content: <PAGE>
   
                         SECURITIES AND EXCHANGE COMMISSION
  
                               Washington, D.C. 20549
  
                                      FORM 8-K
                                          
                                   CURRENT REPORT
  
       Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
  
                         Date of Report:  February 27, 1998
  
  
                         APPLIED MICRO CIRCUITS CORPORATION
               (Exact name of registrant as specified in its charter)
  
                                     000-23193
                              (Commission File Number)
  
  
                  DELAWARE                             94-2586591
             (State or other                        (I.R.S. Employer 
       jurisdiction of incorporation)              Identification No.)
  
  
                                6290 SEQUENCE DRIVE
                                SAN DIEGO, CA  92121
              (Address of principal executive offices, with zip code)
  
                                   (619) 450-9333
                (Registrant's telephone number, including area code)
  
                                        N/A
           (Former name or former address, if changed since last report)
  <PAGE>
   
  ITEM 5.  OTHER EVENTS.
  
       Applied Micro Circuits Corporation (the "Company") filed a Registration
  Statement on Form S-1 (Registration No. 333-46071) (the "Registration
  Statement") with the Securities Exchange Commission (the "Commission") on
  February 11, 1998 in connection with the public offering of shares of its
  Common Stock. The Registration Statement, which was subsequently amended on
  February 20, 1998, included audited consolidated financial statements for the
  three year periods ended March 31, 1997 and unaudited financial statements for
  the nine month periods ended December 31, 1996 and 1997, respectively (the
  "Financial Statements")and Schedule. With the filing of this Form 8-K, the
  Company hereby files the Financial Statements and Schedule with the
  Commission.
  
  
  
  
  
                                        -2-
  <PAGE>
   
                     INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
   
                         APPLIED MICRO CIRCUITS CORPORATION
   
  <TABLE>
  <CAPTION>
                                                                              PAGE
                                                                              ----
  <S>                                                                         <C>
  Report of Ernst & Young LLP, Independent Auditors.........................  4
  
  Consolidated Balance Sheets as of March 31, 1996 and 1997 and December 31,
   1997 (Unaudited).........................................................  5
  
  Consolidated Statements of Operations for each of the three years in the
   period ended March 31, 1997 and for the nine months ended December 31,
   1996 and 1997 (Unaudited)................................................  6
  
  Consolidated Statements of Stockholders' Equity for each of the three
   years in the period ended March 31, 1997 and for the nine months ended
   December 31, 1997 (Unaudited)............................................  7
  
  Consolidated Statements of Cash Flows for each of the three years in the
   period ended March 31, 1997 and for the nine months ended December 31,
   1996 and 1997 (Unaudited)................................................  8
  
  Notes to Consolidated Financial Statements................................  9
  </TABLE>
   
                                        -3-
  <PAGE>
   
                 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
   
  The Board of Directors
  Applied Micro Circuits Corporation
   
    We have audited the accompanying consolidated balance sheets of Applied
  Micro Circuits Corporation as of March 31, 1997 and 1996, and the related
  consolidated statements of operations, stockholders' equity, and cash flows
  for each of the three years in the period ended March 31, 1997. 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 generally accepted auditing
  standards. 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 consolidated financial position
  of Applied Micro Circuits Corporation at March 31, 1997 and 1996, and the
  consolidated results of its operations and its cash flows for each of the
  three years in the period ended March 31, 1997, in conformity with generally
  accepted accounting principles.
   
                                            /s/ ERNST & YOUNG LLP
   
  San Diego, California
  April 25, 1997, except footnote 4, as to which the date is 
    February 9, 1998
   
                                        -4-
  <PAGE>
   
                         APPLIED MICRO CIRCUITS CORPORATION
   
                            CONSOLIDATED BALANCE SHEETS
                         (IN THOUSANDS, EXCEPT SHARE DATA)
  <TABLE>
  <CAPTION>
                                                     MARCH 31,       DECEMBER 31,
                                                  -----------------  ------------
                                                    1996     1997        1997
                                                  --------  -------  ------------
                                                                      (Unaudited)
  <S>                                             <C>       <C>      <C>
                      ASSETS
  Current assets:
    Cash and cash equivalents...................  $  4,277  $ 5,488    $ 9,923
    Short-term investments -- available-for-
     sale.......................................     4,541    8,109     26,307
    Accounts receivable, net of allowance for
     doubtful accounts of $90 and $200 at March
     31, 1996 and 1997, respectively, and $350
     at December 31, 1997 (unaudited)...........     9,476    8,418     10,529
    Inventories.................................     6,836    7,530      8,002
    Deferred income taxes.......................       --       --       1,813
    Notes receivable from officer and employee..       150        8         21
    Other current assets........................       574      690        927
                                                  --------  -------    -------
     Total current assets.......................    25,854   30,243     57,522
  Notes receivable from officer and employees...        53      803        908
  Property and equipment, net...................    11,929   10,768     15,427
                                                  --------  -------    -------
   Total assets.................................  $ 37,836  $41,814    $73,857
                                                  ========  =======    =======
       LIABILITIES AND STOCKHOLDERS' EQUITY
  Current liabilities:
    Accounts payable............................  $  3,981  $ 2,428    $ 5,010
    Accrued payroll and related expenses........     1,291    3,102      3,407
    Other accrued liabilities...................     2,130    1,881        934
    Deferred revenue............................       831      806      1,261
    Current portion of long-term debt...........       582       37         --
    Current portion of capital lease obliga-
     tions......................................     3,062    2,625      2,215
                                                  --------  -------    -------
     Total current liabilities..................    11,877   10,879     12,827
  Long-term debt, less current portion..........        37      --          --
  Long-term capital lease obligations, less cur-
   rent portion.................................     4,410    3,192      1,675
  Commitments and contingencies (Notes 6 and 10)
  Stockholders' equity:
    Preferred Stock, $0.01 par value:
     2,000,000 shares authorized, none issued
     and outstanding............................       --       --         --
    Convertible preferred stock, $0.01 par val-
     ue:
    Authorized shares -- 1,350,000..............
    Issued and outstanding shares -- 1,223,594
     at March 31, 1996 and 1997.................
    Liquidation value -- $25,695 at March 31,
     1996 and 1997 and none at December 31,
     1997.......................................        12       12        --
    Common stock, $0.01 par value:
    Authorized shares -- 34,500,000 at March 31,
     1996 and 1997 and 60,000,000 at December
     31, 1997 (unaudited)
    Issued and outstanding shares -- 4,968,316
     and 5,025,357 at March 31, 1996 and 1997,
     respectively, and 20,870,368 at December
     31, 1997, (unaudited)......................        49       50        208
    Additional paid-in capital..................    36,971   36,974     59,716
    Deferred compensation.......................       --       --        (512)
    Retained earnings (deficit).................   (15,444)  (9,235)       444
    Notes receivable from stockholders..........       (76)     (58)      (501)
                                                  --------  -------    -------
     Total stockholders' equity.................    21,512   27,743     59,355
                                                  --------  -------    -------
   Total liabilities and stockholders' equity...  $ 37,836  $41,814    $73,857
                                                  ========  =======    =======
  </TABLE>
   
                              See accompanying notes.
   
                                        -5-
  <PAGE>
   
                         APPLIED MICRO CIRCUITS CORPORATION
   
                       CONSOLIDATED STATEMENTS OF OPERATIONS
                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
   
  <TABLE>
  <CAPTION>
                                                                     NINE MONTHS
                                                                        ENDED
                                         YEAR ENDED MARCH 31,       DECEMBER 31,
                                        -------------------------  ---------------
                                         1995     1996     1997     1996    1997
                                        -------  -------  -------  ------- -------
                                                                     (Unaudited)
  <S>                                   <C>      <C>      <C>      <C>     <C>
  Net revenues........................  $46,950  $50,264  $57,468  $42,464 $54,874
  Cost of revenues....................   27,513   34,169   30,057   22,800  25,370
                                        -------  -------  -------  ------- -------
  Gross profit........................   19,437   16,095   27,411   19,664  29,504
  Operating expenses:
    Research and development..........   10,108    8,283    7,870    5,668   9,339
    Selling, general and administra-
     tive.............................   10,112   11,232   12,537    8,986  10,260
                                        -------  -------  -------  ------- -------
      Total operating expenses........   20,220   19,515   20,407   14,654  19,599
                                        -------  -------  -------  ------- -------
  Operating income (loss).............     (783)  (3,420)   7,004    5,010   9,905
  Interest income (expense), net......     (358)    (242)     (29)       5     294
                                        -------  -------  -------  ------- -------
  Income (loss) before income taxes...   (1,141)  (3,662)   6,975    5,015  10,199
  Provision (benefit) for income tax-
   es.................................      (70)      32      659      474     262
                                        -------  -------  -------  ------- -------
  Net income (loss)...................  $(1,071) $(3,694) $ 6,316  $ 4,541 $ 9,937
                                        =======  =======  =======  ======= =======
  Primary net income (loss) per share.  $ (0.06) $ (0.20) $  0.33
                                        =======  =======  =======
  Shares used in calculating primary
   net income (loss) per share........   18,380   18,580   19,185
                                        =======  =======  =======
  Pro forma basic earnings per share:
    Earnings per share................                             $  0.25 $  0.57
                                                                   ======= =======
    Shares used in calculating basic
     earnings per share...............                              17,824  17,499
                                                                   ======= =======
  Diluted earnings per share:
    Earnings per share................                             $  0.25 $  0.51
                                                                   ======= =======
    Shares used in computing diluted
     earnings per share...............                              17,897  19,306
                                                                   ======= =======
  </TABLE>
   
   
                              See accompanying notes.
   
                                        -6-
  <PAGE>
   
                        APPLIED MICRO CIRCUITS CORPORATION
   
                  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                         (IN THOUSANDS, EXCEPT SHARE DATA)
   
  <TABLE>
  <CAPTION>
                           CONVERTIBLE                                                               NOTES
                         PREFERRED STOCK      COMMON STOCK     ADDITIONAL              RETAINED    RECEIVABLE      TOTAL
                        ------------------  ------------------  PAID-IN     DEFERRED   EARNINGS       FROM     STOCKHOLDERS'
                          SHARES    AMOUNT    SHARES    AMOUNT  CAPITAL   COMPENSATION (DEFICIT)  STOCKHOLDERS    EQUITY
                        ----------  ------  ----------  ------ ---------- ------------ ---------  ------------ -------------
  <S>                   <C>         <C>     <C>         <C>    <C>        <C>          <C>        <C>          <C>
  Balance, March 31,
   1994................  1,223,594  $  12    4,247,977   $ 42   $36,655      $ --      $(10,646)     $(234)       $25,829
    Issuance of stock
     pursuant to exer-
     cise of stock op-
     tions.............        --      --      204,558      2        91        --           --         --              93
    Repurchase of com-
     mon stock.........        --      --      (26,278)    --       (13)       --           (33)       --             (46)
    Net loss...........        --      --          --      --       --         --        (1,071)       --          (1,071)
                        ----------  -----   ----------   ----   -------      -----     --------      -----        -------
  Balance, March 31,
   1995................  1,223,594     12    4,426,257     44    36,733        --       (11,750)      (234)        24,805
    Issuance of stock
     pursuant to exer-
     cise of stock op-
     tions.............        --      --      547,767      5       251        --           --         --             256
    Repurchase of com-
     mon stock.........        --      --       (5,708)    --       (13)       --           --         --             (13)
    Payments on and
     forgiveness of
     notes.............        --      --          --      --       --         --           --         158            158
    Net loss...........        --      --          --      --       --         --        (3,694)       --          (3,694)
                        ----------  -----   ----------   ----   -------      -----     --------      -----        -------
  Balance, March 31,
   1996................  1,223,594     12    4,968,316     49    36,971        --       (15,444)       (76)        21,512
    Issuance of stock
     pursuant to exer-
     cise of stock op-
     tions.............        --      --       92,680      1        41        --           --         --              42
    Repurchase of com-
     mon stock.........        --      --      (35,639)    --       (38)       --          (107)       --            (145)
    Payment on notes...        --      --          --      --       --         --           --          18             18
    Net income.........        --      --          --      --       --         --         6,316        --           6,316
                        ----------  -----   ----------   ----   -------      -----     --------      -----        -------
  Balance, March 31,
   1997................  1,223,594     12    5,025,357     50    36,974        --        (9,235)       (58)        27,743
    Issuance of Common
     Stock, net of is-
     suance costs (un-
     audited)..........         --     --    3,538,448     36    25,076        --           --         --          25,112
    Conversion of pre-
     ferred stock to
     common (unau-
     dited)............ (1,051,294)   (11)  10,717,317    107       (96)       --           --         --             --
    Issuance of stock
     pursuant to exer-
     cise of stock op-
     tions. (unau-
     dited)............        --      --    1,535,975     15       781        --           --        (455)           341
    Exercise of war-
     rants (unaudited).        --      --       53,271     --       --         --           --         --              --
    Payments on notes
     (unaudited).......        --      --          --      --       --         --           --          12             12
    Repurchase of pre-
     ferred stock on
     June 20, 1997
     (unaudited).......   (172,300)    (1)         --      --    (3,618)       --          (258)       --          (3,877)
    Deferred compensa-
     tion related to
     stock options
     (unaudited).......        --      --          --      --       599       (599)         --         --             --
    Amortization of de-
     ferred compensa-
     tion (unaudited)..        --      --          --      --       --          87          --         --              87
    Net income (unau-
     dited)............        --      --          --      --       --         --         9,937        --           9,937
                        ----------  -----   ----------   ----   -------      -----     --------      -----        -------
  Balance at December
   31, 1997 (unau-
   dited)..............         --  $  --   20,870,368   $208   $59,716      $(512)    $    444      $(501)       $59,355
                        ==========  =====   ==========   ====   =======      =====     ========      =====        =======
  </TABLE>
   
                              See accompanying notes.
   
                                        -7-
  <PAGE>
   
                         APPLIED MICRO CIRCUITS CORPORATION
   
                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (IN THOUSANDS)
   
  <TABLE>
  <CAPTION>
                                                                   NINE MONTHS
                                                                      ENDED
                                        YEAR ENDED MARCH 31,       DECEMBER 31,
                                       -------------------------  ---------------
                                        1995     1996     1997     1996    1997
                                       -------  -------  -------  ------  -------
                                                                   (Unaudited)
  <S>                                  <C>      <C>      <C>      <C>     <C>
  Operating activities
   Net income (loss).................  $(1,071) $(3,694) $ 6,316  $4,541  $ 9,937
   Adjustments to reconcile net
    income (loss) to net cash
    provided by operating activities:
   Depreciation and amortization.....    5,092    5,311    5,185   3,999    4,053
   Write-offs of inventories.........    1,227    3,663      452     378      598
   Amortization of deferred compen-
    sation...........................      --       --       --      --        87
   Loss on debt forgiveness..........      --       150      --      --       --
   Changes in assets and liabili-
    ties:
    Accounts receivable..............    2,021     (594)   1,058     451   (2,111)
    Inventories......................   (2,312)  (1,776)  (1,146)   (630)  (1,070)
    Other current assets.............     (224)     320     (116) (1,066)    (237)
    Accounts payable.................   (2,079)   1,853   (1,553)   (905)   2,582
    Accrued payroll and other ac-
     crued liabilities...............   (1,290)   1,047    1,562   1,274     (642)
    Deferred income taxes............      --       --       --      --    (1,813)
    Deferred revenue.................       30      416      (25)    128      455
                                       -------  -------  -------  ------  -------
     Net cash provided by operating
      activities.....................    1,394    6,696   11,733   8,170   11,839
  Investing activities
   Proceeds from sales and maturities
    of short-term investments........    1,500   11,238    7,944   6,466   23,268
   Purchase of short-term invest-
    ments............................   (1,677) (10,859) (11,512) (8,061) (41,466)
   Notes receivable from officer and
    employees........................      --      (203)    (608)   (608)    (118)
   Purchase of property and equip-
    ment.............................   (2,761)  (1,427)  (2,855) (1,907)  (8,431)
                                       -------  -------  -------  ------  -------
     Net cash used for investing ac-
      tivities.......................   (2,938)  (1,251)  (7,031) (4,110) (26,747)
  Financing activities
   Proceeds from issuance of common
    stock, net.......................       93      256       42      29   25,454
   Repurchase of common stock........      (46)     (13)    (145)    (24)     --
   Repurchase of preferred stock.....      --       --       --      --    (3,877)
   Payments on notes receivable from
    stockholders.....................      --         8       18      18       12
   Payments on capital lease obliga-
    tions............................   (3,224)  (2,750)  (2,824) (2,594)  (2,209)
   Payments on long-term debt........     (800)    (864)    (582)   (337)     (37)
                                       -------  -------  -------  ------  -------
     Net cash provided by (used for)
      financing activities...........   (3,977)  (3,363)  (3,491) (2,908)  19,343
                                       -------  -------  -------  ------  -------
     Net increase (decrease) in cash
      and cash equivalents...........   (5,521)   2,082    1,211   1,152    4,435
  Cash and cash equivalents at begin-
   ning of period....................    7,716    2,195    4,277   4,277    5,488
                                       -------  -------  -------  ------  -------
  Cash and cash equivalents at end of
   period............................  $ 2,195  $ 4,277  $ 5,488  $5,429  $ 9,923
                                       =======  =======  =======  ======  =======
  Supplemental disclosure of cash
   flow information:
  Cash paid for:
   Interest..........................  $   799  $   715  $   656  $  459  $   358
                                       =======  =======  =======  ======  =======
   Income taxes......................  $    48  $    48  $   770  $  411  $ 2,559
                                       =======  =======  =======  ======  =======
  </TABLE>
   
  SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
   
    Capital lease obligations of approximately $3.4 million, $1.2 million and
  $1.2 million were incurred during fiscal years 1995, 1996 and 1997,
  respectively, and $1.2 million and $282,000 during the nine month periods ended
  December 31, 1996 and 1997, respectively. During the nine months ended December
  31, 1997, notes were received for the exercise of stock options totalling
  $455,000.
   
                              See accompanying notes.
   
                                        -8-
  <PAGE>
   
                        APPLIED MICRO CIRCUITS CORPORATION
   
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
  1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   
   Business
   
    AMCC designs, develops, manufactures and markets high-performance, high-
  bandwidth silicon solutions for the world's communications infrastructure.
   
   Basis of Presentation
   
    The consolidated financial statements include the accounts of the Company
  and its wholly-owned subsidiary. All significant intercompany balances and
  transactions have been eliminated in consolidation.
   
   Interim Financial Information (Unaudited)
   
    The accompanying consolidated financial statements at December 31, 1997 and
  for the nine months ended December 31, 1996 and 1997 are unaudited but include
  all adjustments (consisting of normal recurring accruals) which, in the
  opinion of management, are necessary for a fair statement of the financial
  position and the operating results and cash flows for the interim date and
  periods presented. Results for the interim period ended December 31, 1997 are
  not necessarily indicative of results for the entire year or future periods.
   
   Cash, Cash Equivalents and Short-Term Investments
   
    Cash and cash equivalents consist of highly liquid debt instruments with
  original maturities of three months or less at date of acquisition, or money
  market type funds. Short-term investments consist of United States treasury
  notes, obligations of U.S. government agencies and corporate bonds. The
  Company maintains its excess cash in financial institutions with strong credit
  ratings and has not experienced any significant losses on its investments. The
  estimated fair value of each investment security approximates cost and,
  therefore, no unrealized gains or losses existed as of March 31, 1997 and 1996
  or at December 31, 1997.
   
    The following is a summary of available-for-sale securities (in thousands):
   
  <TABLE>
  <CAPTION>
                                                        MARCH 31,
                                                      ------------- DECEMBER 31,
                                                       1996   1997      1997
                                                      ------ ------ ------------
        <S>                                           <C>    <C>    <C>
        U.S. treasury securities and obligations of
         U.S. government agencies.................... $2,502 $4,189   $12,683
        U.S. corporate debt securities...............  1,743  3,628    13,124
        Other........................................    296    292       500
                                                      ------ ------   -------
                                                      $4,541 $8,109   $26,307
                                                      ====== ======   =======
  </TABLE>
   
    Available-for-sale securities by contractual maturity are as follows (in
  thousands):
   
  <TABLE>
  <CAPTION>
                                                            MARCH 31, DECEMBER 31,
                                                              1997        1997
                                                            --------- ------------
        <S>                                                 <C>       <C>
        Due in one year or less............................  $5,005     $21,860
        Due after one year through two years...............   3,104       3,047
        Greater than two years.............................     --        1,400
                                                             ------     -------
                                                             $8,109     $26,307
                                                             ======     =======
  </TABLE>
   
   
                                        -9-
  <PAGE>
   
                        APPLIED MICRO CIRCUITS CORPORATION
   
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
   Concentration of Credit Risk
   
    The Company believes that the concentration of credit risk in its trade
  receivables is mitigated by the Company's credit evaluation process,
  relatively short collection terms and dispersion of its customer base. The
  Company generally does not require collateral. The Company has not experienced
  significant losses on trade receivables from any particular customer or
  geographic region for any period presented.
   
    The Company invests its excess cash in debt instruments of the U.S.
  Treasury, governmental agencies and corporations with strong credit ratings.
  The Company has established guidelines relative to diversification and
  maturities that attempt to maintain safety and liquidity. These guidelines are
  periodically reviewed and modified to take advantage of trends in yields and
  interest rates. The Company has not experienced any significant losses on its
  cash equivalents or short-term investments.
   
   Use of Estimates
   
    The preparation of financial statements in accordance with generally
  accepted accounting principles requires management to make estimates and
  assumptions that affect the amounts reported in the financial statements and
  disclosures made in the accompanying notes to the financial statements. These
  estimates include assessing the collectability of accounts receivable, the use
  and recoverability of inventory, estimates to complete engineering contracts,
  costs of future product returns under warranty and provisions for
  contingencies expected to be incurred. Actual results could differ from those
  estimates.
   
   Inventories
   
    Inventories are stated at the lower of cost (determined on a first-in,
  first-out basis) or market. The Company's inventory valuation process is done
  on a part-by-part basis. Lower of cost to market adjustments, specifically
  identified on a part-by-part basis, reduce the carrying value of the related
  inventory and take into consideration reductions in sales prices, excess
  inventory levels and obsolete inventory. Once established, these adjustments
  are considered permanent and are not reversed until the related inventory is
  sold or disposed.
   
   Property and Equipment
   
    Property and equipment are stated at cost and depreciated over the estimated
  useful lives of the assets (3 to 7 years) using the straight-line method.
  Leasehold improvements are stated at cost and amortized over the shorter of
  the useful life of the asset or the lease term. Property and equipment under
  capital leases are recorded at the net present value of the minimum lease
  payments and are amortized over the shorter of the useful life of the assets
  or the lease term. Leased assets purchased at the expiration of the lease term
  are capitalized at acquisition cost.
   
   Impairment of Long-Lived Assets
   
    On April 1, 1996, the Company adopted Statement of Financial Accounting
  Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets
  and for Long-Lived Assets to be Disposed of. The adoption of SFAS No. 121 did
  not impact the financial position or results of operations of the Company.
   
   Advertising Cost
   
    Advertising costs are expensed as incurred.
   
                                       -10-
  <PAGE>
   
                        APPLIED MICRO CIRCUITS CORPORATION
   
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
   
   Revenues
   
    Revenues related to product sales are generally recognized when the products
  are shipped to the customer. Recognition of revenues and the related cost of
  revenues on shipments to distributors that are made under agreements allowing
  for price protection and right of return on products unsold by the distributor
  are deferred until the distributor ships the product to its customer. Revenues
  on engineering design contracts are recognized using the percentage-of-
  completion method based on actual cost incurred to date compared to total
  estimated costs of the project. Deferred revenue represents the margin on
  shipments of products to distributors that will be recognized when the
  distributors ship the products to their customers and billings in excess of
  costs and estimated earnings on uncompleted engineering design contracts.
   
   Warranty Reserves
   
    Estimated expenses for warranty obligations are accrued as revenue is
  recognized. Reserve estimates are adjusted periodically to reflect actual
  experience.
   
   Research and Development
   
    Research and development costs are expensed as incurred. Substantially all
  research and development expenses are related to new product development,
  designing significant improvements to existing products and new process
  development.
   
   Stock-Based Compensation
   
    The Company has elected to follow Accounting Principles Board Opinion No.
  25, Accounting for Stock Issued to Employees ("APB 25") and related
  interpretations in accounting for its employee and director stock options
  because the alternative fair value accounting provided for under Statement of
  Financial Accounting Standards No. 123, Accounting for Stock-Based
  Compensation ("SFAS 123") requires the use of option valuation models that
  were not developed for use in valuing employee and director stock options.
  Under SFAS 123 compensation cost is determined using the fair value of stock-
  based compensation determined as of the grant date, and is recognized over the
  periods in which the related services are rendered. The statement also permits
  companies to elect to continue using the current implicit value accounting
  method specified in APB 25 to account for stock-based compensation and
  disclose in the footnotes to the financial statements the pro forma effect of
  using the fair value method for its stock based compensation.
   
   Reclassification
   
    Certain prior period amounts have been reclassified to conform with the
  current period presentation.
   
   Earnings (Loss) Per Share
   
    Earnings (loss) per share is computed using the weighted average number of
  common shares and common equivalent shares outstanding during the periods
  presented. Common equivalent shares result from stock options and warrants.
  For loss periods, common equivalent shares are excluded from the computation
  as their effect would be antidilutive, except that the Securities and Exchange
  Commission (SEC) has historically required common and common share equivalents
  issued during the twelve-month period prior to the initial filing of a
  proposed public offering, to be included in the calculation as if they were
  outstanding for all periods presented (using the treasury stock method and the
  initial public offering price).
   
                                       -11-
  <PAGE>
   
                        APPLIED MICRO CIRCUITS CORPORATION
   
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
   
    In February 1997, the Financial Accounting Standards Board issued SFAS 128.
  "Earnings per Share," which supersedes APB Opinion No. 15. SFAS 128 replaces
  the presentation of primary earnings per share (EPS) with "Basic EPS" which
  includes no dilution and is based on weighted-average common shares
  outstanding for the period. Companies with complex capital structures,
  including AMCC, will also be required to present "Diluted EPS" that reflects
  the potential dilution of securities such as employee stock options and
  warrants to purchase common stock. SFAS 128 is effective for financial
  statements issued for periods ending after December 15, 1997. On February 3,
  1998, the SEC issued Staff Accounting Bulletin (SAB) No. 98 which revised the
  previous instructions for determining the dilutive effects in earnings per
  share computations of common stock and common stock equivalents issued at
  prices below the IPO price prior to the effectiveness of the IPO.
   
    Earnings (loss) per share computed under SFAS No. 128 and SAB 98 would be as
  follows:
   
  <TABLE>
  <CAPTION>
                                  YEARS ENDED MARCH
                                         31,                NINE MONTHS ENDED
                                 ---------------------- -------------------------
                                                        DECEMBER 31, DECEMBER 31,
                                  1995    1996    1997      1996         1997
                                 ------  ------  ------ ------------ ------------
                                     (UNAUDITED)               (UNAUDITED)
  <S>                            <C>     <C>     <C>    <C>          <C>
  Earnings (loss) per share:
    Basic....................... $ (.06) $(0.21) $ 0.35    $ 0.25       $ 0.57
    Diluted..................... $ (.06) $(0.21) $ 0.35    $ 0.25       $ 0.51
  Average shares outstanding:
    Basic (in thousands)........ 17,194  17,394  17,834    17,824       17,499
    Diluted (in thousands)...... 17,194  17,394  17,907    17,897       19,306
  </TABLE>
   
   Recently Issued Accounting Standards
   
    In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
  Reporting Comprehensive Income, and SFAS No. 131, Segment Information. Both of
  these standards are effective for fiscal years beginning after December 15,
  1997. SFAS No. 130 requires that all components of comprehensive income,
  including net income, be reported in the financial statements in the period in
  which they are recognized. Comprehensive income is defined as the change in
  equity during a period from transactions and other events and circumstances
  from non-owner sources. Net income and other comprehensive income, including
  foreign currency translation adjustments, and unrealized gains and losses on
  investments, shall be reported, net of their related tax effect, to arrive at
  comprehensive income. The Company does not believe that comprehensive income
  or loss has been materially different than net income or loss. SFAS No. 131
  amends the requirements for public enterprises to report financial and
  descriptive information about its reportable operating segments. Operating
  segments, as defined in SFAS No. 131, are components of an enterprise for
  which separate financial information is available and is evaluated regularly
  by the Company in deciding how to allocate resources and in assessing
  performance. The financial information is required to be reported on the basis
  that is used internally for evaluating the segment performance. The Company
  believes it operates in one business and operating segment and does not
  believe adoption of SFAS No. 131 will have a material impact on the Company's
  financial statements.
   
                                       -12-
  <PAGE>
   
                        APPLIED MICRO CIRCUITS CORPORATION
   
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
   
  2. CERTAIN FINANCIAL STATEMENT INFORMATION
   
  <TABLE>
  <CAPTION>
                                                       MARCH 31,
                                                   ------------------  DECEMBER 31
                                                     1996      1997       1997
                                                   --------  --------  -----------
     <S>                                           <C>       <C>       <C>
     Inventories (in thousands):
       Finished goods............................  $  2,631  $  1,076    $ 2,347
       Work in process...........................     2,651     4,279      4,344
       Raw materials.............................     1,554     2,175      1,311
                                                   --------  --------    -------
                                                   $  6,836  $  7,530    $ 8,002
                                                   ========  ========    =======
     Property and equipment (in thousands):
       Machinery and equipment...................  $ 19,168  $ 21,211    $24,390
       Leasehold improvements....................     5,588     5,789      6,758
       Computers, office furniture and equipment.    11,396    11,701     14,475
                                                   --------  --------    -------
                                                     36,152    38,701     45,623
     Less accumulated depreciation and amortiza-
      tion.......................................   (24,223)  (27,933)   (30,196)
                                                   --------  --------    -------
                                                   $ 11,929  $ 10,768    $15,427
                                                   ========  ========    =======
  </TABLE>
   
    The cost and accumulated amortization of machinery and equipment under
  capital leases at March 31, 1997 were approximately $12.2 million and $7.3
  million, respectively ($14.9 million and $7.8 million, at March 31, 1996).
  Amortization of assets held under capital leases is included with depreciation
  expense.
   
    During the years ended March 31, 1995, 1996 and 1997 and the nine month
  periods ended December 31, 1996 and 1997 the Company earned interest income of
  $441,000, $473,000, $627,000, $444,000 and $648,000, respectively, and
  incurred interest expense of $799,000, $715,000, $656,000, $439,000 and
  $355,000, respectively.
   
  3. LONG-TERM DEBT
   
    Long-term debt consists of the following (in thousands):
   
  <TABLE>
  <CAPTION>
                                                                     MARCH 31
                                                                    ------------
                                                                    1996   1997
                                                                    -----  -----
     <S>                                                            <C>    <C>
     Notes payable with interest rates ranging from 8.3% to 10.5%,
      paid in January 1997........................................  $ 162  $ --
     10.0% notes payable, paid in April 1997......................    457     37
                                                                    -----  -----
                                                                      619     37
     Less current portion.........................................   (582)   (37)
                                                                    -----  -----
                                                                    $  37  $ --
                                                                    =====  =====
  </TABLE>
   
                                       -13-
  <PAGE>
   
                        APPLIED MICRO CIRCUITS CORPORATION
   
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
   
  4. STOCKHOLDERS' EQUITY
   
   Common Stock
   
    On October 6, 1997, the Board of Directors authorized, which the
  stockholders subsequently approved, a two for three reverse stock split of all
  outstanding common stock. All share and per share amounts and stock option
  data have been restated to retroactively reflect a stock split.
   
    During the quarter ending December 31, 1997, the Company completed its
  initial public offering of 3,538,448 shares of common stock (including an
  exercised underwriters' over-allotment option for 832,950 shares) at a price
  of $8.00 per share, providing the Company with net proceeds of approximately
  $25.1 million, after deducting underwriting discounts and commissions of
  approximately $2.0 million and offering costs of approximately $1.2 million.
  During November 1997, the certificate of incorporation of the Company was
  amended to provide that the authorized number of shares of common and
  preferred stock issuable by the Company was 60,000,000 shares of common stock
  ($0.01 par value) and 2,000,000 shares of preferred stock ($0.01 par value).
   
   Convertible Preferred Stock
   
    A summary of the shares of convertible preferred stock issued and
  outstanding at March 31 which were converted into 10,717,317 shares of common
  stock in November 1997 (unaudited) is as follows (in thousands, except share
  data):
   
  <TABLE>
  <CAPTION>
                                                            MARCH 31, 1997
                                                     -----------------------------
                                                             SHARES    PREFERENCE
                                                      PAR  ISSUED AND      IN
                                                     VALUE OUTSTANDING LIQUIDATION
                                                     ----- ----------- -----------
     <S>                                             <C>   <C>         <C>
     Series 1.......................................  $ 4     408,692    $ 8,582
     Series 2.......................................    2     238,096      5,000
     Series 3.......................................    6     576,806     12,113
                                                      ---   ---------    -------
       Total........................................  $12   1,223,594    $25,695
                                                      ===   =========    =======
  </TABLE>
   
    Each share of Series 1, 2 and 3 preferred stock was convertible at the
  option of the holder into approximately 16, 7 and 8 shares of common stock,
  respectively, subject to certain anti-dilution adjustments. The Series 1, 2
  and 3 preferred shares may have been redeemed upon approval of the Company's
  Board of Directors and only with the vote of 60% of the outstanding preferred
  stock at a redemption price of $23.10 per share.
   
    Each share of preferred stock was entitled to one vote for each share of
  common stock into which it would convert. No dividends were allowed to be paid
  to common stockholders unless equivalent dividends were paid to preferred
  stockholders. Additionally, the preferred stockholders had certain rights of
  first refusal on any new securities offering (other than certain securities
  issued to employees), which rights of first refusal terminated upon completion
  of the Company's initial public offering, and certain registration rights.
   
    On April 24, 1997 the Board authorized the Company to repurchase up to $4
  million of convertible preferred stock, with priority given to the holders of
  convertible preferred stock that submitted bids for the sale of their shares
  of convertible preferred stock at the lowest price per share. On June 20,
  1997, the Company repurchased an aggregate of 172,300 shares of convertible
  preferred stock for approximately $3.9 million at prices between $1.20 and
  $2.61 per share on as converted to common stock basis.
   
                                       -14-
  <PAGE>
   
                        APPLIED MICRO CIRCUITS CORPORATION
   
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
   
   Preferred Stock
   
    On October 6, 1997, the Board of Directors adopted, which the stockholders
  subsequently approved, an amendment to the Certificate of Incorporation to
  allow the issuance of up to 2,000,000 shares of preferred stock in one or more
  series and to fix the rights, preferences, privileges and restriction thereof,
  including dividend rights, dividend rates, conversion rights, voting rights,
  terms of redemption, redemption prices, liquidation preferences and the number
  of shares constituting any series or the designation of such series, without
  further vote or action by the stockholders.
   
   Stock Options
   
    The Company's 1992 Stock Option Plan provides for the granting of incentive
  stock options to employees. Generally, options are granted at prices at least
  equal to fair value of the Company's common stock on the date of grant as
  determined by the Company's Board of Directors. In addition, certain officers
  and directors have been granted nonqualified stock options. The Company's 1982
  Employee Incentive Stock Option Plan expired in 1992. Options to purchase an
  aggregate of 83,309 shares of common stock under the 1982 Plan remain
  outstanding as of December 31, 1997 (unaudited).
     
    Options under both plans expire not more than ten years from the date of
  grant and are immediately exercisable after the date of grant but are subject
  to certain repurchase rights by the Company, at the Company's option, until
  such ownership rights have vested. Vesting generally occurs over four years.
  At March 31, 1997 and December 31, 1997, 42 shares and 729,007 (unaudited)
  shares of common stock were subject to repurchase, respectively.     
   
    Pursuant to an executive employment agreement between the Company and an
  executive, the Company granted an option to purchase 800,000 shares of the
  Company's common stock at $0.53 per share under the 1992 Stock Option Plan.
  The option vests ratably over four years. In the event the Company is
  acquired, the agreement stipulates that under certain circumstances the
  executive is eligible for certain additional compensation. These options as
  well as 66,667 additional options issued in April 1997 were exercised in July
  1997. The exercise was paid for with various notes which aggregate $455,000 at
  interest rates between 5.98% and 6.54% which are due at the earlier of
  February 12, 2000 ($420,000) and April 9, 2001 ($35,000) or the termination of
  employment.
   
    Certain other option agreements provide for the exercise of stock options
  with long-term promissory notes. These notes bear interest at rates ranging
  from 5.32% to 5.91%, are payable at the earlier of termination of employment
  or January 1998 and are secured by the shares of common stock purchased with
  the notes.
   
    Pro forma information regarding net income (loss) and net income (loss) per
  share is required by Statement 123, and has been determined as if the Company
  had accounted for its employee stock options under the fair value method of
  that statement. The fair value of these options was estimated at the date of
  grant using the minimum value method using the following weighted average
  assumptions for fiscal year 1997 and 1996, respectively: risk free interest
  rate of 6.20% and 6.15%; an expected option life of four years; and no annual
  dividends.
   
                                       -15-
  <PAGE>
   
                        APPLIED MICRO CIRCUITS CORPORATION
   
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
    For purposes of pro forma disclosures, the estimated fair value of the
  options is amortized to expenses over the vesting period of such options. The
  effects of applying Statement 123 for pro forma disclosure purposes are not
  likely to be representative of the effects on pro forma net income in future
  years because they do not take into consideration pro forma compensation
  expenses related to grants made prior to 1996. The Company's pro forma
  information follows:
   
  <TABLE>
  <CAPTION>
                                                             1996         1997
                                                          -----------  ----------
  <S>                                                     <C>          <C>
  Pro forma net income (loss)............................ $(3,718,000) $6,225,000
  Pro forma net income (loss) per share.................. $     (0.22) $     0.33
  Weighted average fair value of options granted during
   the year.............................................. $      0.12  $     0.15
  </TABLE>
   
    A summary of the Company's stock option activity, including those issued
  outside of the plans, and related information are as follows:
   
  <TABLE>
  <CAPTION>
                                                     MARCH 31,
                            --------------------------------------------------------------
                                   1995                 1996                 1997           DECEMBER 31, 1997
                            -------------------- -------------------- -------------------- ---------------------
                                       WEIGHTED-            WEIGHTED-            WEIGHTED-             WEIGHTED-
                                        AVERAGE              AVERAGE              AVERAGE               AVERAGE
                                       EXERCISE             EXERCISE             EXERCISE              EXERCISE
                             OPTIONS     PRICE    OPTIONS     PRICE    OPTIONS     PRICE    OPTIONS      PRICE
                             -------   --------- ---------  --------- ---------  --------- ----------  ---------
  <S>                       <C>        <C>       <C>        <C>       <C>        <C>       <C>         <C>
  Outstanding at beginning
   of period..............  1,911,566    $0.48   1,633,054    $0.50   1,690,160    $0.51    2,842,293    $0.51
    Granted...............    195,332     0.53   1,017,000     0.53   1,457,285     0.53    1,140,082    $2.36
    Exercised.............   (204,558)    0.45    (547,767)    0.47     (92,680)    0.45   (1,535,975)   $0.52
    Forfeited.............   (269,286)    0.50    (412,127)    0.51    (212,472)    0.53     (258,124)   $0.53
                            ---------    -----   ---------    -----   ---------    -----   ----------    -----
  Outstanding at end of
   period.................  1,633,054    $0.50   1,690,160    $0.51   2,842,293    $0.51    2,188,276    $1.48
                            =========    =====   =========    =====   =========    =====   ==========    =====
  Vested at end of period.    917,449    $0.48     349,337    $0.51     851,764    $0.51      657,148    $1.48
                            =========    =====   =========    =====   =========    =====   ==========    =====
  </TABLE>
   
    The weighted-average remaining contractual life of the options outstanding
  at March 31, 1997 is 8.4 years. Exercise prices of all options outstanding as
  of March 31, 1997 range from $0.45 to $0.53. The weighted-average remaining
  contractual life of the vested options is 6.5 years as of March 31, 1997. The
  range of exercise prices for options outstanding as of December 31, 1997 was
  $0.45 to $8.25 per share (unaudited).
   
    From April 1, 1997 through September 30, 1997, the Company recorded deferred
  compensation expense for the difference between the exercise price and the
  deemed fair value for financial statement presentation purposes of the
  Company's common stock, as determined by the Board of Directors, for all
  options granted in the first and second quarters of fiscal 1998. This deferred
  compensation aggregates to $599,000, which is being amortized over the four
  year vesting period of the related options.
   
   Warrants
   
    In connection with certain notes payable secured by equipment, capital
  leases for equipment and revolving lines of credit issued in 1989 and 1990,
  the Company had outstanding warrants to purchase 83,807 shares of common stock
  at $2.63 to $3.00 per share, subject to certain anti-dilution adjustments and
  adjustments in the event of certain mergers or acquisitions. No value was
  placed on the warrants at the time
   
                                       -16-
  <PAGE>
   
                        APPLIED MICRO CIRCUITS CORPORATION
   
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
  of issuance as it was deemed to be immaterial. These warrants expired not more
  than ten years from date of grant or five years after the Company's initial
  public offering, whichever is later. In November 1997 53,271 shares of common
  stock were issued upon the net exercise of these warrants at the initial
  public offering price of $8.00 per share.
   
   1997 Employee Stock Purchase Plan
   
    The Company's 1997 Employee Stock Purchase Plan (the "1997 Purchase Plan")
  was adopted by the Board of Directors on October 6, 1997 which the
  stockholders subsequently approved. A total of 400,000 shares of Common Stock
  are reserved for issuance under the 1997 Purchase Plan.
   
   1997 Directors' Stock Option Plan
   
    The Company's 1997 Directors' Stock Option Plan (the "Directors' Plan") was
  adopted by the Board of Directors on October 6, 1997, which the stockholders
  subsequently approved. A total of 200,000 shares of Common Stock are reserved
  for issuance under the Directors' Plan. The Directors' Plan provides for the
  grant of non-statutory options to nonemployee directors of the Company.
   
   Common Shares Reserved for Future Issuance
   
    At December 31, 1997, shares of the Company's common stock are reserved for
  issuance upon the conversion or exercise of the following equity instruments
  (unaudited):
   
  <TABLE>
     <S>                                                                 <C>
     Stock options:
       Issued and outstanding........................................... 2,188,276
       Authorized for future grants..................................... 2,628,464
     Stock purchase plan................................................   400,000
                                                                         ---------
                                                                         5,216,740
  </TABLE>
   
   
  5. INCOME TAXES
   
    The provision (benefit) for income taxes consists of the following (in
  thousands):
   
  <TABLE>
  <CAPTION>
                                                    YEAR ENDED MARCH 31,
                                                    ------------------------
                                                     1995     1996    1997
                                                    -------  ------  -------
  <S>                                               <C>      <C>     <C>
  CURRENT                       
  Federal.......................................... $   --   $   27  $   380
  State............................................     (70)      5      279
                                                    -------  ------  -------
                                                    $   (70) $   32  $   659
                                                    =======  ======  =======
  </TABLE>
   
                                       -17-
  <PAGE>
   
                        APPLIED MICRO CIRCUITS CORPORATION
   
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
   
    The provision (credit) for income taxes reconciles to the amount computed by
  applying the federal statutory rate (35%) to income before income taxes as
  follows (in thousands):
   
  <TABLE>
  <CAPTION>
                                                          YEAR ENDED MARCH 31,
                                                          -----------------------
                                                          1995    1996     1997
                                                          -----  -------  -------
  <S>                                                     <C>    <C>      <C>
  Tax at federal statutory rate.........................  $(399) $(1,282) $ 2,441
  Net operating loss without benefit....................    399    1,282      --
  Utilization of net operating loss and research and de-
   velopment tax credit carryforwards...................    --       --    (2,061)
  State taxes, net of federal benefit and credits.......    (70)       5      279
  Federal alternative minimum tax.......................    --        27      --
                                                          -----  -------  -------
                                                          $ (70) $    32  $   659
                                                          =====  =======  =======
  </TABLE>
   
    Significant components of the Company's deferred tax assets and liabilities
  for federal and state income taxes as of March 31, 1997 and 1996 are as shown
  below. As of March 31, 1997, a valuation allowance had been recognized to
  offset the deferred tax assets as realization of such assets was uncertain.
  The estimated annualized effective tax rate for fiscal 1998, which was used to
  determine the provision for the nine month period ended December 31, 1997, is
  computed based on the Company's projected 1998 income which will allow for a
  full reduction of the valuation allowance and realization of the deferred tax
  asset.
   
  <TABLE>
  <CAPTION>
                                                                   MARCH 31,
                                                                ----------------
                                                                 1996     1997
                                                                -------  -------
  <S>                                                           <C>      <C>
  Deferred tax assets (in thousands):
    Reserves................................................... $ 2,512  $ 2,233
    Capitalization of inventory and research and development
     costs.....................................................     334      226
    Research and development credit carryforwards..............   2,405    1,667
    Depreciation and amortization..............................     335      200
    Net operating loss carryforwards...........................   2,102      --
    Other credit carryforwards.................................     886      768
                                                                -------  -------
  Subtotal.....................................................   8,574    5,094
  Valuation allowance..........................................  (8,574)  (5,094)
                                                                -------  -------
  Net deferred taxes........................................... $   --   $   --
                                                                =======  =======
  </TABLE>
   
    At March 31, 1997, the Company has federal alternative minimum tax,
  investment and research and development tax credit carryforwards of
  approximately $366,000, $270,000 and $1.6 million, respectively, which will
  begin to expire in 1998 unless previously utilized.
   
    Under Internal Revenue Code Section 382, the Company's use of its tax credit
  carryforwards could be limited in the event of certain cumulative changes in
  the Company's stock ownership.
   
    For the nine months ended December 31, 1996 and 1997, income taxes have been
  provided based on the estimated annual effective tax rate applied to pre tax
  income for the interim period.
   
                                       -18-
  <PAGE>
   
                        APPLIED MICRO CIRCUITS CORPORATION
   
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
   
  6. LEASE COMMITMENTS
   
    The Company leases its present manufacturing facilities under a long-term
  operating lease expiring in March 1998. The lease expiring is renewable for up
  to ten years. This lease requires the Company to pay property taxes and
  incidental maintenance expenses and contains escalation clauses based upon
  increases in the Consumer Price Index.
   
    In September 1997, the Company moved into a new administration and
  manufacturing facility which is leased under a long-term operating lease. This
  lease expires in September 2007, requires the Company to pay property taxes
  and incidental maintenance expenses and is renewable for up to ten years. The
  lease provides for defined rent increases over the term of the lease.
   
    Annual future minimum lease payments, including machinery and equipment
  under capital leases and the Company's commitment relating to its new
  administration and manufacturing facility, as of March 31, 1997 are as follows
  (in thousands):
   
  <TABLE>
  <CAPTION>
                                                                OPERATING CAPITAL
     FISCAL YEAR ENDING MARCH 31,                                LEASES   LEASES
     ----------------------------                               --------- -------
     <S>                                                        <C>       <C>
      1998.....................................................  $1,037   $2,980
      1999.....................................................     848    2,170
      2000.....................................................     848      759
      2001.....................................................     870      320
      2002.....................................................     889      225
      Thereafter...............................................   5,070       --
                                                                 ------   ------
        Total minimum lease payments...........................  $9,562    6,454
                                                                 ======
     Less amount representing interest.........................              637
                                                                          ------
     Present value of remaining minimum capital lease payments
      (including current portion of $2,625)....................           $5,817
                                                                          ======
  </TABLE>
   
    Rent expense (including short-term leases and net of sublease income) for
  the years ended March 31, 1995, 1996 and 1997 was $1.7 million, $2.3 million
  and $1.2 million, respectively. Rent expense for the nine months ended
  December 31, 1996 and 1997 was $876,000 and $879,000, respectively. Included
  in the 1996 rent expense is an accrual of $565,000 for losses on facilities
  for which sublease income was expected to be less than the remaining minimum
  lease payments. Sublease income was $16,000, $0 and $208,000 for the years
  ended March 31, 1995 1996 and 1997, respectively.
   
  7. RELATED PARTY TRANSACTIONS
   
    As of March 31, 1996, the Company had advanced $203,000 to an officer of the
  Company. During 1997, an additional $750,000 was advanced to this officer and
  $142,000 of the advances made during 1996 were repaid. Notes were received by
  the Company providing for interest on the balance at rates from 5.32% to
  5.76%. Principal and interest under the notes are due on or before February
  28, 1999 and $750,000 of the balance is secured by marketable securities owned
  by the officer.
   
                                       -19-
  <PAGE>
   
                        APPLIED MICRO CIRCUITS CORPORATION
   
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
   
  8. EMPLOYEE RETIREMENT PLAN
   
    Effective January 1, 1986, the Company established a 401(k) defined
  contribution retirement plan (the "Retirement Plan") covering all full-time
  employees with greater than three months of service. The Retirement Plan
  provides for voluntary employee contributions from 1% to 20% of annual
  compensation, subject to a maximum limit allowed by Internal Revenue Service
  guidelines. The Company may contribute such amounts as determined by the Board
  of Directors. Employer contributions vest to participants at a rate of 20% per
  year of service, provided that after five years of service all past and
  subsequent employer contributions are 100% vested. The contributions charged
  to operations totalled $116,000, $182,000 and $318,000 for the years ended
  March 31, 1995, 1996 and 1997, respectively, and $202,000 and $241,000 for the
  nine months ended December 31, 1996 and 1997, respectively.
   
  9. SIGNIFICANT CUSTOMER AND GEOGRAPHIC INFORMATION
   
    During the years ended March 31, 1995, 1996 and 1997 and the nine month
  periods ended December 31, 1996 and 1997, 17%, 20% and 20% and 21% and 20%,
  respectively, of net revenues were from one customer. No other customer
  accounted for more than 10% of revenues in any period.
   
    Revenue by geographic region for the years ended March 31, 1995, 1996 and
  1997, and the nine months ended December 31, 1996 and 1997 were as follows (in
  thousands):
   
  <TABLE>
  <CAPTION>
                                                                     NINE MONTHS
                                                                        ENDED 
                                            YEAR ENDED MARCH 31,     DECEMBER 31,
                                           ----------------------- ---------------
                                            1995    1996    1997    1996    1997
                                           ------- ------- ------- ------- -------
     <S>                                   <C>     <C>     <C>     <C>     <C>
     Net revenues:
       United States...................... $32,554 $28,134 $34,424 $24,508 $32,183
       Canada.............................   8,030  10,116  10,943   8,976   9,693
       Europe and Israel..................   4,075   6,525   8,216   5,892   9,434
       Asia...............................   2,291   5,489   3,885   3,088   3,564
                                           ------- ------- ------- ------- -------
         Total............................ $46,950 $50,264 $57,468 $42,464 $54,874
                                           ======= ======= ======= ======= =======
  </TABLE>
   
  10. CONTINGENCIES
     
    The Company is party to various claims and legal actions arising in the
  normal course of business, including notification of possible infringement on
  the intellectual property rights of third parties. In addition, since 1993 the
  Company has been named as a potentially responsible party ("PRP") along with a
  large number of other companies that used Omega Chemical Corporation ("Omega")
  in Whittier, California to handle and dispose of certain hazardous waste
  material. The Company is a member of a large group of PRPs that has agreed to
  fund certain remediation efforts at the Omega site for which the Company has
  accrued approximately $50,000. Although the ultimate outcome of these matters
  is not presently determinable, management believes that the resolution of all
  such pending matters, net of amounts accrued, will not have a material adverse
  affect on the Company's financial position or liquidity; however, there can be
  no assurance that the ultimate resolution of these matters will not have a
  material impact on the Company's results of operations in any quarter.     
   
                                       -20-
  <PAGE>
   
                  SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                   (IN THOUSANDS)
   
  <TABLE>
  <CAPTION>
  -----------------------------------------------------------------------------------------------------
                  COL. A                    COL. B       COL. C                    COL. D       COL. E
  -----------------------------------------------------------------------------------------------------
                                                              ADDITIONS
                                                      -------------------------
                                                          (1)          (2)
                                                        CHARGED      CHARGED
                                          BALANCE AT    TO COSTS     TO OTHER                  BALANCE
                                          BEGINNING       AND       ACCOUNTS-   DEDUCTIONS-     AT END
               DESCRIPTION                OF PERIOD     EXPENSES     DESCRIBE     DESCRIBE    OF PERIOD
  -----------------------------------------------------------------------------------------------------
   <S>                                   <C>          <C>          <C>          <C>          <C>
   Nine Months Ended December 31, 1997:      $200         $157         $ --         $  7         $350
   Allowance for doubtful accounts
  -----------------------------------------------------------------------------------------------------
   Year ended March 31, 1997:                $ 90         $198         $ 88         $ --         $200
   Allowance for doubtful accounts
  -----------------------------------------------------------------------------------------------------
   Year ended March 31, 1996:                $115         $ --         $ --         $ 25         $ 90
   Allowance for doubtful accounts
  -----------------------------------------------------------------------------------------------------
   Year ended March 31, 1995                 $ 60         $ 81         $ --         $ 26         $115
   Allowance for doubtful accounts
  -----------------------------------------------------------------------------------------------------
  </TABLE>
  
                                      -21-
  
  <PAGE>
   
                                     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 hereunto duly authorized.
  
  
                                    APPLIED MICRO CIRCUITS CORPORATION
  
  
  
  Date:  February 27, 1998          By:  /s/  Joel O. Holliday
                                        -------------------------------
                                        Joel O. Holliday
                                        Chief Financial Officer
  
  
  
  
  
  
                                       -22-
metadata_documents: [{"type": "8-K", "sequence": "1", "description": "FORM 8-K", "secsgml_size_bytes": 73803}]
metadata_filer: {"company-data": {"conformed-name": "APPLIED MICRO CIRCUITS CORP", "cik": "0000711065", "assigned-sic": "3674", "irs-number": "942586591", "state-of-incorporation": "DE", "fiscal-year-end": "0331"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "000-23193", "film-number": "98553048"}, "business-address": {"street1": "6290 SEQUENCE DR", "city": "SAN DIEGO", "state": "CA", "zip": "92121", "phone": "6194509333"}, "mail-address": {"street1": "6290 SEQUENCE DRIVE", "city": "SAN DIEGO", "state": "CA", "zip": "92121"}}
text: SECURITIES AND EXCHANGE COMMISSION
  
                               Washington, D.C. 20549
  
                                      FORM 8-K
                                          
                                   CURRENT REPORT
  
       Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
  
                         Date of Report:  February 27, 1998
  
                         APPLIED MICRO CIRCUITS CORPORATION
               (Exact name of registrant as specified in its charter)
  
                                     000-23193
                              (Commission File Number)
  
                  DELAWARE                             94-2586591
             (State or other                        (I.R.S. Employer 
       jurisdiction of incorporation)              Identification No.)
  
                                6290 SEQUENCE DRIVE
                                SAN DIEGO, CA  92121
              (Address of principal executive offices, with zip code)
  
                                   (619) 450-9333
                (Registrant's telephone number, including area code)
  
                                        N/A
           (Former name or former address, if changed since last report)
  ITEM 5.  OTHER EVENTS.
  
       Applied Micro Circuits Corporation (the "Company") filed a Registration
  Statement on Form S-1 (Registration No. 333-46071) (the "Registration
  Statement") with the Securities Exchange Commission (the "Commission") on
  February 11, 1998 in connection with the public offering of shares of its
  Common Stock. The Registration Statement, which was subsequently amended on
  February 20, 1998, included audited consolidated financial statements for the
  three year periods ended March 31, 1997 and unaudited financial statements for
  the nine month periods ended December 31, 1996 and 1997, respectively (the
  "Financial Statements")and Schedule. With the filing of this Form 8-K, the
  Company hereby files the Financial Statements and Schedule with the
  Commission.
  
                                        -2-
  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
   
                         APPLIED MICRO CIRCUITS CORPORATION
  PAGE
                                                                              ----
  Report of Ernst & Young LLP, Independent Auditors.........................  4
  
  Consolidated Balance Sheets as of March 31, 1996 and 1997 and December 31,
   1997 (Unaudited).........................................................  5
  
  Consolidated Statements of Operations for each of the three years in the
   period ended March 31, 1997 and for the nine months ended December 31,
   1996 and 1997 (Unaudited)................................................  6
  
  Consolidated Statements of Stockholders' Equity for each of the three
   years in the period ended March 31, 1997 and for the nine months ended
   December 31, 1997 (Unaudited)............................................  7
  
  Consolidated Statements of Cash Flows for each of the three years in the
   period ended March 31, 1997 and for the nine months ended December 31,
   1996 and 1997 (Unaudited)................................................  8
  
  Notes to Consolidated Financial Statements................................  9
  -3-
  REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
   
  The Board of Directors
  Applied Micro Circuits Corporation
   
    We have audited the accompanying consolidated balance sheets of Applied
  Micro Circuits Corporation as of March 31, 1997 and 1996, and the related
  consolidated statements of operations, stockholders' equity, and cash flows
  for each of the three years in the period ended March 31, 1997. 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 generally accepted auditing
  standards. 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 consolidated financial position
  of Applied Micro Circuits Corporation at March 31, 1997 and 1996, and the
  consolidated results of its operations and its cash flows for each of the
  three years in the period ended March 31, 1997, in conformity with generally
  accepted accounting principles.
   
                                            /s/ ERNST & YOUNG LLP
   
  San Diego, California
  April 25, 1997, except footnote 4, as to which the date is 
    February 9, 1998
   
                                        -4-
  APPLIED MICRO CIRCUITS CORPORATION
   
                            CONSOLIDATED BALANCE SHEETS
                         (IN THOUSANDS, EXCEPT SHARE DATA)
  MARCH 31,       DECEMBER 31,
                                                  -----------------  ------------
                                                    1996     1997        1997
                                                  --------  -------  ------------
                                                                      (Unaudited)
  ASSETS
  Current assets:
    Cash and cash equivalents...................  $  4,277  $ 5,488    $ 9,923
    Short-term investments -- available-for-
     sale.......................................     4,541    8,109     26,307
    Accounts receivable, net of allowance for
     doubtful accounts of $90 and $200 at March
     31, 1996 and 1997, respectively, and $350
     at December 31, 1997 (unaudited)...........     9,476    8,418     10,529
    Inventories.................................     6,836    7,530      8,002
    Deferred income taxes.......................       --       --       1,813
    Notes receivable from officer and employee..       150        8         21
    Other current assets........................       574      690        927
                                                  --------  -------    -------
     Total current assets.......................    25,854   30,243     57,522
  Notes receivable from officer and employees...        53      803        908
  Property and equipment, net...................    11,929   10,768     15,427
                                                  --------  -------    -------
   Total assets.................................  $ 37,836  $41,814    $73,857
                                                  ========  =======    =======
       LIABILITIES AND STOCKHOLDERS' EQUITY
  Current liabilities:
    Accounts payable............................  $  3,981  $ 2,428    $ 5,010
    Accrued payroll and related expenses........     1,291    3,102      3,407
    Other accrued liabilities...................     2,130    1,881        934
    Deferred revenue............................       831      806      1,261
    Current portion of long-term debt...........       582       37         --
    Current portion of capital lease obliga-
     tions......................................     3,062    2,625      2,215
                                                  --------  -------    -------
     Total current liabilities..................    11,877   10,879     12,827
  Long-term debt, less current portion..........        37      --          --
  Long-term capital lease obligations, less cur-
   rent portion.................................     4,410    3,192      1,675
  Commitments and contingencies (Notes 6 and 10)
  Stockholders' equity:
    Preferred Stock, $0.01 par value:
     2,000,000 shares authorized, none issued
     and outstanding............................       --       --         --
    Convertible preferred stock, $0.01 par val-
     ue:
    Authorized shares -- 1,350,000..............
    Issued and outstanding shares -- 1,223,594
     at March 31, 1996 and 1997.................
    Liquidation value -- $25,695 at March 31,
     1996 and 1997 and none at December 31,
     1997.......................................        12       12        --
    Common stock, $0.01 par value:
    Authorized shares -- 34,500,000 at March 31,
     1996 and 1997 and 60,000,000 at December
     31, 1997 (unaudited)
    Issued and outstanding shares -- 4,968,316
     and 5,025,357 at March 31, 1996 and 1997,
     respectively, and 20,870,368 at December
     31, 1997, (unaudited)......................        49       50        208
    Additional paid-in capital..................    36,971   36,974     59,716
    Deferred compensation.......................       --       --        (512)
    Retained earnings (deficit).................   (15,444)  (9,235)       444
    Notes receivable from stockholders..........       (76)     (58)      (501)
                                                  --------  -------    -------
     Total stockholders' equity.................    21,512   27,743     59,355
                                                  --------  -------    -------
   Total liabilities and stockholders' equity...  $ 37,836  $41,814    $73,857
                                                  ========  =======    =======
  See accompanying notes.
   
                                        -5-
  APPLIED MICRO CIRCUITS CORPORATION
   
                       CONSOLIDATED STATEMENTS OF OPERATIONS
                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
  NINE MONTHS
                                                                        ENDED
                                         YEAR ENDED MARCH 31,       DECEMBER 31,
                                        -------------------------  ---------------
                                         1995     1996     1997     1996    1997
                                        -------  -------  -------  ------- -------
                                                                     (Unaudited)
  Net revenues........................  $46,950  $50,264  $57,468  $42,464 $54,874
  Cost of revenues....................   27,513   34,169   30,057   22,800  25,370
                                        -------  -------  -------  ------- -------
  Gross profit........................   19,437   16,095   27,411   19,664  29,504
  Operating expenses:
    Research and development..........   10,108    8,283    7,870    5,668   9,339
    Selling, general and administra-
     tive.............................   10,112   11,232   12,537    8,986  10,260
                                        -------  -------  -------  ------- -------
      Total operating expenses........   20,220   19,515   20,407   14,654  19,599
                                        -------  -------  -------  ------- -------
  Operating income (loss).............     (783)  (3,420)   7,004    5,010   9,905
  Interest income (expense), net......     (358)    (242)     (29)       5     294
                                        -------  -------  -------  ------- -------
  Income (loss) before income taxes...   (1,141)  (3,662)   6,975    5,015  10,199
  Provision (benefit) for income tax-
   es.................................      (70)      32      659      474     262
                                        -------  -------  -------  ------- -------
  Net income (loss)...................  $(1,071) $(3,694) $ 6,316  $ 4,541 $ 9,937
                                        =======  =======  =======  ======= =======
  Primary net income (loss) per share.  $ (0.06) $ (0.20) $  0.33
                                        =======  =======  =======
  Shares used in calculating primary
   net income (loss) per share........   18,380   18,580   19,185
                                        =======  =======  =======
  Pro forma basic earnings per share:
    Earnings per share................                             $  0.25 $  0.57
                                                                   ======= =======
    Shares used in calculating basic
     earnings per share...............                              17,824  17,499
                                                                   ======= =======
  Diluted earnings per share:
    Earnings per share................                             $  0.25 $  0.51
                                                                   ======= =======
    Shares used in computing diluted
     earnings per share...............                              17,897  19,306
                                                                   ======= =======
  See accompanying notes.
   
                                        -6-
  APPLIED MICRO CIRCUITS CORPORATION
   
                  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                         (IN THOUSANDS, EXCEPT SHARE DATA)
  CONVERTIBLE                                                               NOTES
                         PREFERRED STOCK      COMMON STOCK     ADDITIONAL              RETAINED    RECEIVABLE      TOTAL
                        ------------------  ------------------  PAID-IN     DEFERRED   EARNINGS       FROM     STOCKHOLDERS'
                          SHARES    AMOUNT    SHARES    AMOUNT  CAPITAL   COMPENSATION (DEFICIT)  STOCKHOLDERS    EQUITY
                        ----------  ------  ----------  ------ ---------- ------------ ---------  ------------ -------------
  Balance, March 31,
   1994................  1,223,594  $  12    4,247,977   $ 42   $36,655      $ --      $(10,646)     $(234)       $25,829
    Issuance of stock
     pursuant to exer-
     cise of stock op-
     tions.............        --      --      204,558      2        91        --           --         --              93
    Repurchase of com-
     mon stock.........        --      --      (26,278)    --       (13)       --           (33)       --             (46)
    Net loss...........        --      --          --      --       --         --        (1,071)       --          (1,071)
                        ----------  -----   ----------   ----   -------      -----     --------      -----        -------
  Balance, March 31,
   1995................  1,223,594     12    4,426,257     44    36,733        --       (11,750)      (234)        24,805
    Issuance of stock
     pursuant to exer-
     cise of stock op-
     tions.............        --      --      547,767      5       251        --           --         --             256
    Repurchase of com-
     mon stock.........        --      --       (5,708)    --       (13)       --           --         --             (13)
    Payments on and
     forgiveness of
     notes.............        --      --          --      --       --         --           --         158            158
    Net loss...........        --      --          --      --       --         --        (3,694)       --          (3,694)
                        ----------  -----   ----------   ----   -------      -----     --------      -----        -------
  Balance, March 31,
   1996................  1,223,594     12    4,968,316     49    36,971        --       (15,444)       (76)        21,512
    Issuance of stock
     pursuant to exer-
     cise of stock op-
     tions.............        --      --       92,680      1        41        --           --         --              42
    Repurchase of com-
     mon stock.........        --      --      (35,639)    --       (38)       --          (107)       --            (145)
    Payment on notes...        --      --          --      --       --         --           --          18             18
    Net income.........        --      --          --      --       --         --         6,316        --           6,316
                        ----------  -----   ----------   ----   -------      -----     --------      -----        -------
  Balance, March 31,
   1997................  1,223,594     12    5,025,357     50    36,974        --        (9,235)       (58)        27,743
    Issuance of Common
     Stock, net of is-
     suance costs (un-
     audited)..........         --     --    3,538,448     36    25,076        --           --         --          25,112
    Conversion of pre-
     ferred stock to
     common (unau-
     dited)............ (1,051,294)   (11)  10,717,317    107       (96)       --           --         --             --
    Issuance of stock
     pursuant to exer-
     cise of stock op-
     tions. (unau-
     dited)............        --      --    1,535,975     15       781        --           --        (455)           341
    Exercise of war-
     rants (unaudited).        --      --       53,271     --       --         --           --         --              --
    Payments on notes
     (unaudited).......        --      --          --      --       --         --           --          12             12
    Repurchase of pre-
     ferred stock on
     June 20, 1997
     (unaudited).......   (172,300)    (1)         --      --    (3,618)       --          (258)       --          (3,877)
    Deferred compensa-
     tion related to
     stock options
     (unaudited).......        --      --          --      --       599       (599)         --         --             --
    Amortization of de-
     ferred compensa-
     tion (unaudited)..        --      --          --      --       --          87          --         --              87
    Net income (unau-
     dited)............        --      --          --      --       --         --         9,937        --           9,937
                        ----------  -----   ----------   ----   -------      -----     --------      -----        -------
  Balance at December
   31, 1997 (unau-
   dited)..............         --  $  --   20,870,368   $208   $59,716      $(512)    $    444      $(501)       $59,355
                        ==========  =====   ==========   ====   =======      =====     ========      =====        =======
  See accompanying notes.
   
                                        -7-
  APPLIED MICRO CIRCUITS CORPORATION
   
                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (IN THOUSANDS)
  NINE MONTHS
                                                                      ENDED
                                        YEAR ENDED MARCH 31,       DECEMBER 31,
                                       -------------------------  ---------------
                                        1995     1996     1997     1996    1997
                                       -------  -------  -------  ------  -------
                                                                   (Unaudited)
  Operating activities
   Net income (loss).................  $(1,071) $(3,694) $ 6,316  $4,541  $ 9,937
   Adjustments to reconcile net
    income (loss) to net cash
    provided by operating activities:
   Depreciation and amortization.....    5,092    5,311    5,185   3,999    4,053
   Write-offs of inventories.........    1,227    3,663      452     378      598
   Amortization of deferred compen-
    sation...........................      --       --       --      --        87
   Loss on debt forgiveness..........      --       150      --      --       --
   Changes in assets and liabili-
    ties:
    Accounts receivable..............    2,021     (594)   1,058     451   (2,111)
    Inventories......................   (2,312)  (1,776)  (1,146)   (630)  (1,070)
    Other current assets.............     (224)     320     (116) (1,066)    (237)
    Accounts payable.................   (2,079)   1,853   (1,553)   (905)   2,582
    Accrued payroll and other ac-
     crued liabilities...............   (1,290)   1,047    1,562   1,274     (642)
    Deferred income taxes............      --       --       --      --    (1,813)
    Deferred revenue.................       30      416      (25)    128      455
                                       -------  -------  -------  ------  -------
     Net cash provided by operating
      activities.....................    1,394    6,696   11,733   8,170   11,839
  Investing activities
   Proceeds from sales and maturities
    of short-term investments........    1,500   11,238    7,944   6,466   23,268
   Purchase of short-term invest-
    ments............................   (1,677) (10,859) (11,512) (8,061) (41,466)
   Notes receivable from officer and
    employees........................      --      (203)    (608)   (608)    (118)
   Purchase of property and equip-
    ment.............................   (2,761)  (1,427)  (2,855) (1,907)  (8,431)
                                       -------  -------  -------  ------  -------
     Net cash used for investing ac-
      tivities.......................   (2,938)  (1,251)  (7,031) (4,110) (26,747)
  Financing activities
   Proceeds from issuance of common
    stock, net.......................       93      256       42      29   25,454
   Repurchase of common stock........      (46)     (13)    (145)    (24)     --
   Repurchase of preferred stock.....      --       --       --      --    (3,877)
   Payments on notes receivable from
    stockholders.....................      --         8       18      18       12
   Payments on capital lease obliga-
    tions............................   (3,224)  (2,750)  (2,824) (2,594)  (2,209)
   Payments on long-term debt........     (800)    (864)    (582)   (337)     (37)
                                       -------  -------  -------  ------  -------
     Net cash provided by (used for)
      financing activities...........   (3,977)  (3,363)  (3,491) (2,908)  19,343
                                       -------  -------  -------  ------  -------
     Net increase (decrease) in cash
      and cash equivalents...........   (5,521)   2,082    1,211   1,152    4,435
  Cash and cash equivalents at begin-
   ning of period....................    7,716    2,195    4,277   4,277    5,488
                                       -------  -------  -------  ------  -------
  Cash and cash equivalents at end of
   period............................  $ 2,195  $ 4,277  $ 5,488  $5,429  $ 9,923
                                       =======  =======  =======  ======  =======
  Supplemental disclosure of cash
   flow information:
  Cash paid for:
   Interest..........................  $   799  $   715  $   656  $  459  $   358
                                       =======  =======  =======  ======  =======
   Income taxes......................  $    48  $    48  $   770  $  411  $ 2,559
                                       =======  =======  =======  ======  =======
  SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
   
    Capital lease obligations of approximately $3.4 million, $1.2 million and
  $1.2 million were incurred during fiscal years 1995, 1996 and 1997,
  respectively, and $1.2 million and $282,000 during the nine month periods ended
  December 31, 1996 and 1997, respectively. During the nine months ended December
  31, 1997, notes were received for the exercise of stock options totalling
  $455,000.
   
                              See accompanying notes.
   
                                        -8-
  APPLIED MICRO CIRCUITS CORPORATION
   
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
  1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   
   Business
   
    AMCC designs, develops, manufactures and markets high-performance, high-
  bandwidth silicon solutions for the world's communications infrastructure.
   
   Basis of Presentation
   
    The consolidated financial statements include the accounts of the Company
  and its wholly-owned subsidiary. All significant intercompany balances and
  transactions have been eliminated in consolidation.
   
   Interim Financial Information (Unaudited)
   
    The accompanying consolidated financial statements at December 31, 1997 and
  for the nine months ended December 31, 1996 and 1997 are unaudited but include
  all adjustments (consisting of normal recurring accruals) which, in the
  opinion of management, are necessary for a fair statement of the financial
  position and the operating results and cash flows for the interim date and
  periods presented. Results for the interim period ended December 31, 1997 are
  not necessarily indicative of results for the entire year or future periods.
   
   Cash, Cash Equivalents and Short-Term Investments
   
    Cash and cash equivalents consist of highly liquid debt instruments with
  original maturities of three months or less at date of acquisition, or money
  market type funds. Short-term investments consist of United States treasury
  notes, obligations of U.S. government agencies and corporate bonds. The
  Company maintains its excess cash in financial institutions with strong credit
  ratings and has not experienced any significant losses on its investments. The
  estimated fair value of each investment security approximates cost and,
  therefore, no unrealized gains or losses existed as of March 31, 1997 and 1996
  or at December 31, 1997.
   
    The following is a summary of available-for-sale securities (in thousands):
  MARCH 31,
                                                      ------------- DECEMBER 31,
                                                       1996   1997      1997
                                                      ------ ------ ------------
  U.S. treasury securities and obligations of
         U.S. government agencies.................... $2,502 $4,189   $12,683
        U.S. corporate debt securities...............  1,743  3,628    13,124
        Other........................................    296    292       500
                                                      ------ ------   -------
                                                      $4,541 $8,109   $26,307
                                                      ====== ======   =======
  Available-for-sale securities by contractual maturity are as follows (in
  thousands):
  MARCH 31, DECEMBER 31,
                                                              1997        1997
                                                            --------- ------------
  Due in one year or less............................  $5,005     $21,860
        Due after one year through two years...............   3,104       3,047
        Greater than two years.............................     --        1,400
                                                             ------     -------
                                                             $8,109     $26,307
                                                             ======     =======
  -9-
  APPLIED MICRO CIRCUITS CORPORATION
   
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
   Concentration of Credit Risk
   
    The Company believes that the concentration of credit risk in its trade
  receivables is mitigated by the Company's credit evaluation process,
  relatively short collection terms and dispersion of its customer base. The
  Company generally does not require collateral. The Company has not experienced
  significant losses on trade receivables from any particular customer or
  geographic region for any period presented.
   
    The Company invests its excess cash in debt instruments of the U.S.
  Treasury, governmental agencies and corporations with strong credit ratings.
  The Company has established guidelines relative to diversification and
  maturities that attempt to maintain safety and liquidity. These guidelines are
  periodically reviewed and modified to take advantage of trends in yields and
  interest rates. The Company has not experienced any significant losses on its
  cash equivalents or short-term investments.
   
   Use of Estimates
   
    The preparation of financial statements in accordance with generally
  accepted accounting principles requires management to make estimates and
  assumptions that affect the amounts reported in the financial statements and
  disclosures made in the accompanying notes to the financial statements. These
  estimates include assessing the collectability of accounts receivable, the use
  and recoverability of inventory, estimates to complete engineering contracts,
  costs of future product returns under warranty and provisions for
  contingencies expected to be incurred. Actual results could differ from those
  estimates.
   
   Inventories
   
    Inventories are stated at the lower of cost (determined on a first-in,
  first-out basis) or market. The Company's inventory valuation process is done
  on a part-by-part basis. Lower of cost to market adjustments, specifically
  identified on a part-by-part basis, reduce the carrying value of the related
  inventory and take into consideration reductions in sales prices, excess
  inventory levels and obsolete inventory. Once established, these adjustments
  are considered permanent and are not reversed until the related inventory is
  sold or disposed.
   
   Property and Equipment
   
    Property and equipment are stated at cost and depreciated over the estimated
  useful lives of the assets (3 to 7 years) using the straight-line method.
  Leasehold improvements are stated at cost and amortized over the shorter of
  the useful life of the asset or the lease term. Property and equipment under
  capital leases are recorded at the net present value of the minimum lease
  payments and are amortized over the shorter of the useful life of the assets
  or the lease term. Leased assets purchased at the expiration of the lease term
  are capitalized at acquisition cost.
   
   Impairment of Long-Lived Assets
   
    On April 1, 1996, the Company adopted Statement of Financial Accounting
  Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets
  and for Long-Lived Assets to be Disposed of. The adoption of SFAS No. 121 did
  not impact the financial position or results of operations of the Company.
   
   Advertising Cost
   
    Advertising costs are expensed as incurred.
   
                                       -10-
  APPLIED MICRO CIRCUITS CORPORATION
   
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
   
   Revenues
   
    Revenues related to product sales are generally recognized when the products
  are shipped to the customer. Recognition of revenues and the related cost of
  revenues on shipments to distributors that are made under agreements allowing
  for price protection and right of return on products unsold by the distributor
  are deferred until the distributor ships the product to its customer. Revenues
  on engineering design contracts are recognized using the percentage-of-
  completion method based on actual cost incurred to date compared to total
  estimated costs of the project. Deferred revenue represents the margin on
  shipments of products to distributors that will be recognized when the
  distributors ship the products to their customers and billings in excess of
  costs and estimated earnings on uncompleted engineering design contracts.
   
   Warranty Reserves
   
    Estimated expenses for warranty obligations are accrued as revenue is
  recognized. Reserve estimates are adjusted periodically to reflect actual
  experience.
   
   Research and Development
   
    Research and development costs are expensed as incurred. Substantially all
  research and development expenses are related to new product development,
  designing significant improvements to existing products and new process
  development.
   
   Stock-Based Compensation
   
    The Company has elected to follow Accounting Principles Board Opinion No.
  25, Accounting for Stock Issued to Employees ("APB 25") and related
  interpretations in accounting for its employee and director stock options
  because the alternative fair value accounting provided for under Statement of
  Financial Accounting Standards No. 123, Accounting for Stock-Based
  Compensation ("SFAS 123") requires the use of option valuation models that
  were not developed for use in valuing employee and director stock options.
  Under SFAS 123 compensation cost is determined using the fair value of stock-
  based compensation determined as of the grant date, and is recognized over the
  periods in which the related services are rendered. The statement also permits
  companies to elect to continue using the current implicit value accounting
  method specified in APB 25 to account for stock-based compensation and
  disclose in the footnotes to the financial statements the pro forma effect of
  using the fair value method for its stock based compensation.
   
   Reclassification
   
    Certain prior period amounts have been reclassified to conform with the
  current period presentation.
   
   Earnings (Loss) Per Share
   
    Earnings (loss) per share is computed using the weighted average number of
  common shares and common equivalent shares outstanding during the periods
  presented. Common equivalent shares result from stock options and warrants.
  For loss periods, common equivalent shares are excluded from the computation
  as their effect would be antidilutive, except that the Securities and Exchange
  Commission (SEC) has historically required common and common share equivalents
  issued during the twelve-month period prior to the initial filing of a
  proposed public offering, to be included in the calculation as if they were
  outstanding for all periods presented (using the treasury stock method and the
  initial public offering price).
   
                                       -11-
  APPLIED MICRO CIRCUITS CORPORATION
   
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
   
    In February 1997, the Financial Accounting Standards Board issued SFAS 128.
  "Earnings per Share," which supersedes APB Opinion No. 15. SFAS 128 replaces
  the presentation of primary earnings per share (EPS) with "Basic EPS" which
  includes no dilution and is based on weighted-average common shares
  outstanding for the period. Companies with complex capital structures,
  including AMCC, will also be required to present "Diluted EPS" that reflects
  the potential dilution of securities such as employee stock options and
  warrants to purchase common stock. SFAS 128 is effective for financial
  statements issued for periods ending after December 15, 1997. On February 3,
  1998, the SEC issued Staff Accounting Bulletin (SAB) No. 98 which revised the
  previous instructions for determining the dilutive effects in earnings per
  share computations of common stock and common stock equivalents issued at
  prices below the IPO price prior to the effectiveness of the IPO.
   
    Earnings (loss) per share computed under SFAS No. 128 and SAB 98 would be as
  follows:
  YEARS ENDED MARCH
                                         31,                NINE MONTHS ENDED
                                 ---------------------- -------------------------
                                                        DECEMBER 31, DECEMBER 31,
                                  1995    1996    1997      1996         1997
                                 ------  ------  ------ ------------ ------------
                                     (UNAUDITED)               (UNAUDITED)
  Earnings (loss) per share:
    Basic....................... $ (.06) $(0.21) $ 0.35    $ 0.25       $ 0.57
    Diluted..................... $ (.06) $(0.21) $ 0.35    $ 0.25       $ 0.51
  Average shares outstanding:
    Basic (in thousands)........ 17,194  17,394  17,834    17,824       17,499
    Diluted (in thousands)...... 17,194  17,394  17,907    17,897       19,306
  Recently Issued Accounting Standards
   
    In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
  Reporting Comprehensive Income, and SFAS No. 131, Segment Information. Both of
  these standards are effective for fiscal years beginning after December 15,
  1997. SFAS No. 130 requires that all components of comprehensive income,
  including net income, be reported in the financial statements in the period in
  which they are recognized. Comprehensive income is defined as the change in
  equity during a period from transactions and other events and circumstances
  from non-owner sources. Net income and other comprehensive income, including
  foreign currency translation adjustments, and unrealized gains and losses on
  investments, shall be reported, net of their related tax effect, to arrive at
  comprehensive income. The Company does not believe that comprehensive income
  or loss has been materially different than net income or loss. SFAS No. 131
  amends the requirements for public enterprises to report financial and
  descriptive information about its reportable operating segments. Operating
  segments, as defined in SFAS No. 131, are components of an enterprise for
  which separate financial information is available and is evaluated regularly
  by the Company in deciding how to allocate resources and in assessing
  performance. The financial information is required to be reported on the basis
  that is used internally for evaluating the segment performance. The Company
  believes it operates in one business and operating segment and does not
  believe adoption of SFAS No. 131 will have a material impact on the Company's
  financial statements.
   
                                       -12-
  APPLIED MICRO CIRCUITS CORPORATION
   
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
   
  2. CERTAIN FINANCIAL STATEMENT INFORMATION
  MARCH 31,
                                                   ------------------  DECEMBER 31
                                                     1996      1997       1997
                                                   --------  --------  -----------
  Inventories (in thousands):
       Finished goods............................  $  2,631  $  1,076    $ 2,347
       Work in process...........................     2,651     4,279      4,344
       Raw materials.............................     1,554     2,175      1,311
                                                   --------  --------    -------
                                                   $  6,836  $  7,530    $ 8,002
                                                   ========  ========    =======
     Property and equipment (in thousands):
       Machinery and equipment...................  $ 19,168  $ 21,211    $24,390
       Leasehold improvements....................     5,588     5,789      6,758
       Computers, office furniture and equipment.    11,396    11,701     14,475
                                                   --------  --------    -------
                                                     36,152    38,701     45,623
     Less accumulated depreciation and amortiza-
      tion.......................................   (24,223)  (27,933)   (30,196)
                                                   --------  --------    -------
                                                   $ 11,929  $ 10,768    $15,427
                                                   ========  ========    =======
  The cost and accumulated amortization of machinery and equipment under
  capital leases at March 31, 1997 were approximately $12.2 million and $7.3
  million, respectively ($14.9 million and $7.8 million, at March 31, 1996).
  Amortization of assets held under capital leases is included with depreciation
  expense.
   
    During the years ended March 31, 1995, 1996 and 1997 and the nine month
  periods ended December 31, 1996 and 1997 the Company earned interest income of
  $441,000, $473,000, $627,000, $444,000 and $648,000, respectively, and
  incurred interest expense of $799,000, $715,000, $656,000, $439,000 and
  $355,000, respectively.
   
  3. LONG-TERM DEBT
   
    Long-term debt consists of the following (in thousands):
  MARCH 31
                                                                    ------------
                                                                    1996   1997
                                                                    -----  -----
  Notes payable with interest rates ranging from 8.3% to 10.5%,
      paid in January 1997........................................  $ 162  $ --
     10.0% notes payable, paid in April 1997......................    457     37
                                                                    -----  -----
                                                                      619     37
     Less current portion.........................................   (582)   (37)
                                                                    -----  -----
                                                                    $  37  $ --
                                                                    =====  =====
  -13-
  APPLIED MICRO CIRCUITS CORPORATION
   
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
   
  4. STOCKHOLDERS' EQUITY
   
   Common Stock
   
    On October 6, 1997, the Board of Directors authorized, which the
  stockholders subsequently approved, a two for three reverse stock split of all
  outstanding common stock. All share and per share amounts and stock option
  data have been restated to retroactively reflect a stock split.
   
    During the quarter ending December 31, 1997, the Company completed its
  initial public offering of 3,538,448 shares of common stock (including an
  exercised underwriters' over-allotment option for 832,950 shares) at a price
  of $8.00 per share, providing the Company with net proceeds of approximately
  $25.1 million, after deducting underwriting discounts and commissions of
  approximately $2.0 million and offering costs of approximately $1.2 million.
  During November 1997, the certificate of incorporation of the Company was
  amended to provide that the authorized number of shares of common and
  preferred stock issuable by the Company was 60,000,000 shares of common stock
  ($0.01 par value) and 2,000,000 shares of preferred stock ($0.01 par value).
   
   Convertible Preferred Stock
   
    A summary of the shares of convertible preferred stock issued and
  outstanding at March 31 which were converted into 10,717,317 shares of common
  stock in November 1997 (unaudited) is as follows (in thousands, except share
  data):
  MARCH 31, 1997
                                                     -----------------------------
                                                             SHARES    PREFERENCE
                                                      PAR  ISSUED AND      IN
                                                     VALUE OUTSTANDING LIQUIDATION
                                                     ----- ----------- -----------
  Series 1.......................................  $ 4     408,692    $ 8,582
     Series 2.......................................    2     238,096      5,000
     Series 3.......................................    6     576,806     12,113
                                                      ---   ---------    -------
       Total........................................  $12   1,223,594    $25,695
                                                      ===   =========    =======
  Each share of Series 1, 2 and 3 preferred stock was convertible at the
  option of the holder into approximately 16, 7 and 8 shares of common stock,
  respectively, subject to certain anti-dilution adjustments. The Series 1, 2
  and 3 preferred shares may have been redeemed upon approval of the Company's
  Board of Directors and only with the vote of 60% of the outstanding preferred
  stock at a redemption price of $23.10 per share.
   
    Each share of preferred stock was entitled to one vote for each share of
  common stock into which it would convert. No dividends were allowed to be paid
  to common stockholders unless equivalent dividends were paid to preferred
  stockholders. Additionally, the preferred stockholders had certain rights of
  first refusal on any new securities offering (other than certain securities
  issued to employees), which rights of first refusal terminated upon completion
  of the Company's initial public offering, and certain registration rights.
   
    On April 24, 1997 the Board authorized the Company to repurchase up to $4
  million of convertible preferred stock, with priority given to the holders of
  convertible preferred stock that submitted bids for the sale of their shares
  of convertible preferred stock at the lowest price per share. On June 20,
  1997, the Company repurchased an aggregate of 172,300 shares of convertible
  preferred stock for approximately $3.9 million at prices between $1.20 and
  $2.61 per share on as converted to common stock basis.
   
                                       -14-
  APPLIED MICRO CIRCUITS CORPORATION
   
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
   
   Preferred Stock
   
    On October 6, 1997, the Board of Directors adopted, which the stockholders
  subsequently approved, an amendment to the Certificate of Incorporation to
  allow the issuance of up to 2,000,000 shares of preferred stock in one or more
  series and to fix the rights, preferences, privileges and restriction thereof,
  including dividend rights, dividend rates, conversion rights, voting rights,
  terms of redemption, redemption prices, liquidation preferences and the number
  of shares constituting any series or the designation of such series, without
  further vote or action by the stockholders.
   
   Stock Options
   
    The Company's 1992 Stock Option Plan provides for the granting of incentive
  stock options to employees. Generally, options are granted at prices at least
  equal to fair value of the Company's common stock on the date of grant as
  determined by the Company's Board of Directors. In addition, certain officers
  and directors have been granted nonqualified stock options. The Company's 1982
  Employee Incentive Stock Option Plan expired in 1992. Options to purchase an
  aggregate of 83,309 shares of common stock under the 1982 Plan remain
  outstanding as of December 31, 1997 (unaudited).
     
    Options under both plans expire not more than ten years from the date of
  grant and are immediately exercisable after the date of grant but are subject
  to certain repurchase rights by the Company, at the Company's option, until
  such ownership rights have vested. Vesting generally occurs over four years.
  At March 31, 1997 and December 31, 1997, 42 shares and 729,007 (unaudited)
  shares of common stock were subject to repurchase, respectively.     
   
    Pursuant to an executive employment agreement between the Company and an
  executive, the Company granted an option to purchase 800,000 shares of the
  Company's common stock at $0.53 per share under the 1992 Stock Option Plan.
  The option vests ratably over four years. In the event the Company is
  acquired, the agreement stipulates that under certain circumstances the
  executive is eligible for certain additional compensation. These options as
  well as 66,667 additional options issued in April 1997 were exercised in July
  1997. The exercise was paid for with various notes which aggregate $455,000 at
  interest rates between 5.98% and 6.54% which are due at the earlier of
  February 12, 2000 ($420,000) and April 9, 2001 ($35,000) or the termination of
  employment.
   
    Certain other option agreements provide for the exercise of stock options
  with long-term promissory notes. These notes bear interest at rates ranging
  from 5.32% to 5.91%, are payable at the earlier of termination of employment
  or January 1998 and are secured by the shares of common stock purchased with
  the notes.
   
    Pro forma information regarding net income (loss) and net income (loss) per
  share is required by Statement 123, and has been determined as if the Company
  had accounted for its employee stock options under the fair value method of
  that statement. The fair value of these options was estimated at the date of
  grant using the minimum value method using the following weighted average
  assumptions for fiscal year 1997 and 1996, respectively: risk free interest
  rate of 6.20% and 6.15%; an expected option life of four years; and no annual
  dividends.
   
                                       -15-
  APPLIED MICRO CIRCUITS CORPORATION
   
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
    For purposes of pro forma disclosures, the estimated fair value of the
  options is amortized to expenses over the vesting period of such options. The
  effects of applying Statement 123 for pro forma disclosure purposes are not
  likely to be representative of the effects on pro forma net income in future
  years because they do not take into consideration pro forma compensation
  expenses related to grants made prior to 1996. The Company's pro forma
  information follows:
  1996         1997
                                                          -----------  ----------
  Pro forma net income (loss)............................ $(3,718,000) $6,225,000
  Pro forma net income (loss) per share.................. $     (0.22) $     0.33
  Weighted average fair value of options granted during
   the year.............................................. $      0.12  $     0.15
  A summary of the Company's stock option activity, including those issued
  outside of the plans, and related information are as follows:
  MARCH 31,
                            --------------------------------------------------------------
                                   1995                 1996                 1997           DECEMBER 31, 1997
                            -------------------- -------------------- -------------------- ---------------------
                                       WEIGHTED-            WEIGHTED-            WEIGHTED-             WEIGHTED-
                                        AVERAGE              AVERAGE              AVERAGE               AVERAGE
                                       EXERCISE             EXERCISE             EXERCISE              EXERCISE
                             OPTIONS     PRICE    OPTIONS     PRICE    OPTIONS     PRICE    OPTIONS      PRICE
                             -------   --------- ---------  --------- ---------  --------- ----------  ---------
  Outstanding at beginning
   of period..............  1,911,566    $0.48   1,633,054    $0.50   1,690,160    $0.51    2,842,293    $0.51
    Granted...............    195,332     0.53   1,017,000     0.53   1,457,285     0.53    1,140,082    $2.36
    Exercised.............   (204,558)    0.45    (547,767)    0.47     (92,680)    0.45   (1,535,975)   $0.52
    Forfeited.............   (269,286)    0.50    (412,127)    0.51    (212,472)    0.53     (258,124)   $0.53
                            ---------    -----   ---------    -----   ---------    -----   ----------    -----
  Outstanding at end of
   period.................  1,633,054    $0.50   1,690,160    $0.51   2,842,293    $0.51    2,188,276    $1.48
                            =========    =====   =========    =====   =========    =====   ==========    =====
  Vested at end of period.    917,449    $0.48     349,337    $0.51     851,764    $0.51      657,148    $1.48
                            =========    =====   =========    =====   =========    =====   ==========    =====
  The weighted-average remaining contractual life of the options outstanding
  at March 31, 1997 is 8.4 years. Exercise prices of all options outstanding as
  of March 31, 1997 range from $0.45 to $0.53. The weighted-average remaining
  contractual life of the vested options is 6.5 years as of March 31, 1997. The
  range of exercise prices for options outstanding as of December 31, 1997 was
  $0.45 to $8.25 per share (unaudited).
   
    From April 1, 1997 through September 30, 1997, the Company recorded deferred
  compensation expense for the difference between the exercise price and the
  deemed fair value for financial statement presentation purposes of the
  Company's common stock, as determined by the Board of Directors, for all
  options granted in the first and second quarters of fiscal 1998. This deferred
  compensation aggregates to $599,000, which is being amortized over the four
  year vesting period of the related options.
   
   Warrants
   
    In connection with certain notes payable secured by equipment, capital
  leases for equipment and revolving lines of credit issued in 1989 and 1990,
  the Company had outstanding warrants to purchase 83,807 shares of common stock
  at $2.63 to $3.00 per share, subject to certain anti-dilution adjustments and
  adjustments in the event of certain mergers or acquisitions. No value was
  placed on the warrants at the time
   
                                       -16-
  APPLIED MICRO CIRCUITS CORPORATION
   
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
  of issuance as it was deemed to be immaterial. These warrants expired not more
  than ten years from date of grant or five years after the Company's initial
  public offering, whichever is later. In November 1997 53,271 shares of common
  stock were issued upon the net exercise of these warrants at the initial
  public offering price of $8.00 per share.
   
   1997 Employee Stock Purchase Plan
   
    The Company's 1997 Employee Stock Purchase Plan (the "1997 Purchase Plan")
  was adopted by the Board of Directors on October 6, 1997 which the
  stockholders subsequently approved. A total of 400,000 shares of Common Stock
  are reserved for issuance under the 1997 Purchase Plan.
   
   1997 Directors' Stock Option Plan
   
    The Company's 1997 Directors' Stock Option Plan (the "Directors' Plan") was
  adopted by the Board of Directors on October 6, 1997, which the stockholders
  subsequently approved. A total of 200,000 shares of Common Stock are reserved
  for issuance under the Directors' Plan. The Directors' Plan provides for the
  grant of non-statutory options to nonemployee directors of the Company.
   
   Common Shares Reserved for Future Issuance
   
    At December 31, 1997, shares of the Company's common stock are reserved for
  issuance upon the conversion or exercise of the following equity instruments
  (unaudited):
  Stock options:
       Issued and outstanding........................................... 2,188,276
       Authorized for future grants..................................... 2,628,464
     Stock purchase plan................................................   400,000
                                                                         ---------
                                                                         5,216,740
  5. INCOME TAXES
   
    The provision (benefit) for income taxes consists of the following (in
  thousands):
  YEAR ENDED MARCH 31,
                                                    ------------------------
                                                     1995     1996    1997
                                                    -------  ------  -------
  CURRENT                       
  Federal.......................................... $   --   $   27  $   380
  State............................................     (70)      5      279
                                                    -------  ------  -------
                                                    $   (70) $   32  $   659
                                                    =======  ======  =======
  -17-
  APPLIED MICRO CIRCUITS CORPORATION
   
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
   
    The provision (credit) for income taxes reconciles to the amount computed by
  applying the federal statutory rate (35%) to income before income taxes as
  follows (in thousands):
  YEAR ENDED MARCH 31,
                                                          -----------------------
                                                          1995    1996     1997
                                                          -----  -------  -------
  Tax at federal statutory rate.........................  $(399) $(1,282) $ 2,441
  Net operating loss without benefit....................    399    1,282      --
  Utilization of net operating loss and research and de-
   velopment tax credit carryforwards...................    --       --    (2,061)
  State taxes, net of federal benefit and credits.......    (70)       5      279
  Federal alternative minimum tax.......................    --        27      --
                                                          -----  -------  -------
                                                          $ (70) $    32  $   659
                                                          =====  =======  =======
  Significant components of the Company's deferred tax assets and liabilities
  for federal and state income taxes as of March 31, 1997 and 1996 are as shown
  below. As of March 31, 1997, a valuation allowance had been recognized to
  offset the deferred tax assets as realization of such assets was uncertain.
  The estimated annualized effective tax rate for fiscal 1998, which was used to
  determine the provision for the nine month period ended December 31, 1997, is
  computed based on the Company's projected 1998 income which will allow for a
  full reduction of the valuation allowance and realization of the deferred tax
  asset.
  MARCH 31,
                                                                ----------------
                                                                 1996     1997
                                                                -------  -------
  Deferred tax assets (in thousands):
    Reserves................................................... $ 2,512  $ 2,233
    Capitalization of inventory and research and development
     costs.....................................................     334      226
    Research and development credit carryforwards..............   2,405    1,667
    Depreciation and amortization..............................     335      200
    Net operating loss carryforwards...........................   2,102      --
    Other credit carryforwards.................................     886      768
                                                                -------  -------
  Subtotal.....................................................   8,574    5,094
  Valuation allowance..........................................  (8,574)  (5,094)
                                                                -------  -------
  Net deferred taxes........................................... $   --   $   --
                                                                =======  =======
  At March 31, 1997, the Company has federal alternative minimum tax,
  investment and research and development tax credit carryforwards of
  approximately $366,000, $270,000 and $1.6 million, respectively, which will
  begin to expire in 1998 unless previously utilized.
   
    Under Internal Revenue Code Section 382, the Company's use of its tax credit
  carryforwards could be limited in the event of certain cumulative changes in
  the Company's stock ownership.
   
    For the nine months ended December 31, 1996 and 1997, income taxes have been
  provided based on the estimated annual effective tax rate applied to pre tax
  income for the interim period.
   
                                       -18-
  APPLIED MICRO CIRCUITS CORPORATION
   
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
   
  6. LEASE COMMITMENTS
   
    The Company leases its present manufacturing facilities under a long-term
  operating lease expiring in March 1998. The lease expiring is renewable for up
  to ten years. This lease requires the Company to pay property taxes and
  incidental maintenance expenses and contains escalation clauses based upon
  increases in the Consumer Price Index.
   
    In September 1997, the Company moved into a new administration and
  manufacturing facility which is leased under a long-term operating lease. This
  lease expires in September 2007, requires the Company to pay property taxes
  and incidental maintenance expenses and is renewable for up to ten years. The
  lease provides for defined rent increases over the term of the lease.
   
    Annual future minimum lease payments, including machinery and equipment
  under capital leases and the Company's commitment relating to its new
  administration and manufacturing facility, as of March 31, 1997 are as follows
  (in thousands):
  OPERATING CAPITAL
     FISCAL YEAR ENDING MARCH 31,                                LEASES   LEASES
     ----------------------------                               --------- -------
  1998.....................................................  $1,037   $2,980
      1999.....................................................     848    2,170
      2000.....................................................     848      759
      2001.....................................................     870      320
      2002.....................................................     889      225
      Thereafter...............................................   5,070       --
                                                                 ------   ------
        Total minimum lease payments...........................  $9,562    6,454
                                                                 ======
     Less amount representing interest.........................              637
                                                                          ------
     Present value of remaining minimum capital lease payments
      (including current portion of $2,625)....................           $5,817
                                                                          ======
  Rent expense (including short-term leases and net of sublease income) for
  the years ended March 31, 1995, 1996 and 1997 was $1.7 million, $2.3 million
  and $1.2 million, respectively. Rent expense for the nine months ended
  December 31, 1996 and 1997 was $876,000 and $879,000, respectively. Included
  in the 1996 rent expense is an accrual of $565,000 for losses on facilities
  for which sublease income was expected to be less than the remaining minimum
  lease payments. Sublease income was $16,000, $0 and $208,000 for the years
  ended March 31, 1995 1996 and 1997, respectively.
   
  7. RELATED PARTY TRANSACTIONS
   
    As of March 31, 1996, the Company had advanced $203,000 to an officer of the
  Company. During 1997, an additional $750,000 was advanced to this officer and
  $142,000 of the advances made during 1996 were repaid. Notes were received by
  the Company providing for interest on the balance at rates from 5.32% to
  5.76%. Principal and interest under the notes are due on or before February
  28, 1999 and $750,000 of the balance is secured by marketable securities owned
  by the officer.
   
                                       -19-
  APPLIED MICRO CIRCUITS CORPORATION
   
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
   
               (INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
         NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
   
   
  8. EMPLOYEE RETIREMENT PLAN
   
    Effective January 1, 1986, the Company established a 401(k) defined
  contribution retirement plan (the "Retirement Plan") covering all full-time
  employees with greater than three months of service. The Retirement Plan
  provides for voluntary employee contributions from 1% to 20% of annual
  compensation, subject to a maximum limit allowed by Internal Revenue Service
  guidelines. The Company may contribute such amounts as determined by the Board
  of Directors. Employer contributions vest to participants at a rate of 20% per
  year of service, provided that after five years of service all past and
  subsequent employer contributions are 100% vested. The contributions charged
  to operations totalled $116,000, $182,000 and $318,000 for the years ended
  March 31, 1995, 1996 and 1997, respectively, and $202,000 and $241,000 for the
  nine months ended December 31, 1996 and 1997, respectively.
   
  9. SIGNIFICANT CUSTOMER AND GEOGRAPHIC INFORMATION
   
    During the years ended March 31, 1995, 1996 and 1997 and the nine month
  periods ended December 31, 1996 and 1997, 17%, 20% and 20% and 21% and 20%,
  respectively, of net revenues were from one customer. No other customer
  accounted for more than 10% of revenues in any period.
   
    Revenue by geographic region for the years ended March 31, 1995, 1996 and
  1997, and the nine months ended December 31, 1996 and 1997 were as follows (in
  thousands):
  NINE MONTHS
                                                                        ENDED 
                                            YEAR ENDED MARCH 31,     DECEMBER 31,
                                           ----------------------- ---------------
                                            1995    1996    1997    1996    1997
                                           ------- ------- ------- ------- -------
  Net revenues:
       United States...................... $32,554 $28,134 $34,424 $24,508 $32,183
       Canada.............................   8,030  10,116  10,943   8,976   9,693
       Europe and Israel..................   4,075   6,525   8,216   5,892   9,434
       Asia...............................   2,291   5,489   3,885   3,088   3,564
                                           ------- ------- ------- ------- -------
         Total............................ $46,950 $50,264 $57,468 $42,464 $54,874
                                           ======= ======= ======= ======= =======
  10. CONTINGENCIES
     
    The Company is party to various claims and legal actions arising in the
  normal course of business, including notification of possible infringement on
  the intellectual property rights of third parties. In addition, since 1993 the
  Company has been named as a potentially responsible party ("PRP") along with a
  large number of other companies that used Omega Chemical Corporation ("Omega")
  in Whittier, California to handle and dispose of certain hazardous waste
  material. The Company is a member of a large group of PRPs that has agreed to
  fund certain remediation efforts at the Omega site for which the Company has
  accrued approximately $50,000. Although the ultimate outcome of these matters
  is not presently determinable, management believes that the resolution of all
  such pending matters, net of amounts accrued, will not have a material adverse
  affect on the Company's financial position or liquidity; however, there can be
  no assurance that the ultimate resolution of these matters will not have a
  material impact on the Company's results of operations in any quarter.     
   
                                       -20-
  SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                   (IN THOUSANDS)
  -----------------------------------------------------------------------------------------------------
                  COL. A                    COL. B       COL. C                    COL. D       COL. E
  -----------------------------------------------------------------------------------------------------
                                                              ADDITIONS
                                                      -------------------------
                                                          (1)          (2)
                                                        CHARGED      CHARGED
                                          BALANCE AT    TO COSTS     TO OTHER                  BALANCE
                                          BEGINNING       AND       ACCOUNTS-   DEDUCTIONS-     AT END
               DESCRIPTION                OF PERIOD     EXPENSES     DESCRIBE     DESCRIBE    OF PERIOD
  -----------------------------------------------------------------------------------------------------
  Nine Months Ended December 31, 1997:      $200         $157         $ --         $  7         $350
   Allowance for doubtful accounts
  -----------------------------------------------------------------------------------------------------
   Year ended March 31, 1997:                $ 90         $198         $ 88         $ --         $200
   Allowance for doubtful accounts
  -----------------------------------------------------------------------------------------------------
   Year ended March 31, 1996:                $115         $ --         $ --         $ 25         $ 90
   Allowance for doubtful accounts
  -----------------------------------------------------------------------------------------------------
   Year ended March 31, 1995                 $ 60         $ 81         $ --         $ 26         $115
   Allowance for doubtful accounts
  -----------------------------------------------------------------------------------------------------
  -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 hereunto duly authorized.
  
                                    APPLIED MICRO CIRCUITS CORPORATION
  
  Date:  February 27, 1998          By:  /s/  Joel O. Holliday
                                        -------------------------------
                                        Joel O. Holliday
                                        Chief Financial Officer
  
                                       -22-