UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K



For the fiscal year ended March 31, 2009
                       Commission File Number :  001-13748

ZiLOG, Inc.(Exact name of Registrant as specified in its Charter)

|Delaware                                                       | 13-3092996                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)
|6800 Santa Teresa Boulevard, San Jose, CA                      | 95119                                  
|(Address of principal executive offices)                       | (Zip Code)                             

Registrant's telephone number, including area code: (408) 513-1500

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



|Title of Each ClassCommon Stock, $0.01 per share par value | Name of Each Exchange on Which RegisteredThe NASDAQ Stock Market LLC(NASDAQ Global Market)
|---------------------------------------------------------- | ------------------------------------------------------------------------------------------

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 Yes

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Exchange Act.

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
    YES

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.

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

|Large accelerated filer     o | Accelerated filer    o | Non-accelerated filer    o (Do not check if a smaller reporting company) | Smaller reporting company    x
|----------------------------- | ---------------------- | ------------------------------------------------------------------------ | ------------------------------

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES    o NO    xAs of September 30, 2008, the aggregate market value of the Registrant's Common Stock held by non-affiliates of the
Registrant was approximately $52,803,299 based on the closing sale price for shares of the Registrant's Common Stock as reported on the NASDAQ
Global Market. Shares of Common Stock held by each officer and director
have been excluded in that such persons may deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination
for other purposes.

At June 22, 2009, 17,285,090 shares of the registrant's common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on September 22, 2009 is
incorporated by reference in Part III of this Form 10-K to the extent stated herein.

Note:PDF provided as a courtesy
TABLE OF CONTENTS

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|-------- | ------------------------------------------------------------------------------------------------------------ | ----
|         |                                                                                                              | Page
|         |                                                                                                             
|PART I   |                                                                                                             
|         |                                                                                                              |     
|Item 1.  | Business                                                                                                     | 5   
|         |                                                                                                              |     
|Item 1A. | Risk Factors                                                                                                 | 11  
|         |                                                                                                              |     
|Item 1B. | Unresolved Staff Comments                                                                                    | 23  
|         |                                                                                                              |     
|Item 2.  | Properties                                                                                                   | 24  
|         |                                                                                                              |     
|Item 3.  | Legal Proceedings                                                                                            | 24  
|         |                                                                                                              |     
|Item 4.  | Submission of Matters to a Vote of Security Holders                                                          | 25  
|         |                                                                                                             
|PART II  |                                                                                                             
|         |                                                                                                              |     
|Item 5.  | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 26  
|         |                                                                                                              |     
|Item 6.  | Selected Consolidated Financial Data                                                                         | 28  
|         |                                                                                                              |     
|Item 7.  | Management's Discussion and Analysis of Financial Condition and Results of Operations                        | 30  
|         |                                                                                                              |     
|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk                                                   | 47  
|         |                                                                                                              |     
|Item 8.  | Financial Statements and Supplementary Data                                                                  | 49  
|         |                                                                                                              |     
|Item 9.  | Changes in and Disagreements with Accountant on Accounting and Financial Disclosures                         | 79  
|         |                                                                                                              |     
|Item 9A. | Controls and Procedures                                                                                      | 79  
|Item 9B. | Other Information                                                                                            | 79  
|         |                                                                                                              |     
|         |                                                                                                             
|PART III |                                                                                                             
|         |                                                                                                              |     
|Item 10. | Directors and Executive Officers of the Registrant                                                           | 80  
|         |                                                                                                              |     
|Item 11. | Executive Compensation                                                                                       | 80  
|         |                                                                                                              |     
|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               | 80  
|         |                                                                                                              |     
|Item 13. | Certain Relationships and Related Transactions                                                               | 80  
|         |                                                                                                              |     
|Item 14. | Principal Accounting Fees and Services                                                                       | 80  
|         |                                                                                                             
|PART IV  |                                                                                                             
|         |                                                                                                              |     
|Item 15. | Exhibits and Financial Statement Schedules                                                                   | 81  

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FORWARD-LOOKING STATEMENTS

Some of the statements under the sections entitled "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and elsewhere in this Form 10-K, constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. In some cases, you can identify forward-looking statements by terminology such as "may", "will",
"should", "expects", "anticipates", "believes", "estimates", "potential",
"continue", or the negative terms or other comparable terminology.  These statements include:




estimates of market growth;capital expenditures;the adequacy of available cash;the cost or outcome of any litigation pending or threatened;the impact on recent accounting pronouncements;any gross margin improvement resulting from our research and development effort; andthe cost of compliance with environmental laws.These statements relate to future events or our future financial performance and involve known and may involve unknown risks,
uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from
any future results, levels of activity, performance or achievements expressed or implied by forward-looking statements including, but not limited
to, prospects for future market growth. Other factors that may cause or contribute to differences include, but are not limited to, continued
availability of third-party foundry and assembly services with commercially-reasonable quality and prices; under-absorption of manufacturing
costs in our test and manufacturing support facilities from under-utilization of capacity; our distributors and customers significantly reducing their
existing inventories before ordering new products and the costs associated with the Microchip lawsuit. In evaluating these statements, you
should specifically consider various factors, including the risks outlined under "Risk Factors."

Although we believe that the expectations in the forward-looking statements contained in this Form 10-K are reasonable, we cannot
guarantee future results, levels of activity, and performance achievements. These forward-looking statements are based on our current
expectations, and we disclaim any obligation to update these forward-looking statements for subsequent events or to explain why actual results
differ unless otherwise required by law. You should not place undue reliance on these forward-looking statements.

Unless otherwise specified as a forward-looking statement, the information contained in this report is historical in nature and speaks as of
the date of this report unless otherwise clearly indicated.  We disclaim any obligation to update this information for subsequent events.Period ComparisonsEffective December 29, 2005, we changed our fiscal year end from December 31 to March 31. Our interim results
are based on fiscal quarters of thirteen weeks in duration ending on the last Saturday of each calendar quarter, with the exception of the last
quarter, which ends on March 31 beginning in fiscal 2006.  The operating results for any interim period are not necessarily indicative of
results for any subsequent period or the full fiscal year.Based in San Jose, California, we were incorporated in California in September 1973 and merged with a
subsidiary of Exxon (which subsidiary changed its name to ZiLOG, Inc.) in November 1981.  We were reacquired by an affiliate of Warburg
Pincus and Management in 1989 and reincorporated in Delaware in April 1997. We were acquired by an affiliate of Texas Pacific Group in 1998
and we were reorganized in bankruptcy in 2002. In this report, "ZiLOG," "the Company," "our,"
"us," "we," and similar expressions refer to ZiLOG, Inc. and its subsidiaries.  However, when these expressions are used
throughout this report in connection with ZiLOG, Inc.'s reorganization under Chapter 11 of the U.S. bankruptcy code, they are referring only to
the parent company, ZiLOG, Inc., and not to any of its subsidiaries.  EZ80ACCLAIM!, CRIMZON, Zatara, ZiLOG, Z8, Z80, eZ80, Z8 ENCORE!,
Encore!XP and Zneo are registered trademarks of ZiLOG, Inc., in the3United States and in other countries. ARM is a registered trademark of
ARM Limited in the EU and other countries. Other product and or service names mentioned herein may be trademarks of the companies with
which they are associated.

During fiscal 2009, we experienced a significant reduction in sales reflecting lower demand for product and the global worldwide
recession.  Following a review of our strategy in light of an anticipated continuation of contraction in the market place, on February 18, 2009,
we completed the sale of our universal remote control and secured transaction processor businesses to Maxim Integrated Products, Inc.
("Maxim") and Universal Electronics Inc. ("UEI") for approximately $31 million in cash including $3.1 million that is held in
escrow to satisfy any losses incurred by Maxim or UEI that may result from inaccuracies in our representations and warranties in the
acquisition agreement or our failure to fulfill certain obligations in the acquisition agreement.  The escrow is scheduled to be released
50% after 6 months and 100% after 12 months.  A gain on the sale of $21.6 million was recorded.  In accordance with Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets", the assets and liabilities, results
of operations and cash flows related to the sale business, have been classified as discontinued operations in the consolidated financial
statements for all periods presented through the date of the sale.  Cash flows associated with the sale businesses have been segregated in the
consolidated statements of cash flows as separate line items within operating, investing and financing activities.  As a result, historical financial
statements have been restated to exclude assets, liabilities and results of operations and cash flows related to the sold businesses.
Restatement of these balances may make reconciliation or reference to previously filed financial statements difficult.


4PART I 

ITEM 1.	BUSINESSBUSINESS

Our Business

We are a fabless semiconductor supplier of microprocessor and microcontroller semiconductor products. A
microcontroller is a computer-on-a-chip that is optimized to control electronic devices, such as motors, remote controllers and user interfaces on
appliances. A microcontroller typically includes a central processing unit, non-volatile program memory, random access memory for data
storage and various peripheral capabilities. The microcontroller is offered as a complete solution because it incorporates application-specific
software provided by the customer and may include specialized peripheral device controllers and internal or external non-volatile memory
components to enable the storage and access of additional program software.

ZiLOG was founded in 1974.  We design, develop, test and market a portfolio of these devices for a variety of applications used in
consumer electronics, home appliances, security systems, point-of-sale terminals, personal computer peripherals, personal health and medical
products.

We introduced our first products in the mid-1970's and have since established a globally recognized brand. We sell our devices indirectly
through contract manufacturers or directly to a diverse customer base of Original Equipment Manufacturers ("OEMs") and Original
Design Manufacturers ("ODMs") for general purpose use or for use in application specific end markets.   Additionally, we sell our
devices to distributors who generally provide logistical and post sales support to these customers.

We continue to invest in the development of new microcontroller and microprocessor products, including derivatives of our Z8 Encore!,
Z8Encore!XP, and eZ80 Acclaim! product families which are designed to incorporate reprogrammable flash memory and enhanced peripherals
with features that may allow such functionality as power management, sensing, secure transactions and connectivity.  More recently we have
begun development of system solutions including our Zdot family of products.

During fiscal 2009, we experienced a significant reduction in sales reflecting lower demand for product and the global worldwide
recession.  Following a review of our strategy in light of an anticipated continuation of contraction in the market place, on February 18, 2009, we
sold our universal remote control and secured transaction processor businesses to Maxim and UEI for approximately $31 million in
cash including $3.1 million that is held in escrow to satisfy any losses incurred by Maxim or UEI that may result from inaccuracies in the
company's representations and warranties in the acquisition agreement or our failure to fulfill certain obligations in the acquisition
agreement.  The escrow is scheduled to be released 50% after 6 months and 100% after 12 months.  A gain on the sale of $21.6 million was
recorded.  In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long
Lived Assets", the assets and liabilities, results of operations and cash flows related to the sale businesses, have been classified as discontinued
operations in the consolidated financial statements for all periods presented through the date of the sale.  Cash flows associated with the sale
businesses have been segregated in the consolidated statement of cash flows as separate line items within operating, investing and financing
activities.  As a result, our historical financial statements have been restated to exclude assets, liabilities and results of operations and cash
flows related to the sold businesses.
Restatement of these balances may make reconciliation or reference to previously filed financial statements difficult.
As a result of this transaction, our continuing operations include our traditional classic 8-bit microcontroller
and microprocessor products as well as our new 8-bit embedded flash microcontroller products.

Our Industry

Microcontroller and microprocessor devices have been incorporated into a wide variety of products in
markets including consumer electronics, home appliances, security systems, point-of-sale terminals and personal computer peripherals, as well
as industrial and automotive applications.  Microcontrollers are generally segmented by word length, which is measured in bits ranging from
4-bit through 32-bit architectures. Although 4-bit microcontrollers are relatively inexpensive, they generally lack the minimum performance and
features required for product differentiation and are typically used only to produce basic functionality in products. While traditional 16 and 32-bit
architectures are typically higher performance, they can be too expensive for many high-volume embedded control applications, typically costing
two to four times the cost of an 8-bit microcontroller. Manufacturers will choose the appropriate microcontroller or microprocessor based on cost,

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performance and functionality requirements. Microcontrollers are used broadly in over 100 different market categories for specific and general
purpose applications.

Analysts such as Semico Research estimate the 8-bit market to be in excess of $4.7 billion per year with the fastest growing element of that
market being embedded flash. We believe that 8-bit microcontrollers are generally perceived as the most cost-effective embedded control
solution for high volume requirements. High-volume microcontrollers available today include Read Only Memory ("ROM") or
One-Time Programmable ("OTP"), which typically require longer delays and greater costs in order to implement customer application
code changes as compared to embedded flash with reprogrammable capabilities. ROM and OTP products generally result in longer lead times
for delivery of such microcontrollers. In addition to delayed product introduction, these longer lead times can result in potential inventory
obsolescence and disruptions to customers' factory production when changes in the application code are required by the customer. To address
some of these challenges, suppliers may offer OTP-based microcontrollers that can be configured by the customer in the customer's
manufacturing line, thus minimizing lead-time and inventory risks if the customer's application code requires changes. Furthermore, flash
memory offers the flexibility of in-product re-programmability. While these flash-based microcontrollers were initially expensive relative to ROM
and OTP-based microcontrollers, manufacturing technology has evolved over the past years to the point where the premium for flash
microcontrollers over ROM and OTP-based microcontrollers can be minimal thereby continuing to make flash based microcontrollers the fastest
growing technology segment in the 8-bit microcontroller market

Our Strategy

The key elements of our strategy are:

Deliver Complete Solutions to Our Customers



We are focused on providing advanced integrated semiconductor and software solutions that assist our customers in adding
functionality and enhancing the performance of their products.  We currently serve the microcontroller markets with our product portfolio of 8 and
16-bit microcontrollers and, microprocessors that may include embedded flash technologies.

Partner with Third Party Manufacturers to Leverage Scale



Our manufacturing strategy is to utilize third-party wafer foundries to manufacture our devices. We believe outsourcing the manufacturing
process enables us to access advanced technologies and reduce our manufacturing costs. This strategy allows us to focus greater resources
on product design, systems and software development and customer support. In line with this strategy, during 2002 and 2004 we closed our
wafer manufacturing facilities in Nampa, Idaho, and migrated production of these products to our wafer foundry suppliers.  Generally, our
embedded flash products are supported by wafer purchases from TSMC and UMC in Taiwan and our classic products are sourced from X-FAB
in Lubbock, Texas.



Products and Applications

We are a trusted supplier of application specific, embedded system-on-chip (SoC) solutions for the industrial and
consumer markets. From our roots as an award-winning architect in the microprocessor and microcontroller industry, we have evolved to
become a key provider of customized embedded solutions including silicon, SoCs, single board computers, application specific software stacks
and development tools that allow embedded designers quick time to market in areas such as energy management, monitoring, metering and
motion detection.

Our products offer our customers the ability to integrate peripheral functions (such as network connectivity, timers, serial communication,
analog to digital conversion and display drivers) on our micrologic devices. These additional functions enhance the capabilities of the customer's
end product, which can lower their overall systems costs. These peripherals incorporate functionality, which may otherwise be found in a
separate chip, on the printed circuit board to which the micrologic device is attached.

We combine different microprocessors, memories and software to create semiconductor solutions specifically tailored to meet the
requirements of targeted vertical markets.

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Customers, Sales and Marketing

Introduction



Sales Process

Through direct sales and distributors we have developed relationships with customers, including large OEMs,
ODM's and end users.  By collaborating with customers in an interactive product design and development process, we have been able to
establish long-standing relationships, which help us solidify our customer base and define our next generation products.

We work closely with our customers in identifying opportunities for the customer to pursue end product designs using our devices. The
customer's decision to design an end product using our devices is based upon technical and financial factors, including microprocessor
performance, memory, peripheral options, pre-existing customer relationships, financial stability, pricing and technology roadmaps. Typically, a
customer's product architects and design engineers will use our proprietary development tools over a period of many months to design an end
product and test the design using our devices before making a decision.



We classify a design win as the point at which the customer has placed orders to purchase a minimum level of product. Once we have
achieved a design win, we deliver a limited production of the device to our customer. Product prototypes are then created and tested. If the
decision is made to produce the product for sale, we will begin to receive full production orders over time. The entire cycle from design win to full
production typically takes between 12 and 18 months, although it may take much longer. After a design win is achieved, our sales are generally
made pursuant to short-term cancelable purchase orders that can be cancelled upon 30 to 60 days notice. As a result, design wins are not
necessarily an accurate or reliable indication of future net sales.

Direct Sales Force

Our direct sales force focuses on the Americas, Europe and Asia. For each of the fiscal years ended March 31, 2009,
March 31, 2008 and March 31, 2007, the percentage of net sales derived from sales to direct customer accounts accounted for 21%,  22% and
25% of total net sales respectively. Additionally, from time to time we engage sales representative firms to further augment our own direct sales
force.

We provide direct customer support through our field application engineers, who work directly with local customers in close
consultation with our factory-based technical specialists. Field application engineers typically develop technology expertise in a market segment
that is most prominent in their geographic areas. These engineers provide significant aid to the customer throughout the design process.
Customer support is provided locally or through our global support organization in Manila, Philippines.

Distribution Partners

We entered into a distributor agreement with Future Electronics effective October 23, 2002. This agreement
provides that Future Electronics will be our exclusive full-service distributor within North America and will also serve as a non-exclusive
distributor for the rest of the world. Either party may terminate the agreement upon 30 days prior written notice to the other party. Future
Electronics is a private Canadian-based company with an extensive and well-integrated international distribution infrastructure. Their ability to
cover a broad spectrum of market opportunities, especially in embedded flash-based products, continues to provide significant value and
opportunities for our flash product portfolio. Future Electronics' value-added services to us have not increased our costs, and include a
significant number of sales representatives focused on our business, seminars and workshops to train design engineers about our products,
direct mail advertising, collateral materials and web site pages dedicated to our products. For each of the fiscal years ended March 31, 2009, March
31, 2008 and March 31, 2007, the percentage of net sales through our distribution channel was 79%, 78% and 75% including Future Electronics
which accounted for approximately 42%, 37% and 34% of net sales for each of the respective years.   Additionally, we use various distributors
to support both our Asia and European markets.  Distributors in these regions

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generally specialize based on the country serviced and have
rights of return and/or price protection on unsold merchandise held by them.  We have no exclusive arrangements in these regions and have
distributor agreements for the supply and support of product sales to their customers.

Manufacturing and Sourcing

Our manufacturing strategy is to utilize third-party wafer foundries to manufacture our devices. We believe
outsourcing manufacturing enables us to access advanced process technology and reduce our research and development and manufacturing
costs. We source our wafer requirements from third-party foundries located in Taiwan and the United States. Generally, wafers for our
embedded flash products are supplied by TSMC and UMC and our traditional classic products are provided by X-FAB in Lubbock, Texas. Our
product package assembly, wafer test and final test operations are performed by subcontractors located throughout Asia including Indonesia,
Thailand and the Philippines.   In fiscal 2009, we completed the outsource of our production test activities to external suppliers.

The SGS International Certification Services AG of Zurich, Switzerland granted an ISO 9001 certification to our Philippines test facility. ISO
certifications reflect the stringent quality standards to which all of our products are manufactured. We believe that these certifications enhance
the reputation and quality of our products.

Research and Development

Our research and development expenditures associated with our continuing microcontroller operations have been
focused on the design and development of our 8 and 16-bit embedded flash-based microcontrollers, including our Z8 Encore! Z8 Encore XP,
ZNEO, eZ80 Acclaim! and Z-dot families of products and solutions.



Research and development expenditures for continuing operations were $6.3 million, $8.1 million and $12.5 million for the fiscal years ended
March 31, 2009, March 31, 2008 and March 31, 2007, respectively.  This represented 17.3%, 18.2% and 21.6% of net sales for the fiscal years ended
March 31, 2009, 2008 and 2007, respectively. During the fiscal years ended March 31, 2009, March 31, 2008 and March 31, 2007, our research and
development expenditures for continuing operations were focused on our embedded flash products as well as Zdot products targeted as more
complete solutions.  These Zdot solutions may be provided at a module or board level with system level software to support a more complete
solution.

Our research and development expenses decreased in fiscal 2009 as compared to fiscal 2008 as a result of our decisions in December
2009 to reduce our worldwide headcount and further by our decision in February 2009 to sell our universal remote control and secured
transaction processor businesses to Maxim and UEI.  We currently have approximately 22 employees in engineering related activities focused
on new hardware and software applications as well as tools development. Our development activities are performed in the U.S. at our San Jose,
California facility with additional support activities in our Manila, Philippines and Meridian, Idaho facilities.

Competition

The semiconductor industry is highly competitive and is characterized by price erosion and the rapid
technological changes in many markets. The industry consists of major domestic and international semiconductor companies, many of which
have substantially greater resources than we do with which to pursue engineering, manufacturing, marketing and distribution of their products.
Emerging companies are also expected to increase their participation in the semiconductor market.



We compete on a global basis with other micrologic device manufacturers who target the same specific market segments. We believe the
primary basis for competition include: price, technological sophistication, customer relationships, support tools, familiarity with micrologic
architecture and existing customer investment in system software based on a particular architecture. In many instances, our competitors have
similar competitive strengths to us and have significantly more resources than we do. Many of our competitors are much larger than we are, with
broad product offerings in many sectors.



Our current and future products compete with, or may compete with, products offered by Atmel, Cypress Semiconductor, Freescale,
Microchip, Renasas, Samsung and STMicroelectronics, among others.

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Backlog

Our total backlog of cancelable customer orders on continuing operations was $5.0 million at March 31, 2009,
$7.7 million at March 31, 2008, and $8.3 million at March 31, 2007. Our sales are generally made pursuant to short-term cancelable purchase
orders that are cancelable upon 30 to 60 days notice rather than long-term contracts. As a result, our backlog may not be an accurate measure
of net sales or operating results for any period. Additionally, during times of economic downturn there tends to be excess capacity in the
marketplace, driving shorter lead time expectations which often results in a higher percentage of book-ship (or turns) business in the period.

Patents and Licenses

We currently have 185 U.S. and non-U.S. patents as of March 31, 2009, which expire between fiscal years 2010 and 2026.

We employ a combination of patents, copyrights, mask-work rights, trademarks and trade secrets, as well as contractual restrictions, to
protect the proprietary aspects of our business and devices. In addition to our own intellectual property, we license technologies and products
from others, as necessary, to provide second sources for standard products or to obtain rights to cores, cells or other technology. We often
enter into agreements to incorporate into our designs the intellectual property of third parties. Such agreements may impose certain obligations
or limitations on our use or disclosure of, such intellectual property or the enforcement of our own intellectual property. We hold numerous U.S.
and foreign patents and have additional U.S. and foreign patent applications pending. We also hold numerous mask works, copyrights to protect
proprietary software employed in our devices and trademarks. We intend to continue investing in the protection of our intellectual property
through the filing of patent applications and, if appropriate, the registration of copyrights, mask-works and trademarks. Nevertheless, we believe
that our continued success depends primarily on the technological skills and innovative abilities of our personnel and our ability to rapidly
commercialize product developments. Thus, we believe that the loss of any one of our patents or trade secrets would not materially affect our
core business.

The extent and value of our intellectual property is necessarily uncertain. While we intend to protect our intellectual property rights
vigorously, our efforts may not be successful. Despite our precautions, a third party may copy, or otherwise obtain, our devices or technology
without authorization, requiring patent litigation to enforce our rights. Patent litigation is, by its nature, expensive and unpredictable. If litigated,
one or more of our patents may be found invalid or unenforceable or to have claims of such narrow scope as to be of little economic value. Third
parties may design around our patents. Third parties may independently develop technology similar to our trade secrets. In addition, the laws of
some foreign countries where we have patent and trademark rights may not protect our intellectual property rights to the same extent as the
laws of the United States.  Additionally, our pending and future patent applications should not be relied upon as they may not issue as patents,
and even if they do issue, such future patents may not be of sufficient scope or strength to provide meaningful economic or competitive value.

The semiconductor industry is characterized by frequent litigation regarding patent and other intellectual property rights, both defensive and
offensive. From time to time we have received, and may in the future receive communications from third parties asserting that a product offered
by us, or an aspect of our business, infringes a patent held by the third party and/or require a license thereto. With respect to those third party
communications that are currently pending but which have not yet been filed as a lawsuit, we believe, after having consulted with counsel, that
either (i) we have meritorious defenses, (ii) based on license terms previously offered to us or typically available in the industry, we can obtain
any necessary licenses on commercially reasonable terms, or (iii) we can modify our products to avoid such rights, but in any case, we may be
sued and assessed damages for past infringement. Indeed, licenses may not be available on commercially reasonable terms, or at all. In
addition, we have certain indemnification obligations to customers with respect to such claims of infringement of third party intellectual property
rights by our devices. Should it become necessary to engage in litigation to defend against such assertions, such litigation could be expensive
and time consuming. There can be no assurance that the ultimate resolution of these matters would not have a material adverse affect on our
business.

On August 11, 2005, Microchip Technology, Inc. ("Microchip") filed a patent infringement claim against us in the U.S.
District Court of Arizona (case number CV05-2406-PHX-MHM). Microchip alleges that we have infringed, and currently infringe, its patents
numbered 5,847,450, 6,696,316 and 6,483,183. Microchip claims that unspecified products of ours, including the Z8 Encore! XP 4K
Series of products, infringe these patents and is seeking preliminary and permanent injunctive relief, unspecified damages and costs,
including attorneys' fees. We filed a response to the claims on September 15, 2005 generally denying the claims and challenging the
validity of the patents. On January 10, 2006, we filed a request for patent re-examination with the U.S. PTO, which was granted in February and
March 2006 for all 3 patents. On April 11, 2008, we received a notice that all of Microchip's claims under these three patents have been rejected
by the U.S. PTO.  After this favorable ruling, Microchip filed appeal notices in the U.S. PTO in May 2008.  We do not believe it is

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feasible to predict or determine the outcome or resolution of this litigation at this time. We believe we have meritorious defenses and will defend
ourselves against these claims vigorously. We may incur substantial expenses in our defense against these claims. In the event of a
determination adverse to us, we may incur substantial monetary liabilities and be required to change our business practices. Either of these
could have a material adverse effect on our financial position, results of operations and/or cash flows.

On December 1, 2006, we filed a patent infringement claim against Altera Corporation ("Altera") and Actel Corporation ("Actel") in the U.S.
District Court of California (civil docket number 4:06-cv-07388-SBA). We alleged that Altera and Actel have infringed our patent numbered
4,670,749 which we believe to be the fundamental patent for programmable logic. We claimed that Altera's and Actel's products infringed these
patents and we sought unspecified damages and costs, including attorneys' fees. Actel settled their case with us on June 11, 2007 for an
undisclosed amount.

On May 23, 2008, Altera filed a patent infringement claim against us in the U.S. District Court of Texas (civil action number 2:08-CV-218).
Altera alleged that we infringed its patents numbered 6,097,211, 6,147,511 and 6,314,550. Altera claimed that unspecified products of ours,
including the eZ80 and Zneo series of products, infringed these patents and sought preliminary and permanent injunctive relief, unspecified
damages and costs, including attorneys' fees.  On March 31, 2009, we agreed with Altera to settle all pending litigation.  As part of this
agreement, we made a one-time payment of an undisclosed amount to Altera and both parties have agreed to dismiss their patent infringement
lawsuits.

Employees

As of March 31, 2009, we had 174 full time employees, comprised of approximately 96 in manufacturing-related
activities, 22 in engineering, 18 in sales and marketing and 38 in general and administrative functions, including Finance, HR, IT and facilities, of
which a total of 25 are located in our global support facility in Manila, Philippines.  33 of our 174 full time employees supported transitional
activities associated with our December 2008 worldwide headcount reduction plan, which was substantially completed in June 2009.



Our employees are not represented by any collective bargaining organization.

Environmental

Any failure by us to control the use of, or adequately restrict the discharge of, hazardous substances could
subject us to future liabilities that could materially harm our business, including under laws and regulations that impose liability and clean-up
responsibility for releases of hazardous substances into the environment. Until 2005, we operated wafer fabrication activities in our Nampa,
Idaho facilities. Until February 2006, we owned an 8-inch wafer manufacturing facility and until April 2007, we owned a 5-inch wafer
manufacturing facility.  Our manufacturing processes at these facilities required us to use various hazardous substances, and, as a result, we
were subject to a variety of environmental laws and regulations governing the storage, use, emission, discharge and disposal of, and human
exposure to, such substances.  In particular, the process of manufacturing silicon wafers used large amounts of corrosive and other hazardous
chemicals and huge quantities of distilled, de-ionized water.  Subsequent to the ceasing of wafer manufacturing activities in these facilities, the
facilities were cleaned and prepared for sale and the equipment was decommissioned and sold.  We no longer conduct manufacturing activities
in Nampa, Idaho.

With respect to environmental remediation, we could incur substantial costs for the clean up of contaminated properties, either those we
own or operate or to which we have sent wastes in the past. Under certain of these laws and regulations, current or previous owners or
operators of property may be liable for cleanup costs and other damages without regard to whether they knew of, or caused, the contamination.
The presence of, or failure to remediate, contamination could materially adversely affect the value of, and the ability to transfer or encumber, our
property.  In addition, we may be required to incur significant expense in connection with governmental investigation of environmental or
employee health and safety matters. Currently, we are not aware of any such actions or notices against us.

Available Information

The Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on form 8-K and all amendments to
those reports are available free of charge on the Company's website through

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Alternatively, you may read and copy any materials filed with the SEC at the SEC's Public Reference Room at
100 F. Street, NE, Washington, DC 20549 or access the information on the SEC's website at

In addition, you may request a copy of these filings (including exhibits) at no cost by writing us at our principal
offices at 6800 Santa Teresa Blvd., San Jose, CA 95119, attention: Investor Relations, or by calling (408) 513-1500.

ITEM 1A.	RISK FACTORS

RISK FACTORS

Risks Related to Our Business and Industry

The following risk factors should be considered carefully in addition to the other information in the Form 10-K.  The risks described
below are the ones we deem to be material to our business, but are not the only ones we face.  Additional risks we are not presently aware of or
that we currently believe are immaterial may also impair our business operations. If any of these risks actually occur, our business could be
harmed materially.

Current economic conditions and the global financial crisis may have an impact on our business and financial condition in ways that
we currently cannot predict.

Our operations and performance depend on worldwide economic conditions and their general impact on levels of business spending. These
economic conditions have continued to deteriorate significantly in many countries and regions and may remain depressed for the foreseeable
future. Uncertainties in the financial and credit markets have caused our customers to postpone purchases, and continued uncertainties may
reduce future sales of our products.  Protectionist trade measures that may be adopted in response to the economic downturn could reduce
demand for our products overseas. Our ability to access the capital markets may be restricted at a time when we would like, or need, to do so,
which could have an impact on our flexibility to pursue additional expansion opportunities and maintain our desired level of revenue growth in
the future. These and other economic factors could have a material adverse effect on demand for our products and on the our financial
condition and operating results.

We operate in the highly cyclical semiconductor industry and have experienced a downturn in the business cycle,
which has materially adversely affected our revenues and cash generation.

The semiconductor industry is highly cyclical and has experienced significant economic downturns, often in connection with, or in
anticipation of, maturing product cycles (for semiconductors and for the end-user products in which they are used) and declines in general
economic conditions. These downturns have been characterized by diminished product demand, erosion of average selling prices, production
over-capacity and high inventory levels. For example, beginning in the quarter ended December 31, 2000, we experienced a three-year
downturn in our business cycle. We are currently experiencing another very severe down-turn in our business cycle and may experience
downturns in the future. We believe that, in light of these events, many of our customers curtailed and may in the future delay or further curtail
spending on technology, which could negatively affect our quarterly results or financial condition in the future. This resulted in sharp declines in
our net sales in the second half of fiscal 2009. This global economic downturn has increased pressure on us to reduce our prices, which could
impair our revenues, gross margins and operating cash flow. It has also increased the risk that we may not collect all our accounts receivable or
that suppliers, assemblers and test subcontractors may go out of business, creating delays in our ability to ship products. From time to time, the
semiconductor industry also has experienced periods of increased demand and production capacity constraints. We have in the past
experienced substantial period-to-period declines in operating results, and will likely in the future experience substantial period-to-period
fluctuations in operating results that are attributable to semiconductor industry conditions or events occurring in the general economy.

As a result of the sale of our universal remote control and secured transaction processor businesses, we offer a narrower range of products
and any downturn in the market for our product offering may disproportionately affect us.

As a result of the sale of our universal remote control and secured transaction processor businesses to Maxim and UEI, our product offering
has been significantly narrowed.  This may disproportionately expose us to losses should the markets in which we currently compete continue to
experience contraction as a result of the global worldwide recession.

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We have experienced declines in net sales, and, if we fail to implement our new product strategy, we may continue to experience
declines in sales and gross margins.

In each of the past five years, our net sales from continuing operations have fluctuated significantly and our future
financial results are anticipated to be subject to substantial fluctuations. Our total net sales were $36.2 million for the fiscal year ended March 31,
2009, $44.6 million for the fiscal year ended March 31, 2008 and $58.0 million for the fiscal year ended March 31, 2007. We anticipate that sales of our
classic products may continue to decline over time. Our future financial performance and success are largely dependent on our ability to
implement our new product strategy, which consists partly of refocusing our business on microcontroller products built around our core 8-bit
micrologic architecture, beginning with the Z8 Encore! and eZ80 Acclaim! flash products.  Since 2002, we have launched our new series
of 8-bit embedded flash microcontrollers and derivatives.  These products typically have a long lead time from design to production, which can
range from twelve months to thirty-six months. These embedded flash products represented approximately 29% of our net sales for continuing
operations for the fiscal year ended March 31, 2009 compared to 30% of our net sales from continuing operations for the fiscal year ended March 31, 2008,
and we currently expect the contribution of these products to continue to grow.  If we are unable to develop new products in a manner that
timely meets changing market requirements, or if we are not able to achieve significant sales of our 8-bit microcontroller products for any
reason, our product strategy may fail and our net sales and operating results may continue to decline or not grow as currently expected.  In
addition, as we introduce new products we experience additional start up costs and unfavorable manufacturing prices due to low volume. In
addition, we do not expect margins on our 8-bit embedded flash products to be as strong as those on our classic products. Consequently, the
introduction of new products could have a negative impact on our gross margin even if sales from such new products offset declining revenues
from our classic products.

If we are unable to obtain adequate production capacity or quality, our business will be harmed.

We rely on independent third-party foundry manufacturers, including X-FAB, TSMC and UMC, to fabricate wafers for all of our product
needs.  Industry-wide shortages in foundry capacity could harm our financial results.  If we are unable to obtain the requisite foundry capacity to
manufacture our products, or if we have to pay higher than anticipated prices to foundries in periods of tight capacity, we may not be able to
meet our customers' demand for our products.  Any delay in initiating production at third-party foundries, any inability to have new products
manufactured at such foundries, or any failure to meet our customers' demands, could damage our relationships with our customers and may
decrease our sales.

Other significant risks associated with relying on these third-party foundries include:

- reduced control over the cost of our products, delivery schedules, capacity constraints and product quality;
- limited warranties on wafers or products supplied to us;
- increased exposure to potential misappropriation of our technology;
- yield or quality issues with the supplier which could result in us being unable to supply product to customers or providing product that does
not meet their quality or performance standards;
- vulnerability to third-party foundries' financial, operations or production difficulties; and
- the time and cost associated with switching or sourcing alternate foundries.

We may require additional capital in the future and additional funds may not be available on terms acceptable to us.

Based on our existing financial plans and forecasts, we believe that our existing cash and cash equivalents will be sufficient to
meet our planned capital needs for the next year. However, it is possible that we may need to raise additional capital to fund our future activities.
We may be able to raise these funds by selling securities to the public or selected investors, or by borrowing money.
The conditions in the current financial markets would make borrowing money or selling securities very difficult.
We may not be able to
obtain additional funds on favorable terms, or at all. If adequate funds are not available on acceptable terms, we may be required to curtail our
operations significantly, reduce planned capital expenditures and research and development, make selective dispositions of our assets or obtain
funds through arrangements with strategic partners or others that may require us to relinquish rights to certain technologies or potential markets,
or otherwise impair our ability to remain competitive.

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We could be required to incur significant capital expenditures for test and information technology and
equipment to remain competitive, the failure, inadequacy or delayed implementation of which could harm our ability to effectively operate our
business.

Our capital expenditures were $0.6 million for the fiscal year ended March 31, 2009, $1.3 million for the fiscal year ended March 31, 2008 and
$2.1million for the fiscal year ended March 31, 2007. We may be required to increase our future capital expenditures to meet increased demand.

Semiconductor manufacturing has historically required, and in the future is likely to continue to require, a constant upgrading of process
technology to remain competitive, as new and enhanced semiconductor processes are developed which permit smaller, more efficient and more
powerful semiconductor devices.  Even though we outsource a significant amount of our manufacturing, we are required to spend funds on
mask designs and process technology improvements to remain competitive.

We have recently outsourced our test operations.  If we need to add additional test capacity internally, we will
have to incur significant expenditures to acquire new test equipment.
We also may incur significant costs to implement new test equipment and new information technologies to increase our productivity and
efficiency. Any such implementation, however, can be negatively impacted by failures or inadequacies of the new information technology
and unforeseen delays in its implementation, any of which may require us to spend additional resources to correct these problems or, in some
instances, to conclude that the new technology implementation should be abandoned. In the case of abandonment, we may have to recognize
losses for amounts previously expended in connection with such implementation that have been capitalized on our consolidated balance
sheets.

There can be no assurances that we will have sufficient capital resources to make necessary investments in information
technology and equipment.

Interruptions in information technology systems could affect our business.

We rely on the efficient and uninterrupted operation of complex information technology systems and networks to operate our
business, especially between the Philippines and our San Jose, California headquarters. Any significant system or network disruption, including
but not limited to computer viruses, security breach and energy blackouts, could have a material adverse impact on our operations, sales and
operating results. We have implemented measures to manage our risks related to such disruptions, but such disruptions could negatively impact
our operations and financial results. In addition, we may incur additional costs to remedy the damages caused by these disruptions or security
breaches.

If we are unable to prevail in a patent litigation lawsuit we may incur substantial monetary liability and may be required to change our
business practices.

On August 11, 2005, Microchip Technology, Inc. ("Microchip") filed a patent infringement claim against us in the U.S.
District Court of Arizona (case number CV05-2406-PHX-MHM). Microchip alleges that we have infringed, and currently infringe, its patents
numbered 5,847,450, 6,696,316 and 6,483,183. Microchip claims that unspecified products of ours, including the Z8 Encore! XP 4K
Series of products, infringe these patents and is seeking preliminary and permanent injunctive relief, unspecified damages and costs,
including attorneys' fees. We filed a response to the claims on September 15, 2005 generally denying the claims and challenging the
validity of the patents. On January 10, 2006, we filed a request for patent re-examination with the U.S. PTO, which was granted in February and
March 2006 for all 3 patents. On
April 11, 2008, we received a notice that all of Microchip's claims under these three patents have been rejected
by the U.S. PTO.  After this favorable ruling, Microchip filed appeal notices in the U.S. PTO in May 2008.  We do not believe it is feasible
to predict or determine the outcome or resolution of this litigation at this time. We believe we have meritorious defenses and will defend
ourselves against these claims vigorously. We may incur substantial expenses in our defense against these claims. In the event of a
determination adverse to us, we may incur substantial monetary liabilities and be required to change our business practices. Either of these
could have a material adverse effect on our financial position, results of operations and/or cash flows.

We depend on third-party assemblers throughout Asia, including Indonesia, Thailand and the Philippines, and the failure of these third
parties to continue to provide services to us on sufficiently favorable terms could harm our business.

We use outside contract assemblers and test operations in Indonesia, Thailand and the Philippines for packaging and testing our
products.  These countries have been subject to political instability and terrorist activities. The packaging and testing of semiconductors is a
complex process requiring, among other things, a high degree of technical skill and advanced equipment.

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If we are unable to obtain additional
assembly and test capacity on sufficiently favorable terms, our ability to maintain or grow our net sales could be impaired.  Shortages in contract
assembly and test capacity could cause shortages in our products and could also result in the loss of customers as a result of delays.  Because
we rely on these third parties, we also have less control over our costs, delivery schedules and quality of our products and our technology is at
greater risk of misappropriation.

Our success depends on our ability to introduce new products on a timely basis.

Our operating results depend on our ability to introduce and sell new products on a timely basis that can compete
effectively based on price and performance and that address customer requirements. Rapidly changing technologies and industry standards,
along with frequent new product introductions, characterize the industries that are currently the primary end-users of semiconductors. As these
industries evolve and our customers and potential customers introduce new products, our success will depend on our ability to adapt to such
changes in a timely and cost-effective manner by designing, developing, manufacturing, marketing and providing customer support for new
products and technologies. Our ability to introduce and sell new products successfully depends on several factors, including:

- development of support tools and technical documentation that make complex products easy for engineers to understand and use;
- proper new product selection;
- timely completion and introduction of new product designs;
- support from our foundry service providers;
- complexity of the new products to be designed and manufactured; and
- market acceptance of our products and our customers' products.

The emphasis of our new product development is on products built on our 8-bit microcontroller architectures. If market demand for these
products does not develop as we anticipate, our product development strategy could fail. Because our products are complex, we may not meet
the design and introduction schedules for any new products or any additions or modifications to our existing products, and these products may
not achieve market acceptance. In addition, we may not be able to sell these products at prices that are favorable to us.

We may be unable to make the substantial research and development investments required to remain competitive in our
business.

The semiconductor industry requires substantial investment in research and development in order to develop and bring to market new and
enhanced technologies and products.
As a result of the sale of our universal remote control and secured transaction processor businesses to Maxim and UEI, we significantly
reduced our engineering, research and development and operational capabilities.  This will limit our ability to pursue multiple developmental
stage projects simultaneously and may lengthen our product development lifecycles and may have other unforeseen negative consequences to
our business.
There can be no assurances that we will have sufficient resources to maintain the level of investment in research and development that is
required to remain competitive.

Our industry is highly competitive, and we may not be able to compete effectively.

The semiconductor industry is intensely competitive and is characterized by price erosion, rapid technological change and
heightened competition in many markets. The industry consists of major domestic and international semiconductor companies, many of which
have substantially greater financial and other resources than we do with which to pursue engineering, manufacturing, marketing and distribution
of their products. Emerging companies are also increasing their participation in the semiconductor industry. Our current and future products
compete with, or may compete with, products offered by Atmel, Cypress Semiconductor, Microchip, Freescale, Renasas, Samsung, and
ST Microelectronics, among others. Some of our principal products, such as the Z80 microprocessor, are licensed by our competitors, or
are in the public domain, and can be manufactured and sold to our customers by our competitors, possibly with added features or at lower
prices than we charge. Our ability to compete successfully in our markets depends on factors both within and outside of our control, including:

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- our ability to design and manufacture new products that implement new technologies including our 8 and 16-bit microcontroller based
product families;
- our ability to protect our products by effectively utilizing intellectual property laws;
- our product quality, reliability, ease of use and price;
- the diversity of our product line and feature sets within our products;
- our efficiency of production;
- our ability to obtain adequate supplies of raw materials and other supplies at acceptable prices;
- the availability of subcontractors for the wafer fabrication, assembly and test of our products;
- the pace at which customers incorporate our devices into their products; and
- the success of our competitors' products and general economic conditions.

The sale of our universal remote control and secured transaction processor businesses to Maxim and UEI exposes us to liabilities that are
difficult to assess.

In connection with the sale of our universal remote control and secured transaction processor businesses to Maxim and UEI, we indemnified
Maxim and UEI for losses that may result from inaccuracies in our representations and warranties in the acquisition agreement and our failure to
fulfill certain obligations in the acquisition agreement.  $3.1 million of the purchase price was placed into escrow to cover any such losses.
Furthermore, our indemnification obligations for losses related to certain representations and warranties in the acquisition agreement are
unlimited.  As a result, potential liabilities are difficult to assess.  Disputes over any claimed losses by Maxim and UEI may arise and result in
litigation to the Company, which could be costly and cause management distraction.

Our quarterly operating results are likely to fluctuate and may fail to meet expectations, which may cause the price of our securities to
decline.

Our quarterly operating results have fluctuated in the past and will likely continue to fluctuate in
the future. If our quarterly operating results fail to meet expectations, the price of our securities could fluctuate or decline significantly. In
addition, significant proportions of our costs are fixed, due

- our ability to introduce and sell new products and technologies on a timely basis;
- any shortage of wafer, test or assembly manufacturing capacity at our third-party vendors;
- competitive developments, including pricing pressures;
- technological change and product obsolescence;
- changes in product mix or fluctuations in manufacturing yields;
- variability of our customers' product life cycles;
- the level of orders that we receive and can ship in a quarter and customer order patterns, which may be especially difficult to predict on our
newer products;
- the impact of economic recessions on demand;
- seasonality;
- inventory write-downs or asset impairments;
- restructuring charges;
- increases in the cost or scarcity of raw materials; and
- gain or loss of significant customers.

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We depend on orders that are received and shipped in the same quarter, and therefore our results of operations may be subject to
significant variability from quarter to quarter.

Our net sales in any given quarter depend upon a combination of orders received in that quarter for shipment in that quarter and
shipments from backlog. Our backlog at the beginning of each quarter does not include all sales needed to achieve expected revenues for that
quarter. Consequently, we are dependent on obtaining orders to be shipped in the same quarter that the order is received for a significant
portion of net sales in that quarter. Moreover, customers may reschedule shipments and production difficulties could delay shipments.
Accordingly, we have limited visibility into future product shipments and our results of operations may be subject to significant variability from
quarter to quarter.

Average selling prices in the semiconductor industry typically decline over time, which directly affects our revenue
and margins.

>Historically, average selling prices in the semiconductor industry have decreased over the life of any particular
product. To the extent that our products achieve market acceptance, competitors typically seek to offer competitive products or embark on
discount pricing strategies. We have in the past and may in the future be required to reduce selling prices in response to competition. From time
to time, technology and manufacturing changes have the impact of lower average selling prices, such as the conversion of hardware to software
modems and packaged to die only sales.  If we are unable to offset any reductions in the selling prices of our products by introducing new
products at higher prices or by reducing our costs, our revenues, gross margins and operating results could be impaired.  In addition, if the price
at which we can sell products in our inventory declines below the cost of such products, we may be required to write down the value of such
inventory.

A significant amount of our revenues comes from relatively few distributors, and any decrease of revenues from these customers and
distributors, or the loss of their business, could significantly harm our financial results.

Historically we have been, and we expect to continue to be, dependent on a
relatively small number of distributors for a significant portion of our revenues. We depend on third-party distributors to market and sell our
products, and these third-party distributors collectively accounted for approximately 79%, 78% and 75% of our net sales of continuing
operations in each of the fiscal years ended March 31, 2009, March 31, 2008 and March 31, 2007, respectively. In addition, our five largest
distributors accounted for approximately 68% of our net sales of continuing operations for the fiscal year ended March 31, 2009, 66% for the fiscal year
ended March 31, 2008 and 63% of our net sales of continuing operations for the fiscal year ended March 31, 2007. One distributor accounted for
approximately 42% of our net sales of continuing operations for the fiscal year ended March 31, 2009, 37% for the fiscal year ended March 31, 2008 and
34% for the fiscal year ended March 31, 2007. Our distributors decide whether to include our products among those that they sell, and they may carry
and sell product lines that are competitive with ours. Because our distributors are not required to make a specified minimum level of purchases
from us, we cannot be sure that they will prioritize selling our products. We also rely on our distributors to accurately report to us on a timely
basis their sales of our products and provide certain support services to our customers.  Our inability to obtain accurate and timely reports and
to successfully manage these relationships could materially adversely affect our business and financial reports. Our distributors may not
continue to effectively market, sell or support our products.

Our North American distributor could emphasize competing products, and we may lose some of our customers as a result.

In October 2002, we engaged Future Electronics ("Future")
as our exclusive full-service distributor in North America.  Additionally, Future provides distributor support to us in Europe and Asia on a
non-exclusive basis.  For the fiscal years ended March 31, 2009, 2008 and 2007 Future sales on continuing operations were approximately $15.2 million,
or 42% of net sales, $16.4 million, or 37% of net sales and $19.7 million, or 34% of net sales, respectively. Future distributes products of our
competition that may directly compete with our product offerings. If Future chooses to promote those products over our
products, our operating
results could be harmed significantly. In addition, if Future were to terminate our distribution agreement, we could experience a period of
significant interruption of our business while we obtained other distribution channels.

We depend on relatively few major customers for a substantial portion of our sales.

Our ten largest customers, excluding our distributors, accounted for
approximately 18% of our net sales for continuing operations for the fiscal year ended March 31, 2009, 18% for the fiscal year ended March 31, 2008 and
20% for the fiscal year ended March 31, 2007.   For the fiscal years ended March 31, 2009, March 31, 2008 and March 31, 2007, we had no direct
customers that accounted for more than 6% of our net sales, respectively. For the fiscal years ended March 31, 2009,

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March 31, 2008 and March 31, 2007, we had one distributor that accounted for 42%, 37% and 34% of our net sales, respectively.

Concentration of net sales to particular customers may change from period to period, but we expect that sales to a limited number
of customers will continue to account for a significant percentage of our revenues in any particular period for the foreseeable future. We have
very few long-term contracts with our customers, and, like us, our customers typically compete in cyclical industries. We routinely purchase
inventory based on customers' estimates of demand for their products, which is difficult to predict.  Thus, our customers may decide not to
purchase our products at all, to purchase fewer products than they did in the past, or to alter their purchasing patterns on short notice,
particularly because substantially all of our sales are made on a purchase order or sales order acknowledgment basis, which permits our
customers to cancel, change or delay product purchase commitments.

Any of our large customers may choose to exit the business we supply, or partner with, or acquire product from our competitors. Should this
occur, our results of operations would likely be harmed. The loss of one or more major customers or any reduction, delay or cancellation of
orders by any of these customers or our failure to market successfully to new customers, could result in a significant reduction in net sales
during one or more periods, excess inventory or write-downs of inventory.

Our revenue may decline if customers for whom we are sole source providers seek alternative sources of supply.

We serve as the sole (or primary) source provider for some of our direct customers. Those customers may choose to reduce their
dependence on us by seeking second sources of supply, which could reduce our revenue. To remain a sole (or primary) source provider, we
must continue to demonstrate to our customers that we have adequate alternate sources for components, that we maintain adequate
alternatives for production and that we can deliver value added products on a timely basis.

Our international operations subject us to risks inherent in doing business with countries outside the
United States that could impair our results of operations.

Approximately 60 - 62% of our net sales for continuing operations for each of the fiscal year ended March 31, 2009, the fiscal year ended
March 31, 2008 and the fiscal year ended March 31, 2007, were made to countries outside the United States. These sales to non-U.S. customers will
continue to represent a significant portion of our net sales in the future. We maintain significant operations, or rely on a number of contract
manufacturