounts to maturity. Such amortization



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



is included in interest and other income. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities
are included in loss on investments. The cost of fixed income securities sold is based on the specific identification method and the weighted-average method is used to determine the cost basis of publicly traded equity securities disposed of.
Interest and dividends on securities classified as available-for-sale are included in interest and other income.

The Company also has
investments that are accounted for under the cost method of accounting. These investments are generally in privately held companies and are included in other assets in the Consolidated Balance Sheets. Except for the gains recognized on the sales of
equity securities of KSC, Ralink, SMIC, E-CMOS, and Signia (see Note 2 and Note 4), there were no gains or losses on the sale of securities for the fiscal years ended September 30, 2008, 2007 and 2006.

Inventories

Inventories are stated
at the lower of cost (first-in, first-out) or market. The Companys inventory valuation process is done on a part-by-part basis. Lower of cost or market adjustments, specifically identified on a part-by-part basis, reduce the carrying value of
the related inventory and takes into consideration reductions in sales prices. The Company writes down to zero dollars the carrying value of inventory on hand that has aged over one year to cover estimated excess and obsolete exposures, unless
adjustments are made based on expected future usage with newer products, end of life products, planned inventory increases or strategic customer supply. Once recorded, these write downs are considered permanent.

Property, Equipment and Leasehold Improvements

Property, equipment, and leasehold improvements are stated at cost. Depreciation and amortization are computed using the straight-line method, based upon the shorter of the estimated useful lives ranging from two to
ten years for property and equipment and fifty years for buildings or the lease term for leasehold improvements to leased properties.

Goodwill and Purchased Intangible Assets

Goodwill is tested for impairment on an annual basis and between annual tests in
certain circumstances, and is written down when impaired in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. For goodwill, the Company performs a two-step impairment test. In the first step, the Company compares
the fair value of the reporting unit to its carrying value, including goodwill. The Company determines the fair value of the reporting unit based on a weighting of income and market approaches. If the fair value of the reporting unit exceeds the
carrying value of the net assets assigned to that unit, goodwill is not impaired and no further testing is performed. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the
Company performs the second step of the impairment test in order to determine the implied fair value of the reporting units goodwill. If the carrying value of a reporting units goodwill exceeds its implied fair value, the Company records
an impairment loss equal to the difference. Based on the impairment tests performed, the Company recorded impairment charges for goodwill of $25.3 million in fiscal 2008.

Purchased intangible assets other than goodwill are amortized over their useful lives unless these lives are determined to be indefinite. Purchased intangible assets with definite lives are carried at cost less
accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets, generally six months to six years. Purchased in-process research and development without alternative future use is expensed when
acquired.



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Valuation of Long-Lived Assets and Certain Identifiable Intangibles

The Company evaluates the recoverability of property, plant and equipment and identifiable intangible assets in accordance with Statement of Financial
Accounting Standards No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets. The Company performs periodic reviews to determine whether facts and circumstances exist that would indicate that the carrying
amounts of property, plant and equipment and identifiable intangible assets exceed their fair values. If facts and circumstances indicate that the carrying amount of property, plant and equipment might not be fully recoverable, projected
undiscounted net cash flows associated with the related asset or group of assets over their estimated remaining useful life is compared against their respective carrying amounts. In the event that the projected undiscounted cash flows are not
sufficient to recover the carrying value of the assets, the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the assets.

Comprehensive Income (Loss)

Comprehensive income (loss) includes net income (loss) as well as other comprehensive income (loss). The Companys other comprehensive income (loss) consists of changes in cumulative translation adjustment and unrealized gains and
losses on investments.

Comprehensive income (loss), net of taxes (which were immaterial for all periods presented), was as follows:



|                                                 |  |                           |         |   |      |   |        |      |  |   |         |  
|------------------------------------------------ |  | ------------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                 |  | Years Ended September 30, |        
|                                                 |  | 2008                      |         |   | 2007 |   |        | 2006 | 
|                                                 |  | (in thousands)            |        
|Net income (loss)                                |  | $                         | (17,763 | ) |      | $ | 15,361 |      |  | $ | (14,242 | )
|Other comprehensive income (loss), net of tax:   |  |                           |         |   |      |   |        |      |  |   |         |  
|Change in cumulative translation adjustment      |  |                           |         |   |      |   |        |      |  |   |         |  
|Changes arising during current period            |  |                           | 461     |   |      |   | 742    |      |  |   | (528    | )
|Reclassification for gain included in net income |  |                           | (165    | ) |      |   |       |      |  |   |        |  
|Change in unrealized gain (loss) on investments  |  |                           |         |   |      |   |        |      |  |   |         |  
|Changes arising during current period            |  |                           | (2,388  | ) |      |   | (729   | )    |  |   | (11,402 | )
|Reclassification for gain included in net income |  |                           | (84     | ) |      |   | (3,732 | )    |  |   |        |  
|Change in retirement plan transition obligation  |  |                           | (65     | ) |      |   |       |      |  |   |        |  
|Change in retirement plan actuarial losses       |  |                           | (70     | ) |      |   |       |      |  |   |        |  
|                                                 |  |                           |         |   |      |   |        |      |  |   |         |  
|Comprehensive income (loss)                      |  | $                         | (20,074 | ) |      | $ | 11,642 |      |  | $ | (26,172 | )
|                                                 |  |                           |         |   |      |   |        |      |  |   |         |  

The components of accumulated other comprehensive income (loss), net of tax, were as follows at
September 30:



|                                                                               |  |                |        |   |      |   |        |  
|------------------------------------------------------------------------------ |  | -------------- | ------ | - | ---- | - | ------ | -
|                                                                               |  | 2008           |        |   | 2007 |  
|                                                                               |  | (In thousands) |       
|Accumulated foreign currency translation adjustments                           |  | $              | (1,436 | ) |      | $ | (1,732 | )
|Accumulated net unrealized gain on Ralink                                      |  |                | 1,787  |   |      |   |       |  
|Accumulated net unrealized gain (loss) on SMIC                                 |  |                | (2,525 | ) |      |   | 197    |  
|Accumulated net unrealized gain (loss) on other available-for-sale investments |  |                | (1,542 | ) |      |   | (5     | )
|Accumulated net retirement plan transition obligation                          |  |                | 961    |   |      |   | 1,026  |  
|Accumulated net retirement plan actuarial losses                               |  |                | (139   | ) |      |   | (69    | )
|                                                                               |  |                |        |   |      |   |        |  
|Total accumulated other comprehensive income (loss)                            |  | $              | (2,894 | ) |      | $ | (583   | )
|                                                                               |  |                |        |   |      |   |        |  



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The adjustment for initially applying SFAS No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plansan amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS No. 158), net of tax, was recorded to accumulated other comprehensive income (loss) for $957,000 as of
September 30, 2007. See Note 13: Retirement Plan.

The estimated net prior service cost, actuarial loss, and transition
obligation for the defined benefit plan that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost during fiscal year 2009 is $0, $0, and $80,000, respectively.

Revenue Recognition and Accounts Receivable Allowances

Revenue from product sales to the Companys direct customers is recognized upon shipment provided that persuasive evidence of a sales arrangement exists, the price is fixed and determinable, title has
transferred, collection of resulting receivables is reasonably assured, there are no customer acceptance requirements and there are no remaining significant obligations. The Company makes estimates of potential future product returns and sales
allowances related to current period product revenue. Management analyzes historical returns, changes in customer demand, and acceptance of products when evaluating the adequacy of sales returns and allowances. Estimates made by the Company may
differ from actual product returns and sales allowances. These differences may materially impact reported revenue and amounts ultimately collected on accounts receivable.

A portion of the Companys sales is made to distributors under agreements that provide the possibility of certain sales price rebates and limited product return privileges. Given the uncertainties associated with
the levels of returns and other credits that will be issued to these distributors, the Company defers recognition of such sales until the products are sold by the distributors to their end customers. Revenue from sales to distributors who do not
have sales price rebates or product return privileges is recognized at the time the products are sold by the Company to the distributors. Accounts receivable from such distributors are recognized and inventory is relieved upon shipment, as title to
inventories generally transfers upon shipment, at which point the Company has a legally enforceable right to collection under normal terms.

In addition, the Company monitors collectibility of accounts receivable primarily through review of the accounts receivable aging. When facts and circumstances indicate the collection of specific amounts or from specific customers is at
risk, the Company assesses the impact on amounts recorded for bad debts and, if necessary, will record a charge in the period such determination is made.

The following describes activity in the accounts receivable allowance for doubtful accounts for the years ended September 30, 2008, 2007 and 2006.



|                                                     |  |                              |       |                                    |   |      |               |  |   |                        |   |  |   |      
|---------------------------------------------------- |  | ---------------------------- | ----- | ---------------------------------- | - | ---- | ------------- |  | - | ---------------------- | - |  | - | -----
|Description                                          |  | Balance atBeginningof Period |       | Adjustments toCosts andExpenses(1) |   |      | Deductions(2) |  |   | Balanceat Endof Period
|                                                     |  | (in thousands)              
|Accounts receivableAllowance for doubtful accounts: |  |                              |       |                                    |   |      |               |  |   |                        |   |  |   |      
|2006                                                 |  | $                            | 2,251 |                                    | $ | (338 | )             |  | $ |                       |   |  | $ | 1,913
|2007                                                 |  |                              | 1,913 |                                    |   | (184 | )             |  |   | (264                   | ) |  |   | 1,465
|2008                                                 |  |                              | 1,465 |                                    |   | 59   |               |  |   | (5                     | ) |  |   | 1,519



|(1) | Includes increases/(decreases) charged or credited to costs and expenses.
|--- | -------------------------------------------------------------------------

|(2) | Uncollectible accounts written off, net of recoveries
|--- | -----------------------------------------------------



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Research and Development

Research and development expenditures are charged to operations as incurred.

Foreign Currency Translation

The
Company uses the local currency as its functional currency for all foreign subsidiaries. Translation adjustments, which result from the process of translating foreign currency financial statements into U.S. dollars, are included in the accumulated
other comprehensive income component of stockholders equity.

Advertising Costs

The Company expenses advertising costs as incurred and includes these costs in selling, general and administrative expenses in the Consolidated Statement
of Operations. Advertising costs totaled $72,000, $108,000 and $148,000 for the fiscal years ended September 30, 2008, 2007 and 2006, respectively.

Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes. Under SFAS 109, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities
and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance against deferred tax assets when it is more likely than not that such assets will not be
realized.

The Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of
FASB Statement No. 109 (FIN 48), on October 1, 2007. FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken
in income tax returns. See Note 12: Income Taxes for additional information, including the effects of adoption on the Companys consolidated financial statements.

Stock-Based Compensation

The Company
accounts for stock-based compensation arrangements in accordance with the provisions of SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123R). Under SFAS 123R, compensation is measured at the grant date, based on the fair
value of the award. The Company amortizes the compensation costs on a straight-line basis over the requisite service period of the option, which is generally the option vesting term of four years. The Company estimates the fair value of stock
options using the Black-Scholes valuation model. The Black-Scholes valuation model requires the Company to estimate key assumptions such as expected term, volatility and forfeiture rates to determine the fair value of a stock option. The estimate of
these key assumptions are based on historical information and judgment regarding market factors and trends.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets, liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the
reporting period. Such estimates relate to the useful lives and fair value of fixed assets, the fair value of investments, allowances for doubtful accounts and customer returns, inventory write-downs, potential reserves relating to litigation
matters, accrued liabilities, and other reserves. The



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Company bases its estimates and judgments on its historical experience, knowledge of current conditions and its beliefs of what could occur in the
future, given available information. Actual results may differ from those estimates, and such difference, may be material to the financial statements.

Fair Value of Financial Instruments

The fair value of certain of the Companys financial
instruments, including cash and cash equivalents, short-term investments, accounts receivable and accounts payable approximate carrying value because of their short maturities. The fair value of long-term investments is determined using quoted
market prices for those securities or similar financial instruments.

Concentration of Credit Risk

The Company operates in one business segment, which is to design, develop, and market high performance SRAM, DRAM, and other memory and non-memory
semiconductor products. The Company markets and distributes its products on a worldwide basis, primarily to original equipment manufacturers, contract manufacturers, and distributors. The Company performs ongoing credit evaluations of its
customers financial condition and generally requires no collateral. In fiscal 2008, fiscal 2007 and fiscal 2006, no single customer accounted for over 10% of net sales.

The Company maintains cash, cash equivalents, and short-term investments with various high credit quality financial institutions. The Companys
investment policy is designed to limit exposure to any one institution. The Company performs periodic evaluations of the relative credit standing of those financial institutions that are considered in its investment strategy. The Company is exposed
to credit risk in the event of default by the financial institutions or issuers of investments to the extent of the amount recorded on the balance sheet. To date, the Company has not incurred losses related to these investments.

Product Warranty and Indemnifications

The Company generally warrants its products against defects in materials and workmanship for a period of 12 months. Liability for a stated warranty period is usually limited to replacement of defective items or return of amounts paid. If
there is a material increase in the rate of customer claims or the Companys estimates of probable losses relating to specifically identified warranty exposures are inaccurate, the Company may record a charge against future cost of sales.
Warranty expense has historically been immaterial to the Companys financial statements.

The Company indemnifies certain customers,
distributors, suppliers, and subcontractors for attorney fees and damages and costs awarded against these parties in certain circumstances in which its products are alleged to infringe third party intellectual property rights, including patents,
registered trademarks, or copyrights. The terms of the Companys indemnification obligations are generally perpetual from the effective date of the agreement. In certain cases, there are limits on and exceptions to the Companys potential
liability for indemnification relating to intellectual property infringement claims. In addition, the Company has entered into indemnification agreements with its officers and directors, and the Companys bylaws provide that indemnification may
be provided to the Companys agents. As described in Note 16, several lawsuits have been filed against certain of the Companys current directors and officers and certain former directors and officers relating to the Companys
historical stock option practices and related accounting; the Company is named as nominal defendant in such matters. Under the Companys indemnification agreements with its present and former directors and officers, the Company has been
indemnifying each director or officer against expenses, including attorneys fees, paid by such individual in connection with the pending litigation, subject to applicable Delaware law. The Company has directors and officers
insurance pursuant to which the Company may be reimbursed for certain of these



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



indemnity expenses, subject to the insurers reservation of rights. The Company cannot estimate the amount of potential future indemnity expenses
that it may be required to make. The amount of available directors and officers insurance may not be sufficient to cover the Companys indemnity obligations, which may have a material adverse effect on the Companys
results of operations in future periods.

Net Income (Loss) Per Share

Basic and diluted net loss per share and basic net income per share is computed using the weighted number of common shares outstanding during the period.
Diluted net income per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding, if applicable, during the period. Common equivalent shares consist of the shares issuable upon the assumed
exercise of stock options under the treasury stock method.

Impact of Recently Issued Accounting Standards

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157) which establishes a framework for
measuring fair value and enhance disclosures about fair value measurements. In February 2008, the FASB issued FSP No. FAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13, which amends SFAS No. 157 to exclude accounting pronouncements that address fair value measurements for purposes of lease
classification or measurement under SFAS No. 13. In February 2008, the FASB issued FSP No. FAS 157-2, Effective Date of FASB Statement No. 157, which delays the effective date of SFAS No. 157 until the beginning
of fiscal 2010 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). In October 2008, the FASB also
issued FSP No. FAS 157-3, Determining the Fair Value of a Financial Asset when the Market for That Asset Is Not Active, which clarifies the application of SFAS No. 157 for financial assets in a market that is not active. The
measurement and disclosure requirements are effective for the Company beginning in the first quarter of fiscal 2009. The Company does not expect that the adoption of SFAS No. 157 for financial assets and financial liabilities will have a
significant impact on its financial statements. The Company is evaluating the impact that the adoption in fiscal 2010 of SFAS No. 157 for non-financial assets and non-financial liabilities will have on its financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS
No. 159) which permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be
reported in earnings. SFAS 159 is effective for the Company beginning in the first quarter of fiscal 2009, although earlier adoption is permitted. The impact of the adoption of SFAS No. 159 on the Companys financial statement will depend
on the extent to which the Company elects to measure eligible items at fair value.

In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations. This Statement replaces SFAS No. 141, Business Combinations. This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called
the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement also establishes principles and requirements for how the acquirer: a) recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and c)
determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) will apply prospectively to



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



business combinations for which the acquisition date is on or after our fiscal year beginning October 1, 2010. The impact of the adoption of SFAS
No. 141(R) will depend on the nature and extent of business combinations occurring on or after the beginning of fiscal 2010.

In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. This Statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling (minority) interest in a
subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The
Company has not yet determined the impact, if any, that SFAS No. 160 will have on its consolidated financial statements. SFAS No. 160 is effective for the Companys fiscal year beginning October 1, 2010.

Note 2.    Cash, Cash Equivalents, Short-term Investments and Long-term Investments

Cash, cash equivalents and investments consisted of the following at September 30:



|                          |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|------------------------- |  | -------------- | ------ | -------------------- | - | --------------------- |  | - | --------- | - |  | - | ------
|                          |  | AmortizedCost  |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | FairValue
|                          |  | (in thousands)
|2008                      |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|                          |  |                |        |                     
|Cash                      |  | $              | 25,379 |                      | $ |                      |  | $ |          |   |  | $ | 25,379
|Money market instruments  |  |                | 15,551 |                      |   |                      |  |   |          |   |  |   | 15,551
|Certificates of deposit   |  |                | 3,568  |                      |   |                      |  |   |          |   |  |   | 3,568 
|Mutual funds              |  |                | 3,268  |                      |   | 5                     |  |   |          |   |  |   | 3,273 
|Municipal notes and bonds |  |                | 19,950 |                      |   |                      |  |   | (1,547    | ) |  |   | 18,403
|Ralink common stock       |  |                | 457    |                      |   | 1,787                 |  |   |          |   |  |   | 2,244 
|SMIC common stock         |  |                | 3,426  |                      |   |                      |  |   | (2,525    | ) |  |   | 901   
|                          |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|Total                     |  | $              | 71,599 |                      | $ | 1,792                 |  | $ | (4,072    | ) |  | $ | 69,319
|                          |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|Reported as:              |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|Cash and cash equivalents |  |                |        |                      |   |                       |  |   |           |   |  | $ | 42,175
|Short-term investments    |  |                |        |                      |   |                       |  |   |           |   |  |   | 7,840 
|Long-term investments     |  |                |        |                      |   |                       |  |   |           |   |  |   | 19,304
|                          |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|Total                     |  |                |        |                      |   |                       |  |   |           |   |  | $ | 69,319
|                          |  |                |        |                      |   |                       |  |   |           |   |  |   |       



|                          |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|------------------------- |  | -------------- | ------- | -------------------- | - | --------------------- |  | - | ---------- | - |  | - | -------
|                          |  | AmortizedCost  |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|                          |  | (in thousands)
|2007                      |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|                          |  |                |         |                     
|Cash                      |  | $              | 17,343  |                      | $ |                      |  | $ |           |   |  | $ | 17,343 
|Money market instruments  |  |                | 21,740  |                      |   |                      |  |   |           |   |  |   | 21,740 
|Commercial paper          |  |                | 10,644  |                      |   |                      |  |   | (5         | ) |  |   | 10,639 
|Certificates of deposit   |  |                | 5,995   |                      |   |                      |  |   |           |   |  |   | 5,995  
|Municipal notes and bonds |  |                | 71,950  |                      |   |                      |  |   |           |   |  |   | 71,950 
|SMIC common stock         |  |                | 5,951   |                      |   | 197                   |  |   |           |   |  |   | 6,148  
|                          |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|Total                     |  | $              | 133,623 |                      | $ | 197                   |  | $ | (5         | ) |  | $ | 133,815
|                          |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|Reported as:              |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|Cash and cash equivalents |  |                |         |                      |   |                       |  |   |            |   |  | $ | 53,722 
|Short-term investments    |  |                |         |                      |   |                       |  |   |            |   |  |   | 80,093 
|                          |  |                |         |                      |   |                       |  |   |            |   |  |   |        
|Total                     |  |                |         |                      |   |                       |  |   |            |   |  | $ | 133,815
|                          |  |                |         |                      |   |                       |  |   |            |   |  |   |        



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



During the March 2008 quarter, the Company reclassified all $20.0 million par value of its AAA rated
investments in auction rate securities from short-term investments to long-term investments. These auction rate securities were reclassified as long-term investments due to the failure of all these securities to settle at auction. As of
September 30, 2008, the Company has recorded a temporary impairment charge of $1.5 million against other comprehensive income in its consolidated balance sheet related to these investments. If the issuers are unable to successfully close future
auctions and their credit ratings deteriorate, the Company may be required to further adjust the carrying value of these investments and record an impairment charge to earnings for an other than temporary decline in the fair values. Based on the
Companys ability to access its cash and other short-term investments, its expected operating cash flows, and its other sources of cash, it does not anticipate the lack of liquidity on these investments will affect its ability to operate its
business as usual. See Note 21: Subsequent Event.

In fiscal 2008, the Company sold 22.0 million shares of Semiconductor
Manufacturing International Corp. (SMIC), a related party through July 2007, and recorded gross proceeds of approximately $2.7 million and a pre-tax gain of approximately $0.2 million. In fiscal 2007, the Company sold approximately
212.8 million shares of SMIC and recorded gross proceeds of approximately $28.2 million and a pre-tax gain of approximately $3.8 million. The Company uses the weighted-average cost method to determine the cost basis of shares of SMIC. The
market value of SMIC shares is subject to fluctuations and the Companys carrying value will be subject to adjustments to reflect changes in SMICs market value in future periods. In the event the decline in the market value of the
Companys SMIC shares below its cost basis is determined to be other-than-temporary, the Company may be required to recognize a loss on its investment through operating results. During the September 2008 quarter, the Company reclassified its
shares in SMIC from short-term investments to long-term investments as the Company does not intend to sell these shares within the next 12 months.

On April 8, 2008, Ralink Technology, Co. (Ralink) completed an initial public offering (IPO). Ralinks common shares are traded on the Taiwan Stock Exchange. In fiscal 2008, the Company sold approximately 0.3 million shares
of its Ralink stock and recorded gross proceeds of approximately $1.8 million and a pre-tax gain of approximately $1.6 million. Since Ralinks IPO, the Company accounts for its shares in Ralink under the provisions of FASB 115 and has marked
its investment to the market value as of September 30, 2008 by increasing short-term investments and by increasing accumulated other comprehensive income in the equity section of the balance sheet. The cost basis of the Companys shares in
Ralink is approximately $0.5 million and the market value at September 30, 2008 was approximately $2.2 million. The market value of Ralink shares is subject to fluctuations and the Companys carrying value will be subject to adjustments to
reflect the current market value. Certain of the Companys shares in Ralink with a market value at September 30, 2008 of approximately $0.2 million are subject to lockup restrictions and therefore are not freely tradable. The lockup
restrictions will lapse as to 50% of the shares in each of October 2008 and April 2009. Thus, all of the Companys shares in Ralink will be freely tradable in April 2009.

In fiscal 2007, the Company sold approximately 61% of its shares of Ralink for approximately $8.9 million and recorded a pre-tax gain of approximately
$7.9 million. The Companys Ralink shares were included in other assets at September 30, 2007.

All debt securities held at
September 30, 2008 and September 30, 2007 are due in more than five years. As of September 30, 2008 and 2007, the Company had cash, cash equivalents and short-term investments of $17.7 million and $13.0 million, respectively, in
foreign institutions.



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 3.    Inventories

Inventories consisted of the following at September 30:



|                     |  |                |        |      |   |       
|-------------------- |  | -------------- | ------ | ---- | - | ------
|                     |  | 2008           |        | 2007
|                     |  | (in thousands)
|Purchased components |  | $              | 11,856 |      | $ | 4,583 
|Work-in-process      |  |                | 3,894  |      |   | 9,673 
|Finished goods       |  |                | 23,472 |      |   | 17,800
|                     |  |                |        |      |   |       
|                     |  | $              | 39,222 |      | $ | 32,056
|                     |  |                |        |      |   |       

In fiscal 2008, 2007 and 2006, the Company recorded inventory write-downs of $11.3 million, $10.3
million and $16.5 million, respectively. The inventory write-downs were predominately for lower of cost or market and excess and obsolescence issues on certain of its products.

Note 4.    Other Assets

Other assets consisted of the following at
September 30:



|                               |  |                |       |      |   |      
|------------------------------ |  | -------------- | ----- | ---- | - | -----
|                               |  | 2008           |       | 2007
|                               |  | (in thousands)
|Cost method equity investments |  | $              |      |      | $ | 624  
|Restricted assets              |  |                | 318   |      |   | 316  
|Other                          |  |                | 1,079 |      |   | 580  
|                               |  |                |       |      |   |      
|                               |  | $              | 1,397 |      | $ | 1,520
|                               |  |                |       |      |   |      

The Company accounts for investments in 50% or less owned companies over which it has the ability
to exercise significant influence using the equity method of accounting. The Company accounts for investments in less than 20% owned companies at cost. The Company periodically reviews these investments for other-than-temporary declines in market
value and writes these investments down to their fair value when an other-than-temporary decline has occurred.

In December 2006, the
Company sold its remaining shares of Key Stream Corp. (KSC) for approximately $1.2 million and recorded a pre-tax gain of approximately $0.3 million. KSC was a related party through December 2006.

In fiscal 2007, the Company sold approximately 1.5 million shares of Ralink (a cost method investment at September 30, 2007) for approximately
$8.9 million and recorded a pre-tax gain of approximately $7.9 million. At September 30, 2008, the Companys investment in Ralink is included in short-term investments. See Note 2: Cash, Cash Equivalents, Short-term Investments and
Long-term Investments.

The Company sold its investment in E-CMOS in April 2006 for approximately $1.5 million which resulted in a
pre-tax gain of $0.3 million. In addition, in September 2006, the Company sold a cost method equity investment for approximately $0.1 million resulting in a gain of approximately $26,000.

The Company sold approximately 77% of its investment in Signia in February 2006 for approximately $4.6 million which resulted in a pre-tax gain of
$2.2 million. As a result of the sale of the Signia shares, the Company reduced its ownership percentage to approximately 16%, or approximately $0.7 million, and thereafter accounted for its investment in Signia on the cost method. In prior periods,
Signias financial position and results



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



of operation were consolidated with the Companys financial statements. In the September 2006 quarter, the Company recorded an impairment charge of
approximately $0.4 million related to its investment in Signia.

The Company has various deposits including deposits with suppliers for
purchase guarantees and for customs clearance. These deposits are included in restricted assets.

Note 5.    Property,
Equipment, and Leasehold Improvements, net

Property, equipment, and leasehold improvements, net consisted of the following at
September 30:



|                                               |  |                |         |   |      |   |         |  
|---------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                               |  | 2008           |         |   | 2007 |  
|                                               |  | (in thousands) |        
|Machinery and equipment                        |  | $              | 33,406  |   |      | $ | 31,169  |  
|Furniture and fixtures                         |  |                | 2,402   |   |      |   | 2,380   |  
|Land, buildings and improvements               |  |                | 28,182  |   |      |   | 25,092  |  
|                                               |  |                |         |   |      |   |         |  
|                                               |  |                | 63,990  |   |      |   | 58,641  |  
|Less accumulated depreciation and amortization |  |                | (39,435 | ) |      |   | (35,357 | )
|                                               |  |                |         |   |      |   |         |  
|                                               |  | $              | 24,555  |   |      | $ | 23,284  |  
|                                               |  |                |         |   |      |   |         |  

Note 6.    Lease Payment Receivable

The Company entered into a machinery lease contract on March 6, 2003 for a term of 5 years commencing from April 1, 2003. The lessee obtained
the title to the property upon the termination of this agreement in March 2008. Lease payment receivable consisted of the following at September 30:



|                                |  |                |     |  
|------------------------------- |  | -------------- | --- | -
|                                |  | 2007           |    
|                                |  | (in thousands) |    
|Lease payment receivable        |  | $              | 586 |  
|Less: Unearned interest revenue |  |                | (1  | )
|                                |  |                |     |  
|Net                             |  | $              | 585 |  
|                                |  |                |     |  

The lease payment receivable is included in other current assets.

The Company rents out certain floors in its office building in HsinChu, Taiwan. These leases are cancelable with either three months or six months
notice. The value of the assets leased to others is included in fixed assets in the Companys balance sheet. Rental income and the depreciation of the assets are included in other income (expense), net and amounted to approximately
$1.7 million and $0.6 million, $1.7 million and $0.3 million, and $0.9 million and $0.1 million, in fiscal 2008 fiscal 2007 and fiscal 2006, respectively.

The assets leased consisted of the following at September 30:



|                              |  |                |        |   |      |   |        |  
|----------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                              |  | 2008           |        |   | 2007 |  
|                              |  | (in thousands) |       
|Buildings and improvements    |  | $              | 9,338  |   |      | $ | 6,974  |  
|Less accumulated depreciation |  |                | (5,152 | ) |      |   | (2,862 | )
|                              |  |                |        |   |      |   |        |  
|                              |  | $              | 4,186  |   |      | $ | 4,112  |  
|                              |  |                |        |   |      |   |        |  



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##### Table of Contents

INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 7.    Purchased Intangible Assets

No purchased intangible assets were acquired during fiscal 2008.

The following table presents details of the purchased intangible assets acquired during fiscal 2007:



|            |                                |            |                                |                        |                              |       |                                |  |        |   |       |   |  |   |   |  |   |    
|----------- | ------------------------------ | ---------- | ------------------------------ | ---------------------- | ---------------------------- | ----- | ------------------------------ |  | ------ | - | ----- | - |  | - | - |  | - | ---
|            |                                | Technology |                                | Customer Relationships |                              | Other |                                | 
|            | EstimatedUseful Life(in Years) |            | Amount                         |                        | (in thousands, except years) |       | EstimatedUseful Life(in Years) |  | Amount |   | Total
|            |                                |            | EstimatedUseful Life(in Years) |                        | Amount                       |       |                                | 
|Fiscal 2007 |                                |            |                                |                        |                              |       |                                |  |        |   |       |   |  |   |   |  |   |    
|ICSI        |                                | 4.0        |                                | $                      | 174                          |       |                               |  | $      |  |       |  |  | $ |  |  | $ | 174
|            |                                |            |                                |                        |                              |       |                                |  |        |   |       |   |  |   |   |  |   |    

The following tables present details of the Companys total purchased intangible assets:



|                       |  |                |       |                         |   |       |  |   |      
|---------------------- |  | -------------- | ----- | ----------------------- | - | ----- |  | - | -----
|                       |  | Gross          |       | AccumulatedAmortization |   | Net  
|                       |  | (in thousands)
|September 30, 2008     |  |                |       |                         |   |       |  |   |      
|Technology             |  | $              | 3,933 |                         | $ | 2,137 |  | $ | 1,796
|Customer relationships |  |                | 615   |                         |   | 411   |  |   | 204  
|                       |  |                |       |                         |   |       |  |   |      
|Total                  |  | $              | 4,548 |                         | $ | 2,548 |  | $ | 2,000
|                       |  |                |       |                         |   |       |  |   |      
|                       |  |                |      
|September 30, 2007     |  |                |       |                         |   |       |  |   |      
|Technology             |  | $              | 3,933 |                         | $ | 1,442 |  | $ | 2,491
|Customer relationships |  |                | 2,995 |                         |   | 2,013 |  |   | 982  
|Other                  |  |                | 390   |                         |   | 325   |  |   | 65   
|                       |  |                |       |                         |   |       |  |   |      
|Total                  |  | $              | 7,318 |                         | $ | 3,780 |  | $ | 3,538
|                       |  |                |       |                         |   |       |  |   |      

The following table presents details of the amortization expense of purchased intangible assets as
reported in the Consolidated Statements of Operations:



|                   |  |                           |       |      |   |       |  |   |      
|------------------ |  | ------------------------- | ----- | ---- | - | ----- |  | - | -----
|                   |  | Years Ended September 30,
|                   |  | 2008                      |       | 2007 |   | 2006 
|                   |  | (in thousands)           
|Reported as:       |  |                           |       |      |   |       |  |   |      
|Cost of sales      |  | $                         | 1,409 |      | $ | 1,898 |  | $ | 1,619
|Operating expenses |  |                           | 129   |      |   | 129   |  |   | 136  
|                   |  |                           |       |      |   |       |  |   |      
|Total              |  | $                         | 1,538 |      | $ | 2,027 |  | $ | 1,755
|                   |  |                           |       |      |   |       |  |   |      

The estimated future amortization expense of purchased intangible assets as of September 30,
2008 is as follows (in thousands):



|            |  |   |      
|----------- |  | - | -----
|Fiscal year |  |  
|2009        |  | $ | 824  
|2010        |  |   | 770  
|2011        |  |   | 406  
|2012        |  |   |     
|Thereafter  |  |   |     
|            |  |   |      
|Total       |  | $ | 2,000
|            |  |   |      



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##### Table of Contents

INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Goodwill

In September 2008, the Company performed an assessment of impairment for its goodwill. In the fourth quarter of fiscal 2008, the Company experienced a significant decline in its stock price. As a result of the decline in its stock price,
the Companys market capitalization fell significantly below the recorded value of its consolidated net assets. Based on the results of its assessment of goodwill for impairment, the Company determined that the fair value of its equity was less
than the book value of its equity and an impairment existed. Therefore, the Company performed the second step of the impairment test to determine the implied fair value of goodwill. Specifically, the Company hypothetically allocated the estimated
fair value of its equity as determined in the first step to recognized and unrecognized net assets, including allocations to intangible assets. The analysis indicated that there would be no remaining implied value attributable to goodwill and
accordingly, the Company wrote off all $25.3 million of its goodwill.

There were no changes in goodwill during fiscal 2007.

The Company sold approximately 77% of its investment in Signia in February 2006 and, as a result of the sale of the Signia shares, the Company reduced
its ownership percentage to approximately 16%, and thereafter accounted for its investment in Signia on the cost method. As a result of the deconsolidation of Signia, the Company reduced the recorded amount of its goodwill by approximately $1.1
million.

Note 8.    Borrowings

The Company had no borrowings at September 30, 2008. Short-term debt at September 30, 2007 was comprised of a working capital loan with an interest rate of 2.69%.

At September 30, 2008, the Company had short-term lines of credit with various financial institutions whereby it could borrow in aggregate up to
approximately $12.9 million denominated in a combination of U.S. and New Taiwan dollars. As of September 30, 2008, the Company had no borrowings outstanding under these lines of credit. These lines of credit expire at various times through
September 2009. There were no assets pledged as collateral for short-term debt or notes. Commitment fees relating to these lines are not material.

Note 9.    Accrued Expenses

Accrued expenses consisted of the following at September 30:



|                            |  |                |       |      |   |      
|--------------------------- |  | -------------- | ----- | ---- | - | -----
|                            |  | 2008           |       | 2007
|                            |  | (in thousands)
|Deferred distributor margin |  | $              | 3,257 |      | $ | 1,811
|Other                       |  |                | 4,900 |      |   | 4,923
|                            |  |                |       |      |   |      
|                            |  | $              | 8,157 |      | $ | 6,734
|                            |  |                |       |      |   |      

Note 10.    Capital Stock

The Companys Restated Certificate of Incorporation provides for 70,000,000 authorized shares of common stock and 5,000,000 authorized shares of
preferred stock. The terms of the preferred stock may be fixed by the board of directors, who have the right to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future.



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##### Table of Contents

INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



As of September 30, 2008, shares of common stock were reserved for future issuance as follows:



|                                                          |  |          
|--------------------------------------------------------- |  | ---------
|Common shares reserved under Employee Stock Purchase Plan |  | 901,000  
|Common shares reserved under stock option plans           |  | 8,122,000

Common Stock Repurchases

During the first quarter of fiscal 2008, the Company repurchased 129,100 shares of its common stock at a cost of approximately $0.9 million. On
November 28, 2007, the Company announced that its board of directors had approved the repurchase of up to $80 million of its shares of common stock. The Company used $70 million to repurchase 10 million shares of its common stock through a
self-tender offer which expired on January 3, 2008. These shares represented approximately 27.4% of the Companys shares outstanding as of December 31, 2007. During September 2008, the Company repurchased 74,182 shares of its common
stock at a cost of approximately $0.2 million. The Company has repurchased and retired an aggregate of 11,384,430 shares of common stock at a cost of approximately $78.5 million since September 2007. As of September 30, 2008, $9.8 million
remained available under the existing repurchase authorization.

On August 15, 2007, the Company commenced an offer to purchase for
cash up to $30 million in shares of its common stock at a price not greater than $6.30 nor less than $5.70 per share (the Offer). Following the expiration of the Offer on September 15, 2007, the Company accepted for payment
1,181,148 shares of its common stock at a purchase price of $6.30 per share pursuant to the terms of the Offer, resulting in aggregate payments of approximately $7.4 million.

Note 11.    Stock-Based Compensation

Stock-Based Benefit Plans

The Company grants stock-based compensation awards under its 2007 Incentive Compensation Plan (the 2007 Plan). The Company has outstanding
grants under prior plans, though no further grants can be made under these prior plans. At September 30, 2008, the total number of shares subject to options and awards outstanding under all plans was 5,867,000. At September 30, 2008,
2,255,000 shares were available for future grant under the 2007 Plan. Options generally vest ratably over a four-year period with a 6-month or 1-year cliff vest and then vesting ratably over the remaining period. Options granted prior to
October 1, 2005 expire ten years after the date of grant; options granted after October 1, 2005 expire seven years after the date of the grant. Restricted stock units (RSUs) generally vest annually over a three-year period based upon
continued employment with the Company.

2007 Incentive Compensation Plan

At the 2007 annual meeting of stockholders held on July 30, 2007, the Companys stockholders approved, upon recommendation of the Companys
board of directors, the adoption of the 2007 Plan. The 2007 Plan is the successor to each of the 1998 Stock Plan, 1996 Nonstatutory Stock Plan and 1995 Director Stock Option Plan (the Predecessor Plans), and no further grants are made
under the Predecessor Plans.

The 2007 Plan permits the grant of stock options, stock appreciation rights, restricted stock awards,
restricted stock units, performance shares and performance units. The Compensation Committee of the Companys board of directors has the authority to determine the type of incentive award, as well as the terms and conditions of the award, under
the 2007 Plan.



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##### Table of Contents

INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



3,000,000 shares of the Companys common stock were initially reserved for issuance under the
2007 Plan. To the extent any options outstanding under the Predecessor Plans on the date of the Annual Meeting subsequently terminate unexercised or any unvested shares outstanding under the Predecessor Plans at such time are subsequently forfeited
or repurchased by ISSI, the number of shares of common stock subject to those terminated options, together with the forfeited shares, are added to the share reserve available for issuance under the 2007 Plan, up to an additional 4,000,000 shares.

Other Stock Plans

The
Company has outstanding grants under its 1989 Stock Plan, 1998 Stock Plan, 1996 Nonstatutory Stock Plan and 1995 Director Stock Option Plan. Options generally vest ratably over a four-year period with a 6-month or 1-year cliff vest and then vesting
ratably over the remaining period, except for options granted under the 1995 Director Stock Option Plan, which generally vest over 12 months. Options granted prior to October 1, 2005 expire ten years after the date of grant; options
granted after October 1, 2005 expire seven years after the date of the grant.

The Company has shares of common stock reserved for
future issuance under its 1995 Employee Stock Purchase Plan. Offering periods under the 1995 Employee Stock Purchase Plan have a duration of six months and the purchase price is equal to 85% of the fair value of the common stock on the purchase
date. The offering periods under the 1995 Employee Stock Purchase Plan commence on approximately February 1 and August 1 of each year. During fiscal 2008, 2007 and 2006, 170,000, 0, and 214,000 shares were issued under the plan,
respectively. As of September 30, 2008, 901,000 shares were available under the plan for future issuance.

Non-Plan Option
Agreements

On February 21, 2006, the Company entered into a Stand-Alone Stock Option Agreement (the Option)
with Scott Howarth, at the time the Companys Chief Financial Officer. The Option is a non-qualified stock option to purchase 100,000 shares of the Companys common stock and has the following terms: (i) an
exercise price equal to $6.33 per share which was the fair market value of the Companys common stock on the grant date of February 21, 2006, (ii) a term of 7 years from the date of grant, and (iii) vesting as
to 12.5% of the shares on the six (6) month anniversary of his employment start date, and as to 1/48th of the total shares each month thereafter until the option is fully vested.

Amendment to Stock Options

On
July 19, 2007, the Company accepted for amendment certain options to purchase an aggregate of approximately 486,000 shares of its common stock as contemplated by the Companys offer to amend certain outstanding options and, if applicable,
receive a cash payment as set forth under the Offer to Amend Certain Options dated June 14, 2007 (the Offer to Amend). The Company issued amended options to purchase up to an aggregate of approximately 436,000 shares of its common
stock and made aggregate cash payments in the amount of $192,000 in exchange for the options surrendered for amendment in accordance with the terms of the Offer to Amend.

Accounting for Stock-Based Compensation

The Company accounts for stock-based compensation
arrangements in accordance with the provisions of SFAS No. 123(R) Share-Based Payment (SFAS 123R) as discussed in Note 1Significant Accounting Policies. Under SFAS 123R, compensation cost is
calculated by the Company on the date of grant using the fair value of the option as determined using the Black-Scholes option pricing model. The compensation cost is then amortized ratably over the vesting period of the individual option grants.
The Black-Scholes valuation



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##### Table of Contents

INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



calculation requires the Company to estimate key assumptions such as expected term, volatility and interest rates to determine the fair value of the stock
options. The estimate of these key assumptions is based on the Companys historical stock price volatility, employees historical exercise patterns and judgment regarding market factors and trends. SFAS 123R also requires that forfeitures
be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company estimates forfeitures based on its historical forfeiture rates as it believes these rates to be the
most indicative of the Companys expected forfeiture rate.

As of September 30, 2008, there was approximately $5.9 million of
total unrecognized stock-based compensation expense under the Companys stock option plans that will be recognized over a weighted-average period of approximately 2.38 years. Future stock option grants will add to this total whereas quarterly
amortization and the vesting of the existing stock option grants will reduce this total. The Company will also record compensation expense for its ESPP for the difference between the purchase price and the fair market value on the day of purchase.

SFAS 123R requires that cash flows from tax benefits resulting from the exercise of stock options be classified as financing cash flows in
its Statement of Cash Flows. As the Company has a valuation allowance for all of its deferred tax assets, a tax benefit associated with stock option exercises has not been realized or recognized.

The Company issues new shares of common stock upon exercise of stock options and upon vesting of RSUs. The total intrinsic value of options
exercised determined as of the date of option exercise during the fiscal years ended September 30, 2008, 2007 and 2006, was $211,000, $598,000 and $564,000, respectively.

The table below outlines the effects of total stock-based compensation.



|                                       |  |                                         |       |      |   |       |  |   |      
|-------------------------------------- |  | --------------------------------------- | ----- | ---- | - | ----- |  | - | -----
|                                       |  | Years Ended September 30,              
|                                       |  | 2008                                    |       | 2007 |   | 2006 
|                                       |  | (in thousands, except pershare amounts)
|Stock-based compensation               |  |                                         |       |      |   |       |  |   |      
|Cost of sales                          |  | $                                       | 219   |      | $ | 104   |  | $ | 126  
|Research and development               |  |                                         | 1,470 |      |   | 1,828 |  |   | 2,080
|Selling, general and administrative    |  |                                         | 1,957 |      |   | 2,008 |  |   | 2,433
|                                       |  |                                         |       |      |   |       |  |   |      
|Total stock-based compensation         |  |                                         | 3,646 |      |   | 3,940 |  |   | 4,639
|Tax effect on stock-based compensation |  |                                         |      |      |   |      |  |   |     
|                                       |  |                                         |       |      |   |       |  |   |      
|Net effect on net income               |  | $                                       | 3,646 |      | $ | 3,940 |  | $ | 4,639
|                                       |  |                                         |       |      |   |       |  |   |      
|Effect on earnings per share           |  |                                         |       |      |   |       |  |   |      
|Basic                                  |  | $                                       | 0.12  |      | $ | 0.10  |  | $ | 0.12 
|                                       |  |                                         |       |      |   |       |  |   |      
|Diluted                                |  | $                                       | 0.12  |      | $ | 0.10  |  | $ | 0.12 
|                                       |  |                                         |       |      |   |       |  |   |      

Valuation Assumptions

The Company uses the Black-Scholes option pricing model to estimate the fair value of the options granted. The Company utilized the simplified calculation of expected life under the provisions of the SECs Staff
Accounting Bulletin 107 through December 2007, as the Company shortened the contractual life of employee stock options from ten years to seven years. For option grants subsequent to December 2007, the expected term is based upon historical exercise
data. Estimated volatilities are based on historical stock price volatilities of the period immediately preceding the option grant that is equal in length to the options expected term. The Company believes that historical volatility is the
best estimate of future volatility. The Company bases the risk-



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



free interest rate on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term. The Company has never paid
dividends and does not anticipate doing so over the expected life of the options and therefore used 0% for dividend yield.

The estimated
values of stock option grants, as well as the weighted average assumptions used in calculating these values during the fiscal years ended September 30, 2008, 2007 and 2006, were based on estimates at the date of grant as follows:



|                                      |  |               |      |   |      |   |      |      |  |   |      |  
|------------------------------------- |  | ------------- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                      |  | Stock Options |     
|                                      |  | 2008          |      |   | 2007 |   |      | 2006 | 
|Expected term in years                |  |               | 4.54 |   |      |   | 4.52 |      |  |   | 4.52 |  
|Expected volatility                   |  |               | 0.46 |   |      |   | 0.61 |      |  |   | 0.69 |  
|Risk-free interest rate               |  |               | 3.19 | % |      |   | 4.65 | %    |  |   | 4.54 | %
|Dividend yield                        |  |               | 0.00 | % |      |   | 0.00 | %    |  |   | 0.00 | %
|Weighted-average fair value of grants |  | $             | 2.51 |   |      | $ | 3.06 |      |  | $ | 3.59 |  

The Company issued RSUs in the second quarter of fiscal 2008. The estimated fair value of RSU
awards was calculated based on the market price of the Companys common stock on the date of grant. The weighted average grant date fair value of RSUs granted in fiscal 2008 was $5.60 per share.

A summary of the Companys stock option activity and related information for the last three fiscal years under the 1989 Stock Plan, 1996
Nonstatutory Stock Plan, 1998 Stock Plan, 1995 Director Stock Option Plan and the 2007 Plan follows (stock option amounts and aggregate intrinsic value are presented in thousands):



|                                                     |  |                     |   |  |                               |      |                                                    |      |                          |   |  
|---------------------------------------------------- |  | ------------------- | - |  | ----------------------------- | ---- | -------------------------------------------------- | ---- | ------------------------ | - | -
|                                                     |  | Outstanding Options
|                                                     |  | Number ofShares     |   |  | Weighted-AverageExercisePrice |      | Weighted-AverageRemainingContractualTerm (inyears) |      | AggregateIntrinsic Value
|Balance at September 30, 2005                        |  | 6,176               |   |  | $                             | 7.82 |                                                    |      |                          |   |  
|Options Granted                                      |  | 1,388               |   |  | $                             | 6.24 |                                                    |      |                          |   |  
|Options Exercised                                    |  | (198                | ) |  | $                             | 3.88 |                                                    |      |                          |   |  
|Options Cancelled                                    |  | (1,368              | ) |  | $                             | 8.84 |                                                    |      |                          |   |  
|                                                     |  |                     |   |  |                               |      |                                                    |      |                          |   |  
|Balance at September 30, 2006                        |  | 5,998               |   |  | $                             | 7.35 |                                                    |      |                          |   |  
|Options Granted                                      |  | 1,076               |   |  | $                             | 5.91 |                                                    |      |                          |   |  
|Options Exercised                                    |  | (224                | ) |  | $                             | 3.79 |                                                    |      |                          |   |  
|Options Cancelled                                    |  | (1,697              | ) |  | $                             | 8.24 |                                                    |      |                          |   |  
|                                                     |  |                     |   |  |                               |      |                                                    |      |                          |   |  
|Balance at September 30, 2007                        |  | 5,153               |   |  | $                             | 7.22 |                                                    |      |                          |   |  
|Options Granted                                      |  | 986                 |   |  | $                             | 5.90 |                                                    |      |                          |   |  
|Options Exercised                                    |  | (105                | ) |  | $                             | 3.95 |                                                    |      |                          |   |  
|Options Cancelled                                    |  | (279                | ) |  | $                             | 7.01 |                                                    |      |                          |   |  
|                                                     |  |                     |   |  |                               |      |                                                    |      |                          |   |  
|Balance at September 30, 2008                        |  | 5,755               |   |  | $                             | 7.07 |                                                    | 4.95 |                          | $ | 
|                                                     |  |                     |   |  |                               |      |                                                    |      |                          |   |  
|Exercisable at September 30, 2008                    |  | 4,104               |   |  | $                             | 7.49 |                                                    | 4.59 |                          | $ | 
|Vested and expected to vest after September 30, 2008 |  | 5,631               |   |  | $                             | 7.09 |                                                    | 4.92 |                          | $ | 
|Options exercisable at:                              |  |                     |   |  |                               |      |                                                    |      |                          |   |  
|September 30, 2006                                   |  | 3,515               |   |  | $                             | 7.74 |                                                    | 4.92 |                          |   |  
|September 30, 2007                                   |  | 3,412               |   |  | $                             | 7.68 |                                                    | 5.13 |                          |   |  
|September 30, 2008                                   |  | 4,104               |   |  | $                             | 7.49 |                                                    | 4.59 |                          |   |  



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##### Table of Contents

INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table summarizes information about options outstanding and exercisable at
September 30, 2008:



|                         |  |                                           |  |                                                 |  |                            |       |                                           |       |                            |   |      
|------------------------ |  | ----------------------------------------- |  | ----------------------------------------------- |  | -------------------------- | ----- | ----------------------------------------- | ----- | -------------------------- | - | -----
|                         |  | Options Outstanding                       |  | Options Exercisable                            
|Range of Exercise Prices |  | Number ofOptionsOutstanding(in thousands) |  | Wtd. AverageRemainingContractual Life(in years) |  | Wtd. AverageExercise Price |       | Number ofOptionsExercisable(in thousands) |       | Wtd. AverageExercise Price
|$  2.35-$   5.60         |  | 1,479                                     |  | 4.65                                            |  | $                          | 4.60  |                                           | 873   |                            | $ | 4.05 
|$  5.64-     6.43        |  | 1,480                                     |  | 4.93                                            |  | $                          | 6.18  |                                           | 925   |                            | $ | 6.24 
|$  6.48-     7.00        |  | 1,615                                     |  | 5.98                                            |  | $                          | 6.82  |                                           | 1,168 |                            | $ | 6.87 
|$  7.09-   18.56         |  | 1,133                                     |  | 4.03                                            |  | $                          | 10.71 |                                           | 1,090 |                            | $ | 10.84
|$18.56-   35.38          |  | 48                                        |  | 1.49                                            |  | $                          | 32.85 |                                           | 48    |                            | $ | 32.85
|                         |  |                                           |  |                                                 |  |                            |       |                                           |       |                            |   |      
|$  2.35-$ 35.38          |  | 5,755                                     |  | 4.95                                            |  | $                          | 7.07  |                                           | 4,104 |                            | $ | 7.49 
|                         |  |                                           |  |                                                 |  |                            |       |                                           |       |                            |   |      

A summary of the Companys restricted stock unit activity and related information for fiscal
2008 under the 2007 Plan follows (RSU amounts and aggregate intrinsic value are presented in thousands):



|                                         |  |                 |   |  |                                      |      |                          |   |    
|---------------------------------------- |  | --------------- | - |  | ------------------------------------ | ---- | ------------------------ | - | ---
|                                         |  | Number ofShares |   |  | Weighted-AverageGrant-DateFair Value |      | AggregateIntrinsic Value
|Outstanding awards at September 30, 2007 |  |                |   |  | $                                    |     |                          |   |    
|Granted                                  |  | 114             |   |  | $                                    | 5.60 |                          |   |    
|Vested                                   |  |                |   |  | $                                    |     |                          |   |    
|Forfeited                                |  | (2              | ) |  | $                                    | 5.60 |                          |   |    
|                                         |  |                 |   |  |                                      |      |                          |   |    
|Outstanding awards at September 30, 2008 |  | 112             |   |  | $                                    | 5.60 |                          | $ | 257
|                                         |  |                 |   |  |                                      |      |                          |   |    

Note 12.    Income Taxes

Income (loss) before provision for income taxes consisted of the following:



|                            |  |                |         |   |      |   |        |  |   |         |  
|--------------------------- |  | -------------- | ------- | - | ---- | - | ------ |  | - | ------- | -
|                            |  | 2008           |         |   | 2007 |   | 2006   | 
|                            |  | (in thousands) |        
|United States               |  | $              | 4,965   |   |      | $ | 9,504  |  | $ | (1,245  | )
|International               |  |                | (22,468 | ) |      |   | 6,123  |  |   | (13,036 | )
|                            |  |                |         |   |      |   |        |  |   |         |  
|Total pre-tax income (loss) |  | $              | (17,503 | ) |      | $ | 15,627 |  | $ | (14,281 | )
|                            |  |                |         |   |      |   |        |  |   |         |  

The provision (benefit) for income taxes consisted of the following for the years ended
September 30:



|                          |  |                |     |      |   |     |      |  |   |      |  
|------------------------- |  | -------------- | --- | ---- | - | --- | ---- |  | - | ---- | -
|                          |  | 2008           |     | 2007 |   |     | 2006 | 
|                          |  | (in thousands) |    
|Current:                  |  |                |     |      |   |     |      |  |   |      |  
|Federal                   |  | $              | 154 |      | $ | (15 | )    |  | $ | (236 | )
|State                     |  |                | 20  |      |   | 9   |      |  |   | 2    |  
|Foreign                   |  |                | 23  |      |   | 10  |      |  |   | 201  |  
|                          |  |                |     |      |   |     |      |  |   |      |  
|Total current             |  | $              | 197 |      | $ | 4   |      |  | $ | (33  | )
|Deferred:                 |  |                |     |      |   |     |      |  |   |      |  
|Federal                   |  |                |    |      |   |    |      |  |   |     |  
|State                     |  |                |    |      |   |    |      |  |   |     |  
|Foreign                   |  |                |    |      |   |    |      |  |   |     |  
|                          |  |                |     |      |   |     |      |  |   |      |  
|Total deferred            |  |                |    |      |   |    |      |  |   |     |  
|                          |  |                |     |      |   |     |      |  |   |      |  
|Total provision (benefit) |  | $              | 197 |      | $ | 4   |      |  | $ | (33  | )
|                          |  |                |     |      |   |     |      |  |   |      |  



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Companys provision (benefit) for income taxes differs from the amount computed by applying
the U.S. federal statutory rate (35%) to income before taxes and minority interest as follows for the years ended September 30:



|                                                         |  |                |        |   |      |   |        |      |  |   |        |  
|-------------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                         |  | 2008           |        |   | 2007 |   |        | 2006 | 
|                                                         |  | (in thousands) |       
|Income taxes computed at the U.S. federal statutory rate |  | $              | (6,126 | ) |      | $ | 5,469  |      |  | $ | (4,998 | )
|State income taxes                                       |  |                | 20     |   |      |   |       |      |  |   |       |  
|Foreign losses not benefited (benefited)                 |  |                | (997   | ) |      |   | (2,137 | )    |  |   | 4,578  |  
|Non-deductible stock compensation                        |  |                | 693    |   |      |   | 612    |      |  |   | 774    |  
|Nontaxable gain on foreign investment                    |  |                |       |   |      |   |       |      |  |   | (868   | )
|Non-deductible impairment charge                         |  |                | 8,868  |   |      |   |       |      |  |   |       |  
|U.S. operating loss not benefited (benefited)            |  |                | (2,440 | ) |      |   | (3,961 | )    |  |   | 509    |  
|Reversal of previously provided taxes                    |  |                | (22    | ) |      |   | (25    | )    |  |   | (236   | )
|Other individually immaterial items                      |  |                | 201    |   |      |   | 46     |      |  |   | 208    |  
|                                                         |  |                |        |   |      |   |        |      |  |   |        |  
|Total provision (benefit)                                |  | $              | 197    |   |      | $ | 4      |      |  | $ | (33    | )
|                                                         |  |                |        |   |      |   |        |      |  |   |        |  

As of September 30, 2008, the Company had net operating loss carryforwards for federal, state
and foreign income tax purposes of approximately $116.5 million, $84.1 million and $20.5 million, respectively. The federal, state and foreign net operating loss carryforwards will expire at various dates beginning in 2010, if not utilized. The
Company has federal research and development tax credit and minimum tax credit carryforwards of approximately $4.4 million and $0.5 million, respectively. The Company also has state research and development tax credit carryforwards of approximately
$3.0 million. The Company has foreign investment tax credit carryforwards of approximately $8.4 million. The federal tax credits will expire at various dates beginning in 2009 through 2023, if not utilized. The California state research and
development tax credit can be carried forward indefinitely. The foreign jurisdiction tax credit will expire beginning 2009 through 2012, if not utilized.

Utilization of the federal net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as
amended, and similar state provisions. The annual limitation, should it become effective, may result in the expiration of federal or state net operating losses and credits before utilization.

The Companys China operation is under a tax holiday program which began on January 1, 2008 and will expire on December 31, 2012. The tax
benefit resulting from the holiday is $177,000 for fiscal 2008.



69



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##### Table of Contents

INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred taxes consisted of the following at September 30:



|                                                            |  |                |         |   |      |   |         |  
|----------------------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                                            |  | 2008           |         |   | 2007 |  
|                                                            |  | (in thousands) |        
|Deferred tax assets:                                        |  |                |         |   |      |   |         |  
|Depreciation                                                |  | $              | 850     |   |      | $ | 850     |  
|Inventory and other valuation reserves                      |  |                | 7,160   |   |      |   | 7,780   |  
|Accrued expenses                                            |  |                | 3,630   |   |      |   | 3,260   |  
|Federal, state and foreign credit carryforwards             |  |                | 12,200  |   |      |   | 12,540  |  
|Federal, state and foreign net operating loss carryforwards |  |                | 49,660  |   |      |   | 54,180  |  
|Non-deductible stock options                                |  |                | 4,130   |   |      |   | 7,410   |  
|Other, net                                                  |  |                | 3,990   |   |      |   | 2,080   |  
|                                                            |  |                |         |   |      |   |         |  
|Subtotal                                                    |  |                | 81,620  |   |      |   | 88,100  |  
|Valuation allowance                                         |  |                | (81,620 | ) |      |   | (88,030 | )
|                                                            |  |                |         |   |      |   |         |  
|Total deferred tax assets                                   |  | $              |        |   |      | $ | 70      |  
|Deferred tax liabilities:                                   |  |                |         |   |      |   |         |  
|Unrealized gain on investment                               |  |                |        |   |      |   | (70     | )
|                                                            |  |                |         |   |      |   |         |  
|Subtotal                                                    |  |                |        |   |      |   | 70      |  
|                                                            |  |                |         |   |      |   |         |  
|Net deferred tax assets                                     |  | $              |        |   |      | $ |        |  
|                                                            |  |                |         |   |      |   |         |  

Management has established a valuation allowance for a portion of the gross deferred tax assets
based on managements expectations of future taxable income and the actual taxable income during the three years ended September 30, 2008. The valuation allowance for deferred tax assets decreased by $6.4 million in fiscal 2008 and
increased by $17.8 million in fiscal 2007. Approximately $13.7 million of the valuation allowance is attributable to tax benefits of stock option deductions which will be credited to paid-in capital when recognized.

Effective October 1, 2007, the Company adopted FIN 48. FIN 48 prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of uncertain tax positions taken, or expected to be taken, in a companys income tax return; and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN 48 utilizes a two-step approach for evaluating uncertain tax positions accounted for in accordance with SFAS 109. Step one, Recognition, requires a company to determine if the weight of available evidence
indicates that a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. Step two, Measurement, is based on the largest amount of benefit, which is more likely than
not to be realized on ultimate settlement. The cumulative effect of adopting FIN 48 on October 1, 2007 is recognized as a change in accounting principle, recorded as an adjustment to the opening balance of retained earnings on the adoption
date. The Companys total amount of unrecognized tax benefits as of October 1, 2007, the adoption date, and September 30, 2008 was approximately $3 million and $3.8 million, respectively. As a result of the implementation of FIN 48,
the Companys unrecognized tax benefits as of the date of adoption had no effect on the beginning balance of the accumulated deficit or the net balance sheet. The opening balance included $2.9 million of unrecognized tax benefits that were
previously included in the deferred tax asset account which carried a full valuation allowance. The remaining amount of $0.1 million was classified as unrecognized tax benefits in current taxes payable and as a result of the adoption has been
reclassified from current to long term tax liabilities.



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The total amount of unrecognized tax positions that would impact the effective rate is approximately
$140,000 at September 30, 2008. While it is often difficult to predict the final outcome of any particular uncertain tax position, management does not believe that it is reasonably possible that the estimates of unrecognized tax benefits will
change significantly in the next twelve months except for any adjustments related to the expiration of the statute of limitations.

A
reconciliation of the beginning and ending amount of the consolidated liability for unrecognized income tax benefits during the tax year ended September 30, 2008 is as follows:



|                                                |  |                |      
|----------------------------------------------- |  | -------------- | -----
|                                                |  | (in thousands)
|Balance at October 1, 2007                      |  | $              | 3,000
|Increases related to current year tax positions |  |                |     
|Increases related to prior year positions       |  |                | 800  
|                                                |  |                |      
|Balance at September 30, 2008                   |  | $              | 3,800
|                                                |  |                |      

Upon adoption of FIN 48, the Companys policy to include interest and penalties related to
unrecognized tax benefits within the Companys provision for (benefit from) income taxes did not change. As of September 30, 2008, the Company accrued potential penalties and interest of approximately $25,000 related to these unrecognized
tax benefits.

The Company files U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations during
which such tax returns may be audited and adjusted by the relevant tax authorities. The 2004 through 2008 tax years generally remain subject to federal and most state tax authorities, and years 2003 through 2008 generally remain subject to
examination by foreign tax authorities. In addition, U.S. tax returns are open from the 2000 to 2003 tax years to the extent of net operating losses generated during these periods are being utilized in open tax periods. Also, U.S. tax returns are
open from 1994 through 2003 tax years to the extent research and development credits generated during these periods and are being utilized in open tax periods. In significant foreign jurisdictions, the 2003 through 2008 tax years generally remain
subject to examination by their respective tax authorities.

The Company anticipates the unrecognized tax benefits may increase during the
year for items that arise in the ordinary course of business. Such amounts will be reflected as an increase in the amount of unrecognized tax benefits and an increase to the current period tax expense. These increases will be considered in the
determination of the Companys annual effective tax rate. The amount of the unrecognized tax benefit classified as a long term tax payable, if recognized, would reduce the annual income tax provision.

Note 13.    Retirement Plan

In
connection with the acquisition of ICSI during 2005, the Company assumed pension plans covering substantially all of ICSIs Taiwan based employees. The pension plans are based on the Labor Standards Law, a defined benefit plan (Benefit Plan)
and the Labor Pension Act, a defined contribution plan (Contribution Plan).

Under the Labor Standards Law, the Benefit Plan provides for a
lump sum payment upon retirement based on years of service and the employees compensation during the last six months of employment. In accordance with the Labor Standards Law of the R.O.C., the Company makes monthly contributions equal to 2%
of its wages and salaries. The fund is administered by the Employees Retirement Fund Committee and is registered in this committees name. Accordingly, the pension fund is not included in the financial statements of the Company.



71



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Under the Labor Pension Act effective July 1, 2005, employees may choose the requirements under
the Labor Standards Law or the new statute. For employees subject to the new statute, the Company shall contribute no less than 6% of the employees wages and salaries to the Contribution Plan.

Effective for fiscal year 2007, the Company adopted the provisions of SFAS No. 158. SFAS No. 158 requires that the funded status of
defined-benefit postretirement plans be recognized on the Companys consolidated balance sheet, and changes in the funded status be reflected in other comprehensive income. SFAS No. 158 also requires the measurement date of the plans
funded status to be the same as the companys fiscal year-end. Since the Company uses its fiscal year end as the measurement date for its Benefit Plan, there is no impact on the projected benefit obligation and accumulated other comprehensive
income (loss) due to measurement date provision of SFAS No. 158. Upon adoption of SFAS No. 158 in fiscal year 2007, the Company recorded an adjustment of $957,000 to accumulated other comprehensive income (loss).

Benefit Obligation and Plan Assets

As of September 30, 3008 and 2007, the Companys Benefit Plan had projected benefit obligations in excess of plan assets. The changes in the benefit obligations and plan assets for the Benefit Plan described above were as follows:



|                                        |  |                |       |      |   |       |  
|--------------------------------------- |  | -------------- | ----- | ---- | - | ----- | -
|                                        |  | 2008           |       | 2007 |  
|                                        |  | (in thousands) |      
|Change in projected benefit obligation: |  |                |       |      |   |       |  
|Beginning benefit obligation            |  | $              | 1,914 |      | $ | 1,815 |  
|Service cost                            |  |                | 19    |      |   | 16    |  
|Interest cost                           |  |                | 58    |      |   | 65    |  
|Actuarial loss (gain)                   |  |                | 75    |      |   | (11   | )
|Currency exchange rate changes          |  |                | 27    |      |   | 29    |  
|                                        |  |                |       |      |   |       |  
|Ending projected benefit obligation     |  | $              | 2,093 |      | $ | 1,914 |  
|                                        |  |                |       |      |   |       |  



|                                    |  |                |       |      |   |      
|----------------------------------- |  | -------------- | ----- | ---- | - | -----
|                                    |  | 2008           |       | 2007
|                                    |  | (in thousands)
|Change in fair value plan assets:   |  |                |       |      |   |      
|Beginning fair value of plan assets |  | $              | 1,684 |      | $ | 1,520
|Actual return on plan assets        |  |                | 58    |      |   | 39   
|Employer contributions              |  |                | 86    |      |   | 101  
|Currency exchange rate changes      |  |                | 23    |      |   | 24   
|                                    |  |                |       |      |   |      
|Ending fair value of plan assets    |  | $              | 1,851 |      | $ | 1,684
|                                    |  |                |       |      |   |      

The following table summarizes the amounts recognized on the consolidated balance sheet as of
September 30:



|                                       |  |                |       |      |   |      
|-------------------------------------- |  | -------------- | ----- | ---- | - | -----
|                                       |  | 2008           |       | 2007
|                                       |  | (in thousands)
|Other long-term liabilities            |  | $              | 242   |      | $ | 231  
|Accumulated other comprehensive income |  |                | 822   |      |   | 957  
|                                       |  |                |       |      |   |      
|Amount recognized                      |  | $              | 1,064 |      | $ | 1,188
|                                       |  |                |       |      |   |      



72



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##### Table of Contents

INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table summarizes the amounts recorded to accumulated other comprehensive income (loss)
before taxes, as of September 30:



|                          |  |                |      |  
|------------------------- |  | -------------- | ---- | -
|                          |  | 2008           |     
|                          |  | (in thousands) |     
|Net transition obligation |  | $              | (65  | )
|Net actuarial gain        |  |                | (70  | )
|Net prior service cost    |  |                |     |  
|                          |  |                |      |  
|Defined benefit plan, net |  | $              | (135 | )
|                          |  |                |      |  

The following table summarizes the accumulated benefit obligation as of September 30:



|                               |  |                |       |      |   |      
|------------------------------ |  | -------------- | ----- | ---- | - | -----
|                               |  | 2008           |       | 2007
|                               |  | (in thousands)
|Accumulated benefit obligation |  | $              | 1,198 |      | $ | 1,228

Weighted-average actuarial assumptions used to determine benefit obligations and plan assets for
the Benefit Plan at September 30 were as follows:



|                               |  |      |   |  |      |  
|------------------------------ |  | ---- | - |  | ---- | -
|                               |  | 2008 |   |  | 2007 |  
|Discount rate                  |  | 2.75 | % |  | 3.00 | %
|Expected return on plan assets |  | 2.75 | % |  | 3.00 | %
|Rate of compensation increase  |  | 3.00 | % |  | 3.00 | %

The assumptions used in the expected long-term rate of return on plan assets are determined by the
Bureau of Labor Insurance in Taiwan.

The net periodic benefit cost for the Benefit Plan included the following components at
September 30:



|                                 |  |                |     |   |      |   |     |      |  |   |     |  
|-------------------------------- |  | -------------- | --- | - | ---- | - | --- | ---- |  | - | --- | -
|                                 |  | 2008           |     |   | 2007 |   |     | 2006 | 
|                                 |  | (in thousands) |    
|Service cost                     |  | $              | 19  |   |      | $ | 16  |      |  | $ | 15  |  
|Interest cost                    |  |                | 58  |   |      |   | 65  |      |  |   | 59  |  
|Expected return on plan assets   |  |                | (51 | ) |      |   | (54 | )    |  |   | (48 | )
|Amortization and deferred amount |  |                | (80 | ) |      |   | (79 | )    |  |   | (78 | )
|                                 |  |                |     |   |      |   |     |      |  |   |     |  
|Net periodic benefit cost        |  | $              | (54 | ) |      | $ | (52 | )    |  | $ | (52 | )
|                                 |  |                |     |   |      |   |     |      |  |   |     |  

The balance of vested benefit amounted to approximately $33,000 and $110,000 as of
September 30, 2008 and 2007, respectively.

Non-U.S. Plan Assets

For the Benefit Plan, the Company deposits funds into government-managed accounts, and/or accrues for the unfunded portion of the obligation.



73



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##### Table of Contents

INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Estimated Future Benefit Payments

The following table reflects the benefit payments, which include the amount that will be funded from retiree contributions, that the Company expects to
pay in the periods noted (in thousands):



|                    |  |   |    
|------------------- |  | - | ---
|Fiscal year ending: |  |   |    
|2009                |  | $ | 33 
|2010                |  |   | 343
|2011                |  |   | 1  
|2012                |  |   | 7  
|2013                |  |   | 8  
|2014-2018           |  |   | 300

Estimated Future Contributions

The Companys expected contributions to be paid to the Benefit Plan during fiscal 2009 is $86,000.

Note 14.    Per Share Data

The
calculations of basic and diluted net income (loss) per share for each of the three years ended September 30, 2008, 2007 and 2006 are as follows:



|                                                             |  |                                       |         |   |      |   |        |  |   |         |  
|------------------------------------------------------------ |  | ------------------------------------- | ------- | - | ---- | - | ------ |  | - | ------- | -
|                                                             |  | Years Ended September 30,             |        
|                                                             |  | 2008                                  |         |   | 2007 |   | 2006   | 
|                                                             |  | (in thousands, except per share data) |        
|Numerator for basic and diluted net income (loss) per share: |  |                                       |         |   |      |   |        |  |   |         |  
|Net income (loss)                                            |  | $                                     | (17,763 | ) |      | $ | 15,361 |  | $ | (14,242 | )
|                                                             |  |                                       |         |   |      |   |        |  |   |         |  
|Denominator for basic net income (loss) per share:           |  |                                       |         |   |      |   |        |  |   |         |  
|Weighted average common shares outstanding                   |  |                                       | 29,541  |   |      |   | 37,631 |  |   | 37,419  |  
|Dilutive effect of stock options and awards                  |  |                                       |        |   |      |   | 344    |  |   |        |  
|                                                             |  |                                       |         |   |      |   |        |  |   |         |  
|Denominator for diluted net income (loss) per share          |  |                                       | 29,541  |   |      |   | 37,975 |  |   | 37,419  |  
|                                                             |  |                                       |         |   |      |   |        |  |   |         |  
|Basic net income (loss) per share                            |  | $                                     | (0.60   | ) |      | $ | 0.41   |  | $ | (0.38   | )
|                                                             |  |                                       |         |   |      |   |        |  |   |         |  
|Diluted net income (loss) per share                          |  | $                                     | (0.60   | ) |      | $ | 0.40   |  | $ | (0.38   | )
|                                                             |  |                                       |         |   |      |   |        |  |   |         |  

The diluted earnings per share calculations for the years ended September 30, 2008 and 2006
do not include approximately 255,000 and 395,000 potential common shares from outstanding stock options because their inclusion would be anti-dilutive. For the years ended September 30, 2008, 2007 and 2006, an additional 4,961,000, 4,975,000
and 5,069,000 stock options were excluded from diluted earnings per share by the application of the treasury stock method.



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 15.    Geographic and Segment Information

The Company has one operating segment, which is to design, develop, and market high-performance SRAM, DRAM, and other memory and non-memory semiconductor
products. The following table summarizes the Companys operations in different geographic areas:



|                             |  |                           |         |      |   |         |  |   |        
|---------------------------- |  | ------------------------- | ------- | ---- | - | ------- |  | - | -------
|                             |  | Years Ended September 30,
|                             |  | 2008                      |         | 2007 |   | 2006   
|                             |  | (in thousands)           
|Net Sales                    |  |                           |         |      |   |         |  |   |        
|United States                |  | $                         | 37,941  |      | $ | 45,040  |  | $ | 36,751 
|China                        |  |                           | 8,240   |      |   | 9,564   |  |   | 13,785 
|Hong Kong                    |  |                           | 67,438  |      |   | 68,200  |  |   | 43,313 
|Taiwan                       |  |                           | 37,181  |      |   | 44,164  |  |   | 54,596 
|Japan                        |  |                           | 12,144  |      |   | 15,482  |  |   | 21,344 
|Other Asia Pacific countries |  |                           | 31,154  |      |   | 25,762  |  |   | 24,245 
|Europe                       |  |                           | 39,775  |      |   | 36,047  |  |   | 22,463 
|Other                        |  |                           | 1,356   |      |   | 1,136   |  |   | 995    
|                             |  |                           |         |      |   |         |  |   |        
|Total net sales              |  | $                         | 235,229 |      | $ | 245,395 |  | $ | 217,492
|                             |  |                           |         |      |   |         |  |   |        
|Long-lived assets            |  |                           |         |      |   |         |  |   |        
|United States                |  | $                         | 3,569   |      | $ | 3,247   |  | $ | 1,269  
|Hong Kong                    |  |                           | 53      |      |   | 72      |  |   | 80     
|China                        |  |                           | 1,029   |      |   | 921     |  |   | 1,055  
|Taiwan                       |  |                           | 19,904  |      |   | 19,044  |  |   | 19,580 
|                             |  |                           |         |      |   |         |  |   |        
|Total long-lived assets      |  | $                         | 24,555  |      | $ | 23,284  |  | $ | 21,984 
|                             |  |                           |         |      |   |         |  |   |        

Revenues are attributed to countries based on the shipping location of customers.

Long-lived assets by geographic area are those assets used in the Companys operations in each area.

Net foreign currency transaction gains of approximately $509,000, $53,000, and $881,000 for the years ended September 30, 2008, 2007, and 2006,
respectively, were primarily the result of the settlement of intercompany transactions and are included in the determination of net income (loss).

Note
16.    Commitments and Contingencies

Patents and Licenses

In the semiconductor industry, it is not unusual for companies to receive notices alleging infringement of patents or other intellectual property rights
of others. The Company has been, and from time-to-time expects to be, notified of claims that it may be infringing patents, maskwork rights or copyrights owned by third parties. If it appears necessary or desirable, the Company may seek licenses
under patents that it is alleged to be infringing. Although patent holders commonly offer such licenses, licenses may not be offered and the terms of any offered licenses may not be acceptable to the Company. The failure to obtain a license under a
key patent or intellectual property right from a third party for technology used by the Company could cause it to incur substantial liabilities and to suspend the manufacture of the products utilizing the invention or to attempt to develop
non-infringing products, any of which could materially and adversely affect the Companys business and operating results. Furthermore, there can be no assurance that the Company will not become involved in protracted litigation regarding its
alleged infringement of third party intellectual property rights or litigation to assert and protect its



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



patents or other intellectual property rights. Any litigation relating to patent infringement or other intellectual property matters could result in
substantial cost and diversion of the Companys resources that could materially and adversely affect the Companys business and operating results.

Litigation

Shareholder Derivative Actions

On July 18, 2006 and July 26, 2006, two purported shareholder derivative actions were filed against certain current and former directors and
officers of the Company in the United States District Court for the Northern District of California, entitled (1) Rick Tope v. Jimmy S.M. Lee, et al., Case No. C06-04387, and (2) Murray Donnelly v. Jimmy S.M. Lee, et al.,
Case No. C06-04545. The complaints purport to assert claims against the individual defendants on behalf of the Company for breach of fiduciary duty, violations of Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act)
and Rule 10b-5 promulgated thereunder, unjust enrichment, and restitution based upon its alleged stock option grant practices from 1995 through 2002. The Company is named solely as a nominal defendant. The complaints seek damages in an unspecified
amount against the individual defendants, disgorgement of stock options or proceeds, equitable relief, attorneys fees, and other unspecified relief. The Court consolidated the two derivative actions on August 22, 2006, under the caption
In re Integrated Silicon Solution, Inc. Shareholder Derivative Litigation, Master File No. C-06-04387 RMW. Plaintiffs filed a consolidated complaint on November 27, 2006, based upon the same underlying facts and circumstances alleged in
the prior complaints. In addition to the claims asserted and the relief sought in the original complaints, the consolidated complaint purports to assert claims against the individual defendants for aiding and abetting and violating Sections 14(a)
and 20(a) of the Exchange Act and seeks an accounting. The Company is again named solely as a nominal defendant.

On October 31, 2006,
another purported shareholder derivative action was filed against certain current and former directors and officers of the Company in the Superior Court of California for the County of Santa Clara, entitled Alex Chuzhoy v. Jimmy S.M. Lee, et
al., Case No. 1:06-CV-074031. The complaint purports to assert claims against the individual defendants on behalf of the Company for insider trading in violation of California Corporations Code Sections 25402 / 25502.5, breach of fiduciary
duty including in connection with the alleged insider selling and misappropriation, abuse of control, gross mismanagement, constructive fraud, corporate waste, unjust enrichment, and rescission, based upon the Companys alleged stock option
grant practices from 1995 through 2002. The Company is named solely as a nominal defendant. The complaint seeks damages in an unspecified amount against the individual defendants, an accounting, certain corporate governance changes, a constructive
trust over the defendants stock options or proceeds, punitive damages, attorneys fees, and other unspecified relief.

On
March 19, 2008, the Company and the individual defendants agreed with the plaintiffs-shareholders to settle both the federal and state shareholder derivative actions. The settlement is subject to preliminary and final approval of the United
States District Court for the Northern District of California. The Company and its insurers have agreed to pay up to $2.1 million to plaintiffs counsel for their attorneys fees and the reimbursement of their expenses and costs,
subject to approval of the federal court.

SRAM Antitrust Litigation

Thirty-three purported class action lawsuits were filed by U.S. Direct-Purchaser and U.S. Indirect-Purchaser Plaintiffs against the Company and other SRAM
suppliers in various U.S. federal courts alleging violations of the Sherman Act, violations of state unfair competition laws, and unjust enrichment relating to the sale and pricing of SRAM products. The U.S. lawsuits have been consolidated in a
single federal court for coordinated pre-trial proceedings. The U.S. lawsuits seek treble damages for the alleged damages sustained by purported class



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



members, in addition to restitution, costs and attorneys fees, as well as an injunction against the allegedly unlawful conduct. As of August 30,
2007, the Company was voluntarily dismissed from all lawsuits brought by the U.S. Indirect-Purchaser Plaintiffs pursuant to a Tolling Agreement between the Company and the U.S. Indirect-Purchaser Plaintiffs. The U.S. Indirect-Purchaser Plaintiffs
agreed not to name the Company as a defendant unless the Tolling Agreement is terminated according to terms specified in that agreement. On January 9, 2008, the Company was voluntarily dismissed without prejudice from one of the lawsuits
brought by the U.S. Direct-Purchaser Plaintiffs. The Company remains a defendant in three lawsuits brought by the U.S. Direct-Purchaser Plaintiffs.

Three purported class action lawsuits were filed against the Company and other SRAM suppliers in three Canadian courts alleging violation of the Canadian Competition Act and other unlawful conduct. The Canadian complaints seek compensatory
and punitive damages, in addition to declaratory relief, restitution, and costs. As of March 20, 2008, the Company entered into a Tolling Agreement with the Canadian Plaintiffs. Pursuant to the Tolling Agreement, all three Canadian lawsuits
have been discontinued as to the Company.

The Company is committed to defending itself against these claims and has instructed its counsel
to contest these actions vigorously. Given the preliminary stage of these proceedings and the inherent uncertainty in litigation, the Company is unable to predict the outcome of these suits. The final resolution of these alleged violations of
federal or state antitrust laws could have a material adverse effect on the Companys business, results of operations, or financial condition.

SRAM Antitrust Civil Investigative Demand

In May 2007, the Company received a civil investigative demand
(CID) from the Attorney General of the State of Florida. The CID is issued pursuant to the Florida Antitrust Act in the course of an official investigation to determine whether there is, has been, or may be a violation of state or
federal antitrust laws. Although not alleging any wrongdoing, the CID seeks documents and data relating to the Companys business. As of January 14, 2008 and effective as of May 7, 2007, the Companys obligation to respond to the
CID was suspended pursuant to the terms of a Tolling Agreement between the Company and the Attorney General of Florida. The Company intends to cooperate fully with the Attorney General of Florida in this investigation. Because the investigation is
at an early stage, the Company cannot predict the outcome of the investigation and its effect, if any, on its business.

Other Legal Proceedings

In the ordinary course of its business, as is common in the semiconductor industry, the Company has been involved in a limited
number of other legal actions, both as plaintiff and defendant, and could incur uninsured liability in any one or more of them. Although the outcome of these actions is not presently determinable, the Company believes that the ultimate
resolution of these matters will not have a material adverse effect on its financial position, cash flows or results of operations. However, no assurances can be given with respect to the extent or outcome of any such litigation in the
future.



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Operating Leases

The Company leases its facilities and the land upon which its building in Taiwan is situated under operating lease agreements that expire at various dates through 2016. The Company entered into a six year lease
effective February 2007 for its headquarters facility in San Jose, California. Minimum rental commitments under these leases are as follows (in thousands):



|                                 |  |   |      
|-------------------------------- |  | - | -----
|Fiscal year ending:              |  |  
|2009                             |  | $ | 742  
|2010                             |  |   | 663  
|2011                             |  |   | 702  
|2012                             |  |   | 659  
|2013                             |  |   | 560  
|Thereafter                       |  |   | 540  
|                                 |  |   |      
|Total minimum rental commitments |  | $ | 3,866
|                                 |  |   |      

Total rental expense, recorded on a straight-line basis, for the years ended September 30,
2008, 2007 and 2006 was approximately $1.2 million, $1.1 million (net of sublease income of $42,000) and $1.1 million (net of sublease income of $173,000), respectively.

Commitments to Wafer Fabrication Facilities

The Company issues purchase orders for wafers to various wafer foundries. These purchase orders are generally considered to be cancelable. However, to the degree that the wafers have entered into work-in-process, as a matter of practice it
becomes increasingly difficult to cancel the purchase order. As of September 30, 2008, the Company had approximately $19.9 million of purchase orders for which the related wafers had been entered into wafer work-in-process (manufacturing had
begun).

Note 17.    Employee 401(k) Plan

In August 1992, the Company established a defined contribution retirement plan with 401(k) plan features to provide retirement benefits to its eligible United States employees. Employees may make contributions through
payroll withholdings of up to the lesser of $15,500 ($20,500 for participants older than 50) or 60% of their annual compensation for 2008. The Company elected to make no matching contributions during the years ended September 30, 2008, 2007 and
2006. Administrative expenses relating to the plan are insignificant.

Note 18.    Related Party Transactions

The Company purchases goods from SMIC in which the Company has less than a 1% ownership interest. Lip-Bu Tan, a director of the Company through
July 30, 2007, had been a director of SMIC since January 2002. For the ten months ended July 31, 2007 and the fiscal year ended September 30, 2006, purchases of goods from SMIC were approximately $17,520,000 and $21,352,000,
respectively.

The Company sells semiconductor products to Key Stream Corp. (KSC) in which the Company had an approximate 22% equity
interest until it sold its investment in December 2006. Kong-Yeu Han, a director of the Company, was a director of KSC until December 2006.

The Company sells memory products to Flextronics. Lip-Bu Tan, a director of the Company through July 30, 2007, has been a director of Flextronics since April 2003. The Company had been doing business with Flextronics prior to
Mr. Tan joining the board of directors of Flextronics.



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table shows sales to related parties for the years ended September 30:



|                         |  |                           |   |      |   |       |  |   |    
|------------------------ |  | ------------------------- | - | ---- | - | ----- |  | - | ---
|                         |  | Years Ended September 30,
|                         |  | 2008                      |   | 2007 |   | 2006 
|                         |  | (in thousands)           
|Sales to related parties |  |                           |   |      |   |       |  |   |    
|Flextronics              |  | $                         |  |      | $ | 1,751 |  | $ | 830
|KSC                      |  |                           |  |      |   | 13    |  |   | 140
|Others                   |  |                           |  |      |   |      |  |   |   
|                         |  |                           |   |      |   |       |  |   |    
|Total                    |  | $                         |  |      | $ | 1,764 |  | $ | 970
|                         |  |                           |   |      |   |       |  |   |    

Note 19.    Acquisition of ICSI

On January 25, 2005, the Company announced its intent to acquire the remaining 71% of ICSI that the Company did not then own. On May 1, 2005,
ISSI assumed control of ICSI and began consolidating the financial results of ICSI with its own results. In the nine months ended September 30, 2005, the Company purchased additional shares of ICSI for approximately $52.5 million, increasing
its ownership percentage to approximately 83%. The total purchase price allocation in fiscal 2005 of $61.0 million included ISSIs previous investment of $8.5 million. In fiscal 2006, the Company purchased additional shares of ICSI for
approximately $13.9 million, increasing its percentage ownership to approximately 98%. In fiscal 2007, the Company purchased additional shares of ICSI for approximately $0.3 million. The Company owned approximately 98% of ICSI at September 30,
2008.

The Company is accounting for the acquisition of ICSI as a step acquisition. The allocation of the purchase price of ICSI includes
both tangible assets and acquired intangible assets including both developed technology and in-process research and development (IPR&D). The excess of the purchase price over the fair value allocated to the net assets is goodwill. The Company
currently does not expect to receive a tax benefit for goodwill. The amounts allocated to IPR&D have been expensed as it was deemed to have no future alternative value.

The purchase price allocation for the year ended September 30 is as follows:



|                                    |  |                |     |      |   |        |  |   |        |  
|----------------------------------- |  | -------------- | --- | ---- | - | ------ |  | - | ------ | -
|                                    |  | 2007           |     | 2006 |   | 2005   | 
|                                    |  | (in thousands) |    
|Net tangible assets                 |  | $              |    |      | $ | 1,097  |  | $ | 40,124 |  
|Intangible assets:                  |  |                |     |      |   |        |  |   |        |  
|In-process research and development |  |                |    |      |   | 499    |  |   | 2,470  |  
|Purchased intangible assets         |  |                | 174 |      |   | 1,438  |  |   | 5,583  |  
|Goodwill                            |  |                |    |      |   | 6,226  |  |   | 19,112 |  
|Minority interest                   |  |                | 133 |      |   | 4,600  |  |   | (6,245 | )
|                                    |  |                |     |      |   |        |  |   |        |  
|Total purchase price allocation     |  | $              | 307 |      | $ | 13,860 |  | $ | 61,044 |  
|                                    |  |                |     |      |   |        |  |   |        |  

The developed technology is being amortized over lives ranging from four to six years and the
other amortizable intangible assets are being amortized over lives ranging from six months to five years.

In September 2008, the Company
wrote off all $25.3 million of the goodwill acquired in the acquisition of ICSI. See Note 7: Purchased Intangible Assets.



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INTEGRATED SILICON SOLUTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 20.    Quarterly Financial Information (unaudited)

The following tables show the quarterly results of operations for each of the years ended September 30, 2008 and 2007.



|                                              |  |                                       |         |      |              |   |        |               |  |   |              |   |  |   |        |  
|--------------------------------------------- |  | ------------------------------------- | ------- | ---- | ------------ | - | ------ | ------------- |  | - | ------------ | - |  | - | ------ | -
|Fiscal 2008                                   |  | FourthQuarter                         |         |      | ThirdQuarter |   |        | SecondQuarter |  |   | FirstQuarter |  
|                                              |  | (in thousands, except per share data) |        
|Net sales                                     |  | $                                     | 55,341  |      |              | $ | 58,494 |               |  | $ | 58,046       |   |  | $ | 63,348 |  
|Gross profit                                  |  | $                                     | 13,388  |      |              | $ | 13,311 |               |  | $ | 13,296       |   |  | $ | 13,201 |  
|Operating income (loss)                       |  | $                                     | (25,750 | )(1) |              | $ | (332   | )             |  | $ | 898          |   |  | $ | 765    |  
|Net income (loss)                             |  | $                                     | (24,711 | )(1) |              | $ | 1,998  |               |  | $ | 1,983        |   |  | $ | 2,967  |  
|Basic and diluted net income (loss) per share |  | $                                     | (0.92   | )    |              | $ | 0.07   |               |  | $ | 0.07         |   |  | $ | 0.08   |  
|Market price range common stock:              |  |                                       |         |      |              |   |        |               |  |   |              |   |  |   |        |  
|High                                          |  | $                                     | 5.57    |      |              | $ | 6.34   |               |  | $ | 6.94         |   |  | $ | 7.08   |  
|Low                                           |  | $                                     | 2.31    |      |              | $ | 5.42   |               |  | $ | 5.46         |   |  | $ | 5.55   |  
|                                              |  |                                       |         |     
|Fiscal 2007                                   |  |                                       |         |      |              |   |        |               |  |   |              |  
|Net sales                                     |  | $                                     | 63,329  |      |              | $ | 59,927 |               |  | $ | 59,995       |   |  | $ | 62,144 |  
|Gross profit                                  |  | $                                     | 12,762  |      |              | $ | 11,735 |               |  | $ | 11,394       |   |  | $ | 12,545 |  
|Operating income (loss)                       |  | $                                     | 1,052   |      |              | $ | (1,119 | )             |  | $ | (2,421       | ) |  | $ | (1,910 | )
|Net income                                    |  | $                                     | 3,252   |      |              | $ | 4,918  |               |  | $ | 7,061        |   |  | $ | 130    |  
|Basic and diluted net income per share        |  | $                                     | 0.09    |      |              | $ | 0.13   |               |  | $ | 0.19         |   |  | $ | 0.00   |  
|Market price range common stock:              |  |                                       |         |      |              |   |        |               |  |   |              |   |  |   |        |  
|High                                          |  | $                                     | 6.95    |      |              | $ | 6.49   |               |  | $ | 6.37         |   |  | $ | 6.37   |  
|Low                                           |  | $                                     | 5.24    |      |              | $ | 5.38   |               |  | $ | 5.43         |   |  | $ | 5.10   |  



|(1) | In the September 2008 quarter, the Company recorded a charge of approximately $25.3 million related to the impairment of goodwill.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

Note 21.    Subsequent Event (unaudited)

In November 2008, the Company elected to participate in the Auction Rate Securities Rights offering issued by the broker through which it purchased its $20.0 million in auction rate securities. These rights will entitle the Company to sell
its auction rate securities to the broker for a price equal to par value plus accrued but unpaid dividends beginning in June 2010.



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

Not applicable.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report on Form
10-K, as required by paragraph (b) of Rule 13a-15 or Rule 15d-15 under the Securities Exchange Act of 1934, as amended, we evaluated under the supervision of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our
disclosure controls and procedures were effective at September 30, 2008 to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 (i) is recorded, processed,
summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) is accumulated and communicated to our management, including Chief Executive Officer and our Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance that such information is accumulated and communicated to our management. Our disclosure controls
and procedures include components of our internal control over financial reporting. Managements assessment of the effectiveness of our internal control over financial reporting is expressed at the level of reasonable assurance because a
control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control systems objectives will be met.

Managements Report on Internal Control over Financial Reporting

Our management is responsible
for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the Company are being made only in accordance with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on the financial statements.

Management assessed our internal control over
financial reporting as of September 30, 2008, the end of our fiscal year. Management based its assessment on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Managements assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. This
assessment is supported by testing and monitoring performed by our finance organization.

Based on our assessment, management has concluded
that our internal control over financial reporting was effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting
purposes in accordance with generally accepted accounting principles. We reviewed the results of managements assessment with the Audit Committee of our Board of Directors.

Our independent registered accounting firm, Grant Thornton LLP, who also audited our consolidated financial statements, audited the effectiveness of our
internal control over financial reporting. Grant Thornton LLP has issued its attestation report, which is included in Part II, Item 8 of this Annual Report on Form 10-K.



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Changes in Internal Control over Financial Reporting

During the three months ended September 30, 2008, there were no changes in our internal control over financial reporting identified in connection
with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that was conducted during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.

Item 9B. Other Information

Not applicable.



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PART III

Item 10. Directors, Executive Officers and Corporate Governance

Executive OfficersSee the section entitled Executive Officers in Part I, Item 1 hereof.

DirectorsThe
information required by this Item is incorporated by reference from the section entitled Election of Directors in our 2009 Proxy Statement.

The disclosure required by Item 405 of Regulation S-K is incorporated by reference from the section entitled Section 16(a) Beneficial Ownership Reporting Compliance in our 2009 Proxy Statement.

We have adopted a Code of Business Conduct and Ethics that applies to all directors and employees, including our principal executive
officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our Code of Business Conduct and Ethics is posted on our website at http://www.issi.com/. We intend to disclose future
amendments to certain provisions of the Code of Business Conduct and Ethics, or waivers of such provisions granted to executive officers and directors, on our website within four business days following the date of such amendment or waiver.

The disclosure required by Items 407 (c)(3), (d)(4), and (d)(5) of Regulation S-K is incorporated by reference from the section entitled
Election of Directors in our 2009 Proxy Statement.

Item 11. Executive Compensation

The information required by Items 402 and 407 (e)(4) and (e)(5) of Regulation S-K is incorporated by reference from the sections entitled
Compensation of Executive Officers, Compensation of Directors, Compensation Committee Interlocks and Insider Participation, and Report of the Compensation Committee of the Board of Directors, in our
2009 Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters

The disclosure required by Item 403 of Regulation S-K is incorporated by reference from the sections entitled
Security Ownership of Principal Stockholders, Directors and Executive OfficersBeneficial Owners and Security Ownership of Principal Stockholders, Directors and Executive OfficersSecurity Ownership of Management in
our 2009 Proxy Statement.

Securities Authorized for Issuance Under Equity Compensation Plans

The information required by Item 201(d) of Regulation S-K regarding securities authorized for issuance under equity compensation plans is
incorporated by reference from the section entitled Equity Compensation Plan Information in our 2009 Proxy Statement.

Item 13. Certain
Relationships and Related Transactions and Director Independence

The information required by this Item is
incorporated by reference from the sections entitled Certain Transactions and Election of Directors in our 2009 Proxy Statement.

Item 14. Principal Accountant Fees and Services

The information required by this Item
appears under Fees Paid to Accountants and Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors in our 2009 Proxy Statement. Those portions of the Proxy Statement are incorporated
by reference to this report.



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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) List of
documents filed as part of this Report.



| | 1. | Financial Statements:See Index to Consolidated Financial Statements under Item 8 on page 43 of this Annual Report.
| | -- | --------------------------------------------------------------------------------------------------------------------

The following consolidated financial statements of Integrated Silicon Solution, Inc. are contained in Part II, Item 8 of this Report on Form
10-K:

Reports of Independent Registered Public Accounting Firm

Consolidated Statements of Operations

Consolidated Balance Sheets

Consolidated Statements of Cash Flows

Consolidated Statements of Stockholders Equity

Notes to Consolidated Financial Statements



| | 2. | Financial Statement Schedules
| | -- | -----------------------------

All other schedules
for which provision is made in the Applicable Accounting Regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted, as the information is contained in
Part II, Item 8 of this Report on Form 10-K.



| | 3. | Exhibits
| | -- | --------



|              |  |                                                                                                                                                                                                                                                   
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                                                                                                                                                                                           
|3.1(2)        |  | Restated Certificate of Incorporation of Registrant.                                                                                                                                                                                              
|              | 
|3.2(6)        |  | Amendment to Restated Certificate of Incorporation of Registrant.                                                                                                                                                                                 
|              | 
|3.3(8)        |  | Bylaws of Registrant.                                                                                                                                                                                                                             
|              | 
|4.2(1)        |  | Form of Common Stock Certificate.                                                                                                                                                                                                                 
|              | 
|10.1(1)       |  | Form of Indemnification Agreement.                                                                                                                                                                                                                
|              | 
|10.2(7)*      |  | Form of 1993 Employee Stock Purchase Plan, as amended, and form of Subscription Agreement.                                                                                                                                                        
|              | 
|10.3(3)*      |  | Form of 1989 Stock Plan, as amended, and form of Stock Option Agreements.                                                                                                                                                                         
|              | 
|10.4(8)*      |  | 1995 Director Stock Option Plan, as amended.                                                                                                                                                                                                      
|              | 
|10.5(5)*      |  | Nonstatutory Stock Plan, as amended.                                                                                                                                                                                                              
|              | 
|10.6(4)*      |  | 1998 Stock Plan, as amended.                                                                                                                                                                                                                      
|              | 
|10.7(9)*      |  | 2007 Incentive Compensation Plan.                                                                                                                                                                                                                 
|              | 
|10.8(11)*     |  | Executive Bonus Plan.                                                                                                                                                                                                                             
|              | 
|10.9(10)      |  | Letter Agreement dated as of November 28, 2007, among Integrated Silicon Solution, Inc., Riley Investment Management, LLC, Riley Investment
Partners Master Fund, L.P., Bryant R. Riley, B. Riley & Co. Retirement Trust, and B. Riley & Co., LLC.
|              | 
|10.10(10)     |  | Letter Agreement dated as of November 28, 2007, between Integrated Silicon Solution, Inc. and Melvin Keating.                                                                                                                                     



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|              |  |                                                                                                                                                                                                                                                                                                                                                                                                 
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                         
|10.11(10)     |  | Standstill Agreement dated as of November 28, 2007 among Integrated Silicon Solution, Inc., Riley Investment Management, LLC, Riley
Investment Partners Master Fund, L.P., Bryant R. Riley, B. Riley & Co. Retirement Trust, and B. Riley & Co., LLC.                                                                                                                                           
|              | 
|10.12(10)     |  | Standstill Agreement dated as of November 28, 2007, by and among Integrated Silicon Solution, Inc., Trust A-4 - Lloyd I. Miller, an
Ohio trust, Trust C - Lloyd I. Miller, an Ohio trust, Milgrat I(OOOOO), an Ohio trust, Milgrat II(FF), an Ohio trust, Milgrat I(XXX), an Ohio trust, Milgrat I(ZZZZ), an Ohio trust, Milfam II L.P., a Georgia limited partnership and Lloyd I.
Miller, III.
|              | 
|21.1          |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                                                 
|              | 
|23.1          |  | Consent of Independent Registered Public Accounting Firm (Grant Thornton LLP).                                                                                                                                                                                                                                                                                                                  
|              | 
|23.2          |  | Consent of Independent Registered Public Accounting Firm (Ernst & Young LLP).                                                                                                                                                                                                                                                                                                                   
|              | 
|24.1          |  | Power of Attorney (see page 86).                                                                                                                                                                                                                                                                                                                                                                
|              | 
|31.1          |  | Certification Pursuant to SEC Release No. 33-8238, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.                                                                                                                                                                                                                                                                        
|              | 
|31.2          |  | Certification Pursuant to SEC Release No. 33-8238, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.                                                                                                                                                                                                                                                                        
|              | 
|32.1          |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                                                                                                                                                                                                                                         



|* | Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Report on Form 10-K pursuant to item 15(b) of this report.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|(1) | Incorporated by reference to the Companys Registration Statement on Form S-1, as amended (file no. 33-72960).
|--- | --------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to the Companys Registration Statement on Form S-1, as amended (file no. 33-91520).
|--- | --------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to the Companys Registration Statement on Form S-8 filed April 22, 1998.
|--- | ---------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to the Companys Registration Statement on Form S-8 filed March 9, 2001.
|--- | --------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to the Companys Registration Statement on Form S-8 filed November 21, 2002.
|--- | ------------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to the Companys Annual Report on Form 10-K for the period ended September 30, 2003.
|--- | --------------------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the period ended December 31, 2005.
|--- | ----------------------------------------------------------------------------------------------------------------

|(8) | Incorporated by reference to the Companys Report on Form 8-K filed September 12, 2006.
|--- | ---------------------------------------------------------------------------------------

|(9) | Incorporated by reference to the Companys Report on Form 8-K filed August 14, 2007.
|--- | ------------------------------------------------------------------------------------

|(10) | Incorporated by reference to the Companys Report on Form 8-K filed December 3, 2007.
|---- | -------------------------------------------------------------------------------------

|(11) | Incorporated by reference to the Companys Report on Form 8-K filed November 12, 2008.
|---- | --------------------------------------------------------------------------------------



| | (b) | Exhibits
| | --- | --------

See (3) above

| | (c) | Financial statement schedules
| | --- | -----------------------------

See (2) above



85



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##### Table of Contents

SIGNATURES

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



INTEGRATED SILICON SOLUTION, INC.By

/s/    SCOTT D.
HOWARTHScott D. Howarth President and Chief Executive OfficerDate: December 15, 2008


POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Scott D. Howarth and John M. Cobb, and
each of them acting individually, as his attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorney to any and all amendments to said Report.

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
Registrant and in the capacities indicated.



|                                           |  |                                                                                                  
|------------------------------------------ |  | -------------------------------------------------------------------------------------------------
|Signature                                  |  | Title                                                                                            
|                                           | 
|/s/    JIMMY S.M.
LEE (Jimmy S.M. Lee)     |  | Executive Chairman of the Board                                                                  
|                                           | 
|/s/    SCOTT D.
HOWARTH (Scott D. Howarth) |  | Director, President and Chief Executive Officer (Principal Executive Officer)                    
|                                           | 
|/s/    JOHN M.
COBB (John M. Cobb)         |  | Vice President and Chief Financial Officer (Principal Financial and Principal Accounting Officer)
|                                           | 
|/s/    KONG-YEU
HAN (Kong-Yeu Han)         |  | Director and Vice Chairman                                                                       
|                                           | 
|/s/    PAUL
CHIEN (Paul Chien)             |  | Director                                                                                         
|                                           | 
|/s/    JONATHAN
KHAZAM (Jonathan Khazam)   |  | Director                                                                                         
|                                           | 
|/s/    KEITH
MCDONALD (Keith McDonald)     |  | Director                                                                                         
|                                           | 
|/s/    STEPHEN
PLETCHER (Stephen Pletcher) |  | Director                                                                                         
|                                           | 
|/s/    BRUCE A.
WOOLEY (Bruce A. Wooley)   |  | Director                                                                                         
|                                           | 
|/s/    JOHN
ZIMMERMAN (John Zimmerman)     |  | Director                                                                                         

Date: December 15, 2008



86



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##### Table of Contents

EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                 
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                         
|3.1(2)        |  | Restated Certificate of Incorporation of Registrant.                                                                                                                                                                                                                                                                                                                                            
|              | 
|3.2(6)        |  | Amendment to Restated Certificate of Incorporation of Registrant.                                                                                                                                                                                                                                                                                                                               
|              | 
|3.3(8)        |  | Bylaws of Registrant.                                                                                                                                                                                                                                                                                                                                                                           
|              | 
|4.2(1)        |  | Form of Common Stock Certificate.                                                                                                                                                                                                                                                                                                                                                               
|              | 
|10.1(1)       |  | Form of Indemnification Agreement.                                                                                                                                                                                                                                                                                                                                                              
|              | 
|10.2(7)*      |  | Form of 1993 Employee Stock Purchase Plan, as amended, and form of Subscription Agreement.                                                                                                                                                                                                                                                                                                      
|              | 
|10.3(3)*      |  | Form of 1989 Stock Plan, as amended, and form of Stock Option Agreements.                                                                                                                                                                                                                                                                                                                       
|              | 
|10.4(8)*      |  | 1995 Director Stock Option Plan, as amended.                                                                                                                                                                                                                                                                                                                                                    
|              | 
|10.5(5)*      |  | Nonstatutory Stock Plan, as amended.                                                                                                                                                                                                                                                                                                                                                            
|              | 
|10.6(4)*      |  | 1998 Stock Plan, as amended.                                                                                                                                                                                                                                                                                                                                                                    
|              | 
|10.7(9)*      |  | 2007 Incentive Compensation Plan.                                                                                                                                                                                                                                                                                                                                                               
|              | 
|10.8(11)      |  | Executive Bonus Plan.                                                                                                                                                                                                                                                                                                                                                                           
|              | 
|10.9(10)      |  | Letter Agreement dated as of November 28, 2007, among Integrated Silicon Solution, Inc., Riley Investment Management, LLC, Riley Investment
Partners Master Fund, L.P., Bryant R. Riley, B. Riley & Co. Retirement Trust, and B. Riley & Co., LLC.                                                                                                                                              
|              | 
|10.10(10)     |  | Letter Agreement dated as of November 28, 2007, between Integrated Silicon Solution, Inc. and Melvin Keating.                                                                                                                                                                                                                                                                                   
|              | 
|10.11(10)     |  | Standstill Agreement dated as of November 28, 2007 among Integrated Silicon Solution, Inc., Riley Investment Management, LLC, Riley
Investment Partners Master Fund, L.P., Bryant R. Riley, B. Riley & Co. Retirement Trust, and B. Riley & Co., LLC.                                                                                                                                           
|              | 
|10.12(10)     |  | Standstill Agreement dated as of November 28, 2007, by and among Integrated Silicon Solution, Inc., Trust A-4 - Lloyd I. Miller, an Ohio
trust, Trust C - Lloyd I. Miller, an Ohio trust, Milgrat I(OOOOO), an Ohio trust, Milgrat II(FF), an Ohio trust, Milgrat I(XXX), an Ohio trust, Milgrat I(ZZZZ), an Ohio trust, Milfam II L.P., a Georgia limited partnership and Lloyd I. Miller, III.
|              | 
|21.1          |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                                                 
|              | 
|23.1          |  | Consent of Independent Registered Public Accounting Firm (Grant Thornton LLP).                                                                                                                                                                                                                                                                                                                  
|              | 
|23.2          |  | Consent of Independent Registered Public Accounting Firm (Ernst & Young LLP).                                                                                                                                                                                                                                                                                                                   
|              | 
|24.1          |  | Power of Attorney (see page 86).                                                                                                                                                                                                                                                                                                                                                                



87



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##### Table of Contents

|              |  |                                                                                                                         
|------------- |  | ------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                                                                 
|31.1          |  | Certification Pursuant to SEC Release No. 33-8238, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|              | 
|31.2          |  | Certification Pursuant to SEC Release No. 33-8238, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|              | 
|32.1          |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. 



|* | Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Report on Form 10-K pursuant to item 15(b) of this report.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|(1) | Incorporated by reference to the Companys Registration Statement on Form S-1, as amended (file no. 33-72960).
|--- | --------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to the Companys Registration Statement on Form S-1, as amended (file no. 33-91520).
|--- | --------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to the Companys Registration Statement on Form S-8 filed April 22, 1998.
|--- | ---------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to the Companys Registration Statement on Form S-8 filed March 9, 2001.
|--- | --------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to the Companys Registration Statement on Form S-8 filed November 21, 2002.
|--- | ------------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to the Companys Annual Report on Form 10-K for the period ended September 30, 2003.
|--- | --------------------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the period ended December 31, 2005.
|--- | ----------------------------------------------------------------------------------------------------------------

|(8) | Incorporated by reference to the Companys Report on Form 8-K filed September 12, 2006.
|--- | ---------------------------------------------------------------------------------------

|(9) | Incorporated by reference to the Companys Report on Form 8-K filed August 14, 2007.
|--- | ------------------------------------------------------------------------------------

|(10) | Incorporated by reference to the Companys Report on Form 8-K filed December 3, 2007.
|---- | -------------------------------------------------------------------------------------

|(11) | Incorporated by reference to the Companys Report on Form 8-K filed November 12, 2008.
|---- | --------------------------------------------------------------------------------------



88