<PAGE>   1
                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

(Mark One)
[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
       EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 1998.

                                       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 000-23084.


                        INTEGRATED SILICON SOLUTION, INC.



                 Delaware                                    77-0199971.
        (State or other jurisdiction of                    (I.R.S Employer
        incorporation or organization)                    Identification No.)

         2231 Lawson Lane, Santa Clara, California              95054
        (Address of principal executive offices)               zip code

        Registrant's telephone number, including area code  (408) 588-0800.

        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 [ ]

        The number of outstanding shares of the registrant's Common Stock as of
April 30, 1998 was 19,174,771



<PAGE>   2
                        INTEGRATED SILICON SOLUTION, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                      (In thousands, except per share data)


<TABLE>
<CAPTION>
                                                      Three Months Ended               Six Months Ended
                                                            March 31,                       March 31,
                                                   ------------------------        ------------------------
                                                     1998            1997            1998            1997
                                                   --------        --------        --------        --------
<S>                                                <C>             <C>             <C>             <C>     
Net sales                                          $ 40,652        $ 25,794        $ 80,066        $ 49,404
Cost of sales                                        28,219          18,225          58,437          35,196
                                                   --------        --------        --------        --------
Gross Profit                                         12,433           7,569          21,629          14,208
                                                   --------        --------        --------        --------

Operating Expenses:
  Research and development                            8,370           5,977          15,771          11,652
  Selling, general and administrative                 4,577           3,861           9,227           7,422
  In-process technology charge                           --              --           7,078              --
                                                   --------        --------        --------        --------
    Total operating expenses                         12,947           9,838          32,076          19,074
                                                   --------        --------        --------        --------

Operating loss                                         (514)         (2,269)        (10,447)         (4,866)
Other income, net                                       822             625           1,077           1,356
                                                   --------        --------        --------        --------
Income (loss) before income taxes and
  minority interest                                     308          (1,644)         (9,370)         (3,510)
Provision (benefit) for income taxes                    297            (156)            355            (342)
                                                   --------        --------        --------        --------

Net income (loss) before minority interest               11          (1,488)         (9,725)         (3,168)
Minority interest in net loss of
  consolidated subsidiary                                --              --              --             (18)
                                                   --------        --------        --------        --------

Net income (loss)                                  $     11        $ (1,488)       $ (9,725)       $ (3,150)
                                                   ========        ========        ========        ========

Basic income (loss) per share                      $   0.00        $  (0.08)       $  (0.52)       $  (0.18)
                                                   ========        ========        ========        ========
Shares used in basic per share calculation           18,996          17,701          18,598          17,658
                                                   ========        ========        ========        ========

Diluted income (loss) per share                    $   0.00        $  (0.08)       $  (0.52)       $  (0.18)
                                                   ========        ========        ========        ========
Shares used in diluted per share calculation         19,626          17,701          18,598          17,658
                                                   ========        ========        ========        ========
</TABLE>



     See accompanying notes to condensed consolidated financial statements.


                                       1
<PAGE>   3
                        INTEGRATED SILICON SOLUTION, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                            March 31,      September 30,
                                                              1998             1997
                                                           ---------        ---------
                                                          (unaudited)          (1)
<S>                                                        <C>              <C>
                                     ASSETS
Current assets:
  Cash and cash equivalents                                $  20,083        $  22,334
  Restricted cash                                              5,153            5,202
  Short-term investments                                       8,100           25,600
  Accounts receivable                                         20,688           18,478
  Inventories                                                 69,797           40,730
  Other current assets                                         7,927            7,472
                                                           ---------        ---------

Total current assets                                         131,748          119,816
Property, equipment, and leasehold improvements, net          26,172           27,693
Construction in progress                                       9,862            6,343
Other assets                                                  54,023           41,744
                                                           ---------        ---------
Total assets                                               $ 221,805        $ 195,596
                                                           =========        =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Notes payable                                            $  14,613        $   6,152
  Accounts payable                                            54,787           23,138
  Accrued compensation and benefits                            2,834            3,424
  Accrued expenses                                             3,618            8,725
  Income tax payable                                             814              582
  Current portion of long-term obligations                     1,599            2,251
                                                           ---------        ---------

Total current liabilities                                     78,265           44,272
Income tax payable - non-current                               4,996            5,059
Long-term obligations                                         13,917           11,698

Stockholders' equity:
  Preferred stock                                                 --               --
  Common stock                                                     2                2
  Additional paid-in capital                                 114,639          106,769
  Retained earnings                                           22,541           32,266
  Cumulative translation adjustment                          (12,376)          (4,248)
  Unearned compensation                                         (179)            (222)
                                                           ---------        ---------

Total stockholders' equity                                   124,627          134,567
                                                           ---------        ---------
Total liabilities and stockholders' equity                 $ 221,805        $ 195,596
                                                           =========        =========
</TABLE>


                 (1) Derived from audited financial statements.
     See accompanying notes to condensed consolidated financial statements.


                                       2
<PAGE>   4
                        INTEGRATED SILICON SOLUTION, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                     Six Months Ended
                                                                                          March 31,
                                                                                  --------------------------
                                                                                     1998             1997
                                                                                  ---------        ---------
<S>                                                                               <C>              <C>       
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                                        $  (9,725)       $  (3,150)
  In-process technology charge                                                        7,078               --
  Other charges to net loss not affecting cash                                        3,843            5,066
  Net effect of changes in current and other assets and current liabilities          (5,201)           5,403
                                                                                  ---------        ---------
     Cash provided by (used in) operating activities                                 (4,005)           7,319

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures                                                               (8,930)          (6,025)
  Purchases of available-for-sale securities                                        (25,550)        (116,075)
  Sales of available-for-sale securities                                             43,050          143,925
  Investment in Wafertech, LLC                                                      (12,480)          (9,360)
  Investment in United Integrated Circuits Corp                                      (4,730)         (12,983)
  Acquisition of Nexcom                                                                (869)              --
                                                                                  ---------        ---------
     Cash used in investing activities                                               (9,509)            (518)

CASH FLOWS FROM FINANCING ACTIVITIES
  Borrowings under notes payable and long-term obligations                           32,666            5,851
  Proceeds from issuance of common stock                                              1,535              903
  Principal payments on notes payable and long-term obligations                     (21,512)          (9,820)
  Decrease (increase) in restricted cash                                                 --            1,820
                                                                                  ---------        ---------
     Cash provided by (used in) financing activities                                 12,689           (1,246)
                                                                                  ---------        ---------

Effect of exchange rate changes on cash and cash equivalents                         (1,426)             (10)
                                                                                  ---------        ---------

Net increase (decrease) in cash and cash equivalents                                 (2,251)           5,545
Cash and cash equivalents at beginning of period                                     22,334           12,237
                                                                                  ---------        ---------
Cash and cash equivalents at end of period                                        $  20,083        $  17,782
                                                                                  =========        =========
</TABLE>


     See accompanying notes to condensed consolidated financial statements.


                                       3
<PAGE>   5
                        INTEGRATED SILICON SOLUTION, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


1.      BASIS OF PRESENTATION

        The accompanying condensed financial statements include the accounts of
Integrated Silicon Solution, Inc. (the "Company") and its consolidated majority
owned subsidiaries, after elimination of all significant intercompany accounts
and transactions, and have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for fair presentation have
been included.

        Operating results for the six months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year ending
September 30, 1998.


2.      CUSTOMER CONCENTRATION

        Sales to one customer accounted for approximately 24% and 25% of total
net sales for the quarter ended March 31, 1998 and March 31,1997, respectively,
and approximately 25% and 24% of total net sales for the six months ended March
31, 1998 and March 31, 1997, respectively.


3.      CASH, CASH EQUIVALENTS, RESTRICTED CASH AND SHORT-TERM INVESTMENTS

        Cash, cash equivalents, restricted cash, and short-term investments
consisted of the following:



<TABLE>
<CAPTION>
                                              March 31,    September 30,
                                                1998           1997
                                               -------       -------
                                                  (In thousands)
<S>                                            <C>           <C>    
Cash ...................................       $13,793       $21,953
Money market instruments ...............           242           480
Certificates of deposit ................        11,201         5,103
Auction preferred stock ................         1,000        13,200
Municipal bonds due in more than 3 years         7,100        12,400
                                               -------       -------
                                               $33,336       $53,136
                                               =======       =======
</TABLE>


4.      INVENTORIES

        The following is a summary of inventories by major category:


<TABLE>
<CAPTION>
                                                    March 31,          September 30,
                                                       1998                1997
                                                     -------             -------
                                                           (In thousands)
<S>                                                  <C>                 <C>    
Raw materials ..........................             $16,709             $10,444
Work-in-process ........................              16,558              10,199
Finished goods .........................              36,530              20,087
                                                     -------             -------
                                                     $69,797             $40,730
                                                     =======             =======
</TABLE>




                                       4
<PAGE>   6

                        INTEGRATED SILICON SOLUTION, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


5.      INCOME TAXES

        The income tax provision for the six month period ended March 31, 1998
is based on an annual estimate of Taiwan taxable income after the exemption for
the Taiwan tax holiday plus withholding taxes. The effective tax rate for the
six months ended March 31, 1998 differs from the federal statutory rate
primarily as a result of a valuation allowance established to cover a portion of
the current year federal net operating loss which will not be realized on a
current basis based on management's expectations of future taxable income and
actual taxable income for the prior years. In addition, the in-process
technology charge related to the acquisition of Nexcom will not be deductible
for tax purposes.


6.       NET LOSS PER SHARE

        In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share". Statement No. 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. Earnings per share amounts for all periods have been
restated to conform to the Statement No. 128 requirements.

        The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share amounts):


<TABLE>
<CAPTION>
                                                      Three Months Ended          Six Months Ended
                                                           March 31,                  March 31,
                                                    ---------------------      ----------------------
                                                      1998         1997          1998          1997
                                                    --------     --------      --------      --------
<S>                                                 <C>          <C>           <C>           <C>      
Net income (loss)                                   $     11     $ (1,488)     $ (9,725)     $ (3,150)
                                                    ========     ========      ========      ========

Weighted average common shares outstanding            18,996       17,701        18,598        17,658
Denominator for basic income (loss) per share         18,996       17,701        18,598        17,658
                                                    --------     --------      --------      --------

Dilutive stock options                                   630           --            --            --
                                                    --------     --------      --------      --------

Denominator for diluted income (loss) per share       19,626       17,701        18,598        17,658
                                                    ========     ========      ========      ========

Basic income (loss) per share                       $   0.00     $  (0.08)     $  (0.52)     $  (0.18)
                                                    ========     ========      ========      ========
Diluted income (loss) per share                     $   0.00     $  (0.08)     $  (0.52)     $  (0.18)
                                                    ========     ========      ========      ========
</TABLE>


        The above diluted calculation for the three months ended March 31, 1998
and 1997, does not include approximately 821,000 and 1,938,000 shares
attributable to options as of March 31, 1998 and 1997, respectively, as their
impact would be anti-dilutive. The above diluted calculation for the six months
ended March 31, 1998 and 1997, does not include approximately 689,000 and
1,126,000 shares attributable to options as of March 31, 1998 and 1997,
respectively, as their impact would be anti-dilutive.


                                       5
<PAGE>   7
                        INTEGRATED SILICON SOLUTION, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


7.      USE OF ESTIMATES

        The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

8.      LITIGATION

         On April 22, 1998, the U.S. Department of Commerce ("DOC") published an
amended antidumping duty order on imports of SRAMs from Taiwan from where the
Company currently imports a majority of its SRAMs. As a consequence of this
antidumping duty order, the Company is required to post a cash deposit on
imports of Taiwan fabricated SRAM wafers or devices, at the ad valorem rate of
7.56%. The cash deposits subsequently could be returned to the Company or,
alternatively, the Company could owe duties and interest in addition to the
amounts deposited, depending on whether the DOC conducts an administrative
review of imports entered after the imposition of the antidumping order, and if
so, on the results of the DOC review. The decision of whether to conduct a
review will be made in 1999, and the results of the review would be issued in
the year 2000.

        The Company has retained legal counsel to defend its interests in the
antidumping proceedings. In addition, certain aspects of the affirmative
antidumping determination may be challenged in federal court proceedings by some
of the respondents to the investigation, and these proceedings could result in
the termination of this antidumping case, although the prospects of these legal
appeals, if undertaken, are not known. Duties, if any, calculated and assessed
by the government could have a material adverse affect on the Company's gross
margins and profits.


9.      IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

        In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, "Reporting Comprehensive Income" (FAS No. 130) and Statement No. 131
"Disclosures About Segments of An Enterprise and Related Information" (FAS No.
131). FAS No. 130 establishes rules for reporting and displaying comprehensive
income. FAS No. 131 will require the Company to use the "management approach" in
disclosing segment information. Both statements are effective for the Company
during fiscal 1999. The Company does not believe that the adoption of either FAS
No. 130 or FAS No. 131 will have a material impact on the Company's results of
operations, cash flows, or financial position. However, comprehensive income
will differ from net income.


10.      ACQUISITION OF NEXCOM TECHNOLOGY, INC.

        On December 3, 1997, the Company completed its acquisition of Nexcom
Technology, Inc. ("Nexcom") in exchange for the issuance of 772,693 shares of
Common Stock and $500,000 in cash (total consideration of approximately $7.2
million). The Nexcom shareholders are also eligible to receive certain
contingent payments based on future license revenue. In addition, the Company
incurred approximately $400,000 in other costs related to this transaction. The
transaction was accounted for as a purchase and resulted in an in-process
technology charge of $7.1 million in the Company's December 31, 1997 quarter.
Nexcom was formed in 1990 and has been engaged primarily in the research and
development of non-volatile flash memory technology.


                                       6
<PAGE>   8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

        This report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Act of 1934. All forward looking statements contained herein are
subject to certain factors that could cause actual results to differ materially
from those projected in the forward-looking statements. Such factors include but
are not limited to the risk related factors set forth in this report on Form
10-Q.

BACKGROUND

        The Company designs, develops and markets high performance memory
devices including static random access memory ("SRAM"), nonvolatile memory
("NVM") and specialty dynamic random access memory ("DRAM"). The Company's
memory devices are used in networking applications, telecommunications, personal
computers ("PC"), disk drives, data communications, office automation,
instrumentation and consumer products. SRAM products include both asynchronous
and synchronous devices ranging in densities from 64K to 4 megabit. Nonvolatile
memory products include Flash memories, EPROMs (erasable programmable read only
memories) and EEPROMs (electrically erasable programmable read only memories).
The Company also designs, develops and markets embedded memory devices which
include voice recording chips and certain microcontroller devices. The Company
has its headquarters in Santa Clara, California and markets its products on a
worldwide basis.

        The Company leverages its SRAM design and advanced CMOS process
technology expertise to establish collaborative relationships with Asian
semiconductor wafer foundries. Although the Company believes that these
relationships differentiate it from traditional fabless semiconductor companies
and allow it to secure access to leading edge process technology and a committed
source for wafer processing, there are also certain risks associated with
dependence on foundries for wafer manufacturing. See "Dependence on Independent
Wafer Foundries". The Company's principal manufacturing relationship is with
Taiwan Semiconductor Manufacturing Corporation ("TSMC"), with which it jointly
develops process technology for producing the Company's SRAM and nonvolatile
memories. The Company also has a collaborative program with Chartered
Semiconductor Manufacturing ("Chartered") in Singapore. In addition, the Company
has a manufacturing program with United Microelectronics Corporation ("UMC") in
Taiwan. To further strengthen its manufacturing relationships, the Company has
made an equity investment in a joint venture with TSMC and an equity investment
in a joint venture with UMC.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997

        Net Sales. Net sales increased by 58% to $40.7 million in the three
months ended March 31, 1998, from $25.8 million in the three months ended March
31, 1997. The increase in sales was principally due to shipments of the
Company's newer products, specifically its 64K x 16, 64K x 32, and 64K x 64
SRAMs and its 256K x 16 DRAM. Additionally, increased shipments of certain of
the Company's more mature SRAM products, specifically the Company's 128K x 8 and
32K x 32 products, more than offset their lower average selling prices.
Shipments of certain of the Company's NVM products, principally its EPROMs and
EEPROMs, declined significantly in the three months ended March 31, 1998
compared to the three months ended March 31, 1997. The Company anticipates that
the average selling prices of its existing products will continue to decline
over time, although the rate of decline may fluctuate for certain products.
There can be no assurance that such declines will be offset by higher volumes or
by higher prices on newer products. See "Certain Factors - Declines in Average
Selling Prices". Sales to 3Com/U.S. Robotics accounted for approximately 24% and
25% of total net sales for the quarters ended March 31, 1998 and March 31, 1997,
respectively. As sales to this customer are executed pursuant to purchase orders
and no purchasing contract exists, the customer can cease doing business with
the Company at any time.


                                       7
<PAGE>   9
        Gross Profit. Gross profit increased 64% to $12.4 million in the three
months ended March 31, 1998, from $7.6 million in the three months ended March
31, 1997. As a percentage of net sales, gross profit increased to 30.6% in the
three months ended March 31, 1998 from 29.3% in the three months ended March 31,
1997. The increase in gross profit was primarily the result of shipments of the
Company's newer products, specifically its 64K x 16, 64K x 32, and 64K x 64
SRAMs and its 256K x 16 DRAM, as well as increased shipments of certain of the
Company's more mature SRAM products, specifically the Company's 128K x 8 and 32K
x 32 products. Product unit costs were also lower in the March 1998 quarter
compared to the March 1997 quarter, and such reductions were generally able to
offset the declines in average selling prices for the more mature SRAM products.
The Company believes that the average selling price of its products will
continue to decline and, unless the Company is able to reduce its cost per unit
to the extent necessary to offset such declines, the decline in average selling
prices will result in a material decline in the Company's gross margin. Although
the Company has product cost reduction programs in place for certain products
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. The
Company does not believe that such cost reduction efforts are likely to have a
material adverse impact on the quality of its products or the level of service
provided by the Company.

        Research and Development. Research and development expenses increased by
40% to $8.4 million in the three months ended March 31, 1998, from $6.0 million
in the three months ended March 31, 1997. As a percentage of net sales, research
and development expenses decreased to 20.6% in the three months ended March 31,
1998, from 23.2% in the three months ended March 31, 1997. The increase in
absolute dollars was primarily the result of an increase in engineering
personnel and payroll related expenses and increased expenses related to the
development of new products. During the three months ended March 31, 1998, the
Company's development efforts principally focused on specialty EDO DRAM, serial
Flash products, wider bus width SRAMs such as the 64K x 64, 64K x 32, 64K x 36
and 128K x 64 configurations, and other memory related devices. The Company
anticipates that its research and development expenses will increase in absolute
dollars in future periods, although such expenses may fluctuate as a percentage
of net sales.

        Selling, General and Administrative. Selling, general and administrative
expenses increased by 19% to $4.6 million in the three months ended March 31,
1998 from $3.9 million in the three months ended March 31, 1997. As a percentage
of net sales, selling, general and administrative expenses decreased to 11.3% in
the three months ended March 31, 1998, from 15.0% in the three months ended
March 31, 1997. The increase in absolute dollars was primarily the result of
increased selling commissions associated with higher revenues and payroll
related expenses from the addition of marketing and sales personnel. The Company
expects its selling, general and administrative expenses to increase in absolute
dollars in future periods as it continues to expand its sales and marketing
efforts, although such expenses may fluctuate as a percentage of net sales.

        Other income, Net. Other income, net increased to $0.8 million in the
three months ended March 31, 1998 from $0.6 million in the three months ended
March 31, 1997. The increase was primarily due to an increase in exchange gains
offset by decreased interest income resulting from lower cash and short-term
investment balances and increased interest expense resulting from increased
borrowings.

        Provision (benefit) for Income Taxes. The income tax provision for the
three month period ended March 31, 1998 is based on an annual estimate of Taiwan
taxable income after the exemption for the Taiwan tax holiday plus withholding
taxes. The effective tax rate for the three months ended March 31, 1998 differs
from the federal statutory rate primarily as a result of a valuation allowance
established to cover a portion of the current year federal net operating loss
which will not be realized on a current basis based on management's expectations
of future taxable income and actual taxable income for the prior years. The
income tax benefit of 10% for the three months ended March 31, 1997 is based on
an annualized estimate of taxable income and differs from the statutory rate
primarily due to a lower effective income tax rate in Taiwan and earnings from
investments which are exempt from federal income taxes. For the three months
ended March 31, 1997, the Company recorded a benefit for income taxes of
approximately 10% compared to a provision of 


                                       8
<PAGE>   10

28% for the comparable period in the prior year, primarily reflecting decreased
operating income attributable to the Company's U.S. operations.

SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO SIX MONTHS ENDED MARCH 31, 1997

        Net Sales. Net sales increased by 62% to $80.1 million in the six months
ended March 31, 1998, from $49.4 million in the six months ended March 31, 1997.
The increase in sales was principally due to shipments of the Company's newer
products, specifically its 64K x 16, 64K x 32, and 64K x 64 SRAMs and its 256K x
16 DRAM. Additionally, shipments of the Company's more mature 128K x 8 SRAM
product increased, more than offsetting its lower average selling price and
shipments of the more mature 32K x32 SRAM and cache module products increased
while their average selling prices remained stable or increased. Shipments of
certain of the Company's NVM products, principally its EPROMs and EEPROMs,
declined significantly in the six months ended March 31, 1998 compared to the
six months ended March 31, 1997. The Company anticipates that the average
selling prices of its existing products will continue to decline although the
rate of decline may fluctuate for certain products. There can be no assurance
that such declines will be offset by higher volumes or by higher prices on newer
products. See "Certain Factors - Declines in Average Selling Prices". Sales to
3Com/U.S. Robotics accounted for approximately 25% and 24% of total net sales
for the six months ended March 31, 1998 and March 31, 1997, respectively. As
sales to this customer are executed pursuant to purchase orders and no
purchasing contract exists, the customer can cease doing business with the
Company at any time.

        Gross Profit. Gross profit increased 52% to $21.6 million in the six
months ended March 31, 1998, from $14.2 million in the six months ended March
31, 1997. As a percentage of net sales, gross profit decreased to 27.0% in the
six months ended March 31, 1997 from 28.8% in the six months ended March 31,
1997. In the December 1997 quarter, the Company recorded a $2.6 million
inventory write-down, of which $1.8 million related to lower of cost or market
issues on certain of the Company's NVM products. In addition, the Company
wrote-off $0.8 million worth of a specific DRAM product, for which the Company's
six month forecast showed minimal demand at December 31, 1997 and for which the
Company has had minimal sales to date. It is the Company's practice to
write-down to zero carrying value inventory on hand in excess of six months
estimated sales volumes to cover estimated exposures unless adjustments are made
to the forecast based on management's judgments for newer products, end of life
products or planned inventory increases. Management's judgments take into
account the product life cycles which can range from 6 to 24 months, the
maturity of the product as to whether it is newly introduced or is approaching
its end of life, the impact of competitor announcements and product
introductions on the Company's products and purchasing opportunities due to
excess wafer capacity. The increase in gross profit dollars was primarily the
result of shipments of the Company's newer products, specifically its 64K x 16,
64K x 32, and 64K x 64 SRAMs and its 256K x 16 DRAM and increased unit shipments
of the Company's more mature 128K x 8, 32K x 32 and cache module SRAM products.
Although product unit costs were lower in the six months ended March 31, 1998
compared to the same period of the prior year, such reductions did not offset
the declines in average selling prices resulting in lower gross margins on a
percentage basis. The Company believes that the average selling price of its
products will continue to decline and, unless the Company is able to reduce its
cost per unit to the extent necessary to offset such declines, the decline in
average selling prices will result in a material decline in the Company's gross
margin. Although the Company has product cost reduction programs in place for
certain products 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. The Company does not believe that such cost reduction efforts are likely
to have a material adverse impact on the quality of its products or the level of
service provided by the Company.

        Research and Development. Research and development expenses increased by
35% to $15.8 million in the six months ended March 31, 1998, from $11.7 million
in the six months ended March 31, 1997. As a percentage of net sales, research
and development expenses decreased to 19.7% in the six months ended March 31,
1998, from 23.6% in the six months ended March 31, 1997. The increase in
absolute dollars was primarily the result of an increase in engineering
personnel and payroll related expenses and increased expenses related to the
development of new products. During the six months ended March 31, 1998, the


                                       9
<PAGE>   11
Company's development efforts principally focused on wider bus width SRAMs such
as the 64K x 64, 64K x 32, 64K x 36 and 128K x 64 configurations, specialty EDO
DRAMs, specialty DSP support SRAMs, serial Flash and other memory related
devices. The Company anticipates that its research and development expenses will
increase in absolute dollars in future periods, although such expenses may
fluctuate as a percentage of net sales.

        Selling, General and Administrative. Selling, general and administrative
expenses increased by 24% to $9.2 million in the six months ended March 31, 1998
from $7.4 million in the six months ended March 31, 1997. As a percentage of net
sales, selling, general and administrative expenses decreased to 11.5% in the
six months ended March 31, 1998, from 15.0% in the six months ended March 31,
1997. The increase in absolute dollars was primarily the result of increased
selling commissions associated with higher revenues and payroll related expenses
from the addition of marketing and sales personnel. The Company expects its
selling, general and administrative expenses to increase in absolute dollars in
future periods as it continues to expand its sales and marketing efforts,
although such expenses may fluctuate as a percentage of net sales.

        In-process Technology. On December 3, 1997, the Company completed its
acquisition of Nexcom in exchange for the issuance of 772,693 shares of Common
Stock and $500,000 in cash (total consideration of approximately $7.2 million).
The Nexcom shareholders are also eligible to receive certain contingent payments
based on future license revenue. In addition, the Company incurred approximately
$400,000 in other costs related to this transaction. The transaction was
accounted for as a purchase and resulted in an in-process technology charge of
$7.1 million in the Company's December 31, 1997 quarter.

        Other income, Net. Other income, net decreased to $1.1 million in the
six months ended March 31, 1998 from $1.4 million in the six months ended March
31, 1997, primarily due to decreased interest earnings as a result of lower cash
and short-term investment balances as well as higher interest expense from
increased borrowings.

        Provision (benefit) for Income Taxes. The income tax provision for the
six month period ended March 31, 1998 is based on an annual estimate of Taiwan
taxable income after the exemption for the Taiwan tax holiday plus withholding
taxes. The effective tax rate for the six months ended March 31, 1998 differs
from the federal statutory rate primarily as a result of a valuation allowance
established to cover a portion of the current year federal net operating loss
which will not be realized on a current basis based on management's expectations
of future taxable income and actual taxable income for the prior years. In
addition, the in-process technology charge related to the acquisition of Nexcom
will not be deductible for tax purposes. The income tax benefit of 10% for the
six months ended March 31, 1997 is based on an annualized estimate of taxable
income and differs from the statutory rate primarily due to a lower effective
income tax rate in Taiwan and earnings from investments which are exempt from
federal income taxes.


        LIQUIDITY AND CAPITAL RESOURCES

        As of March 31, 1998, the Company's principal sources of liquidity
included cash, cash equivalents, restricted cash and short-term investments of
approximately $33.3 million, of which approximately $13.4 million was held by
ISSI-Taiwan. Approximately $5.2 million of the cash held by the Company is
restricted as of March 31, 1998 for purposes of securing available short-term
lines of credit and letters of credit. During the first six months of fiscal
1998, operating activities utilized cash of approximately $4.0 million. Cash
utilized by operations was primarily due to decreases in accrued liabilities
partially offset by decreases in other assets and net loss adjusted for
depreciation, in-process technology charge and other non-cash items.

        Inventory increased to $69.8 million at March 31, 1998 from $41.4
million at December 31, 1997 and $40.7 million at September 30, 1997. The
increase in inventory from December 31, 1997 was predominately due to increases
in the Company's newer SRAM products in anticipation of future demand and
purchasing opportunities due to excess wafer capacity.


                                       10
<PAGE>   12
        Accounts payable increased to $54.8 million at March 31, 1998 from $35.3
million at December 31, 1997 and $23.1 million at September 30, 1997. The
increase in accounts payable is principally related to increases in inventory.

        The Company made capital expenditures of approximately $8.9 million in
the first six months of fiscal 1998, of which approximately $4.3 million was for
the construction of the Company's new Taiwan facility and $4.6 million was for
the purchase of test equipment and design and engineering tools. The Company
expects to spend approximately $10 million to purchase capital equipment during
the next twelve months, principally for the purchase of additional test
equipment, design and engineering tools, and computer hardware and software.
Additionally, the Company expects to spend approximately $12.0 million during
the next twelve months for the construction of its Taiwanese facility. A portion
of this construction cost is expected to be financed through loans. Occupancy of
the building is expected in June 1998.

        In June 1996, the Company entered into a joint venture "WaferTech, LLC"
with TSMC, Altera, Analog Devices, and private investors to build a wafer
fabrication facility in Camas, Washington. The Company agreed to invest $31.2
million for a 4% equity interest in the venture and as of March 31, 1998 all of
this amount had been paid. The last scheduled payment to WaferTech by the
Company of $12.5 million was made in November 1997. The Company has also agreed
to certain minimum wafer purchase commitments with its foundry partners in
exchange for wafer capacity commitments. In fiscal 1995, the Company entered
into an agreement with TSMC pursuant to which the Company agreed to acquire
specified wafer capacity through 2001. The Company also agreed to make certain
annual payments totaling approximately $26.4 million through 2001 to TSMC for
additional capacity above the annual base capacity. Wafer purchases in any given
year are first applied to the base capacity and then to the Company's $26.4
million obligation. As a result, the $26.4 million may be subject to forfeiture
if the Company does not purchase the base capacity and additional capacity for
which it has contracted. The Company has established a letter of credit for $4.8
million covering a portion of this amount. The Company also has minimum purchase
obligations to TSMC related to WaferTech LLC. The Company is obligated to
purchase a minimum of 3.4% of WaferTech's installed capacity. Initial wafer outs
are expected in the second half of calendar 1998 and full capacity is expected
in the year 2000. Additionally, in fiscal 1995, the Company entered into a joint
venture "United Integrated Circuits Corp" ("UICC") with UMC and other investors
to build a wafer fabrication facility in Hsinchu, Taiwan. The Company agreed to
invest approximately $25 million (subject to fluctuations in the New Taiwanese
Dollar) for a 5% equity interest in the venture of which UMC retains 55%
ownership. As of March 31, 1998, all of the committed amount had been paid by
the Company to UICC. The final payment of approximately $4.7 million was made to
UICC in December 1997. The UICC facility was severely damaged by fire in October
1997 resulting in a delay in wafer production of approximately 12 months. UICC
has informed the Company that the damages incurred are covered by insurance.

        The Company was provided $12.7 million from financing activities during
the first six months of fiscal 1998, of which $11.2 million was for net
borrowings under short-term and long-term lines of credit and $1.5 million was
for proceeds from the issuance of common stock under stock option and stock
purchase plans. The Company has $23.4 million available through a number of
short-term lines of credit with various financial institutions in Taiwan. As of
March 31, 1998, the Company had outstanding borrowings of approximately $14.6
million under these short-term lines of credit.

        The Company has a number of long-term lines of credit with various
financial institutions in Taiwan to finance the purchase of machinery, equipment
and building construction in Taiwan. Total obligations related to these
borrowings as of March 31, 1998 were $15.4 million, of which $1.6 million is
included in the current portion of long-term obligations. These obligations bear
interest at rates from 6.85% to 8.85% and are payable in quarterly installments
through 2004. As of March 31, 1998, the Company had available long-term lines of
credit of approximately $9.5 million of which approximately $4.8 million is for
the construction financing of the Company's new facility in the Hsinchu
Science-Based Industrial Park.


                                       11
<PAGE>   13
        On April 22, 1998, the U.S. Department of Commerce ("DOC") published an
amended antidumping duty order on imports of SRAMs from Taiwan from where the
Company currently imports a majority of its SRAMs. As a consequence of this
antidumping duty order, the Company is required to post a cash deposit on
imports of Taiwan fabricated SRAM wafers or devices, at the ad valorem rate of
7.56%. The cash deposits subsequently could be returned to the Company or,
alternatively, the Company could owe duties and interest in addition to the
amounts deposited, depending on whether the DOC conducts an administrative
review of imports entered after the imposition of the antidumping order, and if
so, on the results of the DOC review. The decision of whether to conduct a
review will be made in 1999, and the results of the review would be issued in
the year 2000.

        The Company has retained legal counsel to defend its interests in the
antidumping proceedings. In addition, certain aspects of the affirmative
antidumping determination may be challenged in federal court proceedings by some
of the respondents to the investigation, and these proceedings could result in
the termination of this antidumping case, although the prospects of these legal
appeals, if undertaken, are not known. Duties, if any, calculated and assessed
by the government could have a material adverse affect on the Company's gross
margins and profits.

        The Company intends to increase its cash position and is currently
analyzing several financing alternatives including bank borrowings, the
disposition of certain assets, equity financing, and debt financing. The Company
believes that its existing funds together with current and anticipated available
financing will satisfy the Company's anticipated working capital and other cash
requirements through at least the next 12 months.

        The Company, from time to time, evaluates potential acquisitions and
equity investments complementary to its memory expertise and market strategy. To
the extent the Company pursues such transactions, any such transactions could
require the Company 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 the Company, if at all.


                                       12
<PAGE>   14
CERTAIN FACTORS WHICH MAY AFFECT THE COMPANY'S BUSINESS OR FUTURE OPERATING
RESULTS

DEPENDENCE ON SRAM PRODUCTS; DECLINE IN AVERAGE SELLING PRICES FOR SRAM PRODUCTS

        In the first six months of fiscal 1998 and in fiscal 1997, a substantial
majority of the Company's net sales were derived from the sale of SRAM products.
In fiscal 1997, the Company's net sales decreased by 18% to $108.3 million from
$132.0 million in fiscal 1996. This decrease in sales was principally due to
significant deterioration in the average selling prices of the Company's SRAM
and nonvolatile memory products. The Company anticipates that the average
selling prices of its existing products will continue to decline over time,
although the rate of decline may fluctuate for certain products. There can be no
assurance that such declines will be offset by higher volumes or by higher
prices on newer products.

QUARTERLY FLUCTUATIONS IN OPERATING RESULTS

        The Company's future quarterly and annual operating results are subject
to fluctuations due to a wide variety of factors, many of which are outside of
its control, including declines in average selling prices of the Company's
products, oversupply of memory products in the market, failure to introduce new
products and to implement technologies on a timely basis, the timing and
announcement of new product introductions by the Company and its competitors,
market acceptance of the Company's and its customers' products, the failure to
anticipate changing customer product requirements, fluctuations in manufacturing
yields, disruption in delivery and order fulfillment and shortages in the supply
of wafers or assembly capacity. Other factors include changes in product mix,
seasonal fluctuations in customer demand for the Company's products, the timing
of significant orders, increased expenses associated with new product
introductions or process changes, the ability of customers to make payments to
the Company, increases in material costs, increases in costs associated with the
expansion of sales channels, increases in general and administrative expenses
and certain production and other risks associated with using independent
manufacturers. In this regard, the Company experienced quarterly sequential
declines in revenue in the quarters ending March, June and September, 1996
principally due to declines in the average selling prices of its products and
the inability to offset these declines by sufficient increases in unit
shipments. Although the Company has since experienced quarterly sequential
revenue growth, there can be no assurance that the Company will not experience
future declines in quarterly revenue. Such revenue declines have had a material
adverse impact on the Company's gross profit and net income. In the first six
months of fiscal 1998, approximately 45% of the Company's net sales were
attributable to customers located in the United States, 21% was attributable to
customers located in Europe and 34% was attributable to customers located in
Asia. In fiscal 1997, approximately 45% of the Company's net sales were
attributable to customers located in the United States, 13% was attributable to
customers located in Europe and 42% was attributable to customers located in
Asia. In the first six months of fiscal 1998 and in fiscal 1997, international
sales (sales by ISSI-Taiwan and export sales by ISSI-U.S.) comprised
approximately 55% and 55% of the Company's net sales, respectively. Accordingly,
the Company's future operating results will also depend in part on general
economic conditions in Asia, the United States and its other markets. In this
regard, since late 1997 several Asian countries including Korea, Japan and
Thailand, have experienced significant economic downturns and significant
declines in the value of their currencies relative to the U.S. dollar. The
Company is unable to predict what effect, if any, these factors will have on its
ability to maintain or increase its sales in these markets. In addition, there
can be no assurance that the markets for the Company's products, which are
highly cyclical, will continue to grow.

DECLINES IN AVERAGE SELLING PRICES

        Competitive pricing pressures resulted in significant price decreases
for the Company's products during 1996, 1997 and 1998. Historically, average
selling prices for semiconductor memory products have declined and the Company
expects that average selling prices will decline in the future. Accordingly, the
Company's ability to maintain or increase revenues will be highly dependent upon
its ability to increase unit sales volume of existing products and introduce and
sell new products which compensate for the anticipated declines in the average
selling prices of its existing products. Declining average selling prices will
also adversely affect the Company's gross margins and profits unless the Company
is able to introduce new 


                                       13
<PAGE>   15

products with higher margins or reduce its cost per unit to offset declines in
average selling prices. There can be no assurance that the Company will be able
to increase unit sales volumes, introduce and sell new products or reduce its
cost per unit. In this regard, the Company has a cost reduction program in place
in an effort to reduce its cost per unit for certain products. This program
involves efforts to reduce internal costs and supplier costs. The Company does
not believe that such cost reduction efforts are likely to have a material
adverse impact on the quality of its products or the level of service provided
by the Company.

RISK OF INVENTORY WRITE-DOWNS

        Shifts in industry-wide capacity from shortages to oversupply or from
oversupply to shortages may result in significant fluctuations in the Company's
quarterly or annual operating results. The semiconductor industry is highly
cyclical and is subject to significant downturns resulting from excess capacity,
overproduction, reduced demand or technological obsolescence. These factors can
result in a decline in average selling prices and the stated value of inventory.
It is the Company's practice to write-down to zero carrying value inventory on
hand in excess of six months estimated sales volumes to cover estimated
exposures unless adjustments are made to the forecast based on management's
judgments for newer products, end of life products or planned inventory
increases. Management's judgments take into account the product life cycles
which can range from 6 to 24 months, the maturity of the product as to whether
it is newly introduced or is approaching its end of life, the impact of
competitor announcements and product introductions on the Company's products and
purchasing opportunities due to excess wafer capacity. The Company believes that
six months is an appropriate period because it is difficult to accurately
forecast for a specific product beyond this time frame due to potential
introduction of products by competitors, technology obsolescence or fluctuations
in demand. In this regard, in the June 1996 quarter, the Company recorded a $15
million write-down for various SRAM and non-volatile memory products that the
Company's forecast indicated would not be sold in the next six months. The
Company did not expect to sell the excess inventory at the time because the
volume and price declines from the December 1995 quarter to the June 1996
quarter resulted in a decrease in revenues of 38%. During this period, market
conditions were extremely uncertain. Furthermore, during the fourth fiscal
quarter of 1996 ended September 30, 1996, the Company experienced a continued
decline in revenue of 16% from the June 1996 quarter. While the Company
continued to focus on the selling of this product, sales reached the bottom of
its decline in the September 1996 quarter and stayed relatively flat in the
December 1996 quarter. Subsequently, as market conditions improved in the latter
part of the December 1996 quarter, the Company was able to sell certain of these
products. As a result, of improving market conditions during fiscal 1997, the
Company was able to sell $13.9 million of the written-off product. However, the
Company considers such sales unusual and there can be no assurance that in the
future written-off inventory can be sold. Historically, the Company has
consistently applied this practice in valuing inventory and, until the events
that transpired in the first through third quarters of fiscal 1996, had never
recorded material write-downs or recoveries. The Company believes that based on
the factors noted above, its six month write-off policy is still appropriate as
a method to identify and estimate inventory exposure. There can be no assurance
that in the future additional inventory write-downs will not occur.


PRODUCT CONCENTRATION AND DEPENDENCE ON PERSONAL COMPUTER INDUSTRY

        In the first six months of fiscal 1998 and in fiscal 1997, a substantial
majority of the Company's net sales were derived from the sale of SRAM products.
A majority of the Company's products are incorporated into products such as
modems, networking equipment, disk drives and PC cache. In recent periods, the
PC industry has experienced strong unit sales growth, which has increased demand
for integrated circuits, including memory products offered by the Company. The
PC and PC peripherals industry has from time to time experienced cyclical,
depressed business conditions, often in connection with, or in anticipation of,
a decline in general economic conditions. Such industry downturns have resulted
in reduced product demand and declining average selling prices. The Company's
business and operating results would be materially and adversely affected by any
future downturns in the peripherals industry or in PCs.


                                       14
<PAGE>   16
CUSTOMER CONCENTRATION

        The Company's sales are concentrated within a limited customer base. In
the first six months of fiscal 1998 and in fiscal 1997, one customer accounted
for approximately 25% and 19% of net sales, respectively. As sales to this
customer are executed pursuant to purchase orders and no purchasing contract
exists, the customer can cease doing business with the Company at any time. The
Company expects a significant portion of its future sales to remain concentrated
within a limited number of strategic customers. There can be no assurance that
the Company will be able to retain its strategic customers or that such
customers will not otherwise cancel or reschedule orders, or in the event of
canceled orders, that such orders will be replaced by other sales. In addition,
sales to any particular customer may fluctuate significantly from quarter to
quarter. The occurrence of any such events could have a material adverse effect
on the Company's business and operating results.

DEPENDENCE ON INDEPENDENT WAFER FOUNDRIES

        The Company has combined its fabless manufacturing strategy with
technology partnerships and equity investments. This hybrid approach, which the
Company calls "Fab-Lite(TM)", has provided advanced process technology and a
committed wafer supply. To date, the Company's principal manufacturing
relationship has been with TSMC, and in the first six months of fiscal 1998 and
in fiscal 1997, the Company obtained a substantial majority of its wafers from
TSMC. The Company also receives wafers from Chartered Semiconductor and UMC.
Each of the Company's wafer suppliers also fabricates for other integrated
circuit companies, including certain of the Company's competitors. Although the
Company has written commitments specifying wafer capacities from its suppliers,
if these suppliers experience manufacturing failures or yield shortfalls, chose
to prioritize capacity for other use or reduce or eliminate deliveries to the
Company there can be no assurance that the Company could enforce fulfillment of
the delivery commitments. There can be no assurance that the Company would be
able to qualify additional manufacturing sources for existing or new products in
a timely manner or that such additional manufacturing sources would agree to
deliver an adequate supply of wafers. If the Company were unable to obtain an
adequate supply of wafers from its current or any alternative sources in a
timely manner, its business and operating results would be materially and
adversely affected.

        The Company has agreed to certain minimum wafer purchase commitments
with its foundry partners in exchange for wafer capacity commitments. The
Company also agreed to make certain annual payments totaling approximately $26.4
million through 2001 to TSMC for additional capacity above the annual base
capacity. Wafer purchases in any given year are first applied to the base
capacity and then to the Company's $26.4 million obligation. As a result, the
$26.4 million may be subject to forfeiture if the Company does not purchase the
base capacity and additional capacity for which it has contracted. The Company
also has minimum purchase obligations to TSMC related to WaferTech LLC, a joint
venture in which the Company is an investor. The Company is obligated to
purchase a minimum of 3.4% of WaferTech's installed capacity. Initial wafer outs
are expected in the second half of calendar 1998 and full capacity is expected
in the year 2000. Although the Company has rights to re-schedule or assign
capacity to another party, there can be no assurance that such re-schedule or
assignment would be successfully accomplished. Should the Company fail to
re-schedule or assign unneeded capacity, the Company will be required to make
payments for the unused capacity and its business and operating results would be
materially and adversely affected.

INTERNATIONAL OPERATIONS

        The Company is subject to the risks of conducting business
internationally, including economic conditions in Asia, particularly Taiwan,
changes in trade policy and regulatory requirements, tariffs and other trade
barriers and restrictions, the burdens of complying with foreign laws, and
possibly, political unstability. The Company anticipates that sales to
international customers will continue to represent a significant percentage of
net sales. The Company's Taiwan subsidiary employs over one-half of the
Company's total work force. In addition, substantially all of the Company's
foundries and assembly and test operations are located in Asia. The Company
transacts business predominately in U.S. and New Taiwan ("NT") dollars. 


                                       15
<PAGE>   17
Such transactions expose the Company to the risk of exchange rate fluctuations.
The Company monitors its exposure to foreign currency fluctuations, and has from
time to time taken action to hedge against such exposure, but has not to date
adopted any formal hedging strategy. Although the Company's business and results
of operations have not been materially and adversely impacted by exchange rate
fluctuations, there can be no assurance that exchange rate fluctuations will not
materially and adversely affect its business and operating results in the
future.

COMPETITION

        The semiconductor memory market is intensely competitive and has been
characterized by price erosion, rapid technological change, short product life
cycles, cyclical market patterns and heightened foreign and domestic
competition. The ability of the Company to compete successfully in the high
performance memory market depends on factors both within and outside of its
control, including imbalances in supply and demand, product pricing, the rate at
which OEM customers incorporate the Company's products into their systems,
access to advance process technologies at competitive prices, product
functionality and performance, successful and timely product development, wafer
supply, wafer costs, achievement of acceptable yields of functional die, the
gain or loss of significant customers, the nature of its competitors and general
economic conditions. There can be no assurance that the Company will be able to
compete successfully in the future as to any of these factors. The failure of
the Company to compete successfully in these or other areas could materially and
adversely affect the Company's business and operating results. In addition, the
Company is vulnerable to technology advances utilized by competitors to
manufacture higher performance or lower cost products.

CLAIMS REGARDING INTELLECTUAL PROPERTY

        In the semiconductor industry it is typical for companies to receive
notices from time to time alleging infringement of patents or other intellectual
property rights of others. The Company has been, and may from time to time
continue to be, notified of claims that it may be infringing patents, maskwork
rights or copyrights owned by third parties. Although none of these companies
have pursued a claim against the Company, there is no assurance that these or
other companies will not in the future pursue claims against the Company with
respect to the alleged infringement. 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, there is no assurance that
any licenses will be offered or that the terms of any offered licenses will 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 result in protracted, costly litigation and cause the Company 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 effect the Company's business and operating
results.

MANAGEMENT OF GROWTH

        The Company has grown rapidly in certain years. This growth has resulted
in a significant increase in responsibilities for existing management which has
placed, and may continue to place, a significant strain on the Company's limited
personnel, MIS systems, product delivery systems and other resources. The
Company's ability to manage its growth effectively will require it to continue
to improve its operational, financial and management systems, to successfully
attract new employees and to properly train, motivate and manage its employees.
If the Company's management is unable to manage growth effectively, the
Company's business and operating results could be materially and adversely
affected.


                                       16
<PAGE>   18
RISK OF INCREASED TAXES

        The Company's tax rate could increase for a number of reasons. For
example, if the proportions of taxable income shifted such that a greater
proportion of taxable income is earned by U.S. operations, the Company's
effective tax rate may increase. It is possible that the Taiwan tax exemption
applicable to the earnings of ISSI-Taiwan could be modified by changes in law or
otherwise reduced. In addition, the Company's taxes would increase if all or a
portion of the earnings of ISSI-Taiwan were to become subject to U.S. tax as the
result of actual dividends or through U.S. rules for taxing controlled foreign
corporations. Further, if profits of ISSI-Taiwan are distributed to the Company
as dividends they become subject to Taiwan withholding tax as well as U.S. tax
(with an offset for underlying Taiwan taxes paid) and the tax rate would
increase. It is not the Company's intention to cause ISSI-Taiwan to distribute
dividends.

        ISSI-Taiwan is a controlled foreign corporation ("CFC") for U.S. income
tax purposes. Under U.S. rules for taxing CFCs, all or a portion of the earnings
of ISSI-Taiwan may become subject to U.S. tax as inclusions in the U.S. taxable
income of the Company (with a credit for foreign taxes paid by ISSI-Taiwan) if
one or more of a number of events occur. Such events include, but are not
limited to, ISSI-Taiwan lending funds to the Company or otherwise investing in
certain proscribed assets and ISSI-Taiwan engaging in various types of
transactions defined in the Subpart F provisions of the U.S. Internal Revenue
Code. The Company believes that its existing plans will minimize the impact of
the CFC rules for the immediate future, subject to such changes in U.S. tax laws
as may occur. However, over time the CFC rules may cause the Company's tax rate
to increase.

YEAR 2000 ISSUES

        As the millennium approaches, the Company is preparing all of its
computer operations to be year 2000 compliant. The Company has conducted an
internal review of its systems to ensure that they do not malfunction as a
result of the year 2000. Based on the results of this review, the expenses to be
incurred by the Company to be year 2000 compliant are not expected to be
material. The Company has not evaluated whether the systems used by each of its
customers and suppliers are year 2000 compliant and there can be no assurance
that the year 2000 issues experienced by such entities will not in turn have an
adverse impact on the Company.

VOLATILITY OF STOCK PRICE

        The trading price of the Common Stock increased substantially after the
Company's initial public offering in February 1995, subsequently declined, and
could be subject to wide fluctuations in response to quarter-to-quarter
variations in operating results, future announcements by the Company or its
competitors, increases or decreases in wafer capacity, general conditions in the
semiconductor or computer industries, governmental regulations, trade laws and
import duties, litigation, new or revised earnings estimates, comments or
recommendations issued by analysts who follow the Company, its competitors or
the semiconductor industry and other events or factors. In addition, stock
markets have experienced extreme price and trading volume volatility in recent
years. This volatility has had a substantial effect on the market prices of
securities of many high technology companies for reasons frequently unrelated to
the operating performance of the specific companies. These broad market
fluctuations may adversely affect the market price of the Company's Common
Stock.


                                       17
<PAGE>   19
                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

        On April 22, 1998, the U.S. Department of Commerce ("DOC") published an
amended antidumping duty order on imports of SRAMs from Taiwan from where the
Company currently imports a majority of its SRAMs. As a consequence of this
antidumping duty order, the Company is required to post a cash deposit on
imports of Taiwan fabricated SRAM wafers or devices, at the ad valorem rate of
7.56%. The cash deposits subsequently could be returned to the Company or,
alternatively, the Company could owe duties and interest in addition to the
amounts deposited, depending on whether the DOC conducts an administrative
review of imports entered after the imposition of the antidumping order, and if
so, on the results of the DOC review. The decision of whether to conduct a
review will be made in 1999, and the results of the review would be issued in
the year 2000.

        The Company has retained legal counsel to defend its interests in the
antidumping proceedings. In addition, certain aspects of the affirmative
antidumping determination may be challenged in federal court proceedings by some
of the respondents to the investigation, and these proceedings could result in
the termination of this antidumping case, although the prospects of these legal
appeals, if undertaken, are not known. Duties, if any, calculated and assessed
by the government could have a material adverse affect on the Company's gross
margins and profits.

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

The Company's Annual Meeting of Stockholders was held on Friday January 30, 1998
at 2:00 p.m., local time, in San Jose, California.

        (a) The following nominees for Directors were elected. Each person
elected as a Director will serve until the next annual meeting of stockholders
or until such person's successor is elected and qualified:

<TABLE>
<CAPTION>
                                                                 Votes
                                           Votes                Against
         Name of Nominee                  in Favor            or Withheld
         ---------------                  --------            -----------
<S>                                     <C>                       <C>    
         Jimmy S.M. Lee                 15,660,864                159,923
         Kong-Yeu Han                   15,666,914                153,873
         Pauline Lo Alker               15,664,624                156,163
         Diosdado P. Banatao            15,137,458                683,329
         Lip-Bu Tan                     15,140,198                680,589
         Hide L. Tanigami               15,663,214                157,573
         Chun Win Wong                  15,667,614                153,173
</TABLE>

        (b) An amendment to the Company's 1989 Stock Plan to increase by 500,000
to an aggregate of 4,987,500 the number of shares reserved for grant thereunder
was approved with 5,548,173 votes in favor, 1,985,853 votes against, and
10,431,805 representing abstentions and broker non-votes.

        (c) An amendment to the Company's 1993 Employee Stock Purchase Plan to
increase by 1,050,000 to an aggregate of 1,450,000 the number of shares reserved
for grant thereunder was approved with 6,264,561 votes in favor, 994,209 votes
against, and 10,707061 representing abstentions and broker non-votes.

        (d) The ratification and appointment of Ernst & Young, LLP as
independent auditors of the Company for the fiscal year ending September 30,
1998 was approved with 15,713,170 votes in favor, 53,232 votes against, and
2,199,429 representing abstentions and broker non-votes.


                                       18
<PAGE>   20
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

        (a) The following exhibits are filed as a part of this report.

              Exhibit 27 Financial Data Schedule.

        (b) The registrant did not file any reports on Form 8-K during the
quarter ended March 30, 1998.




                                       19
<PAGE>   21
                                   SIGNATURES


Pursuant to the requirements 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.
                                       (Registrant)


Dated:  May 15, 1998                    /s/ Gary L. Fischer
                                       ---------------------------------------
                                       Gary L. Fischer
                                       Executive Vice President,
                                       Office of the President, and
                                       Chief Financial Officer
                                       (Principal Financial and
                                       Accounting Officer)


                                       20
<PAGE>   22
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
Exhibit
Number                Description
------                -----------
<S>            <C>
27             Financial Data Schedule
</TABLE>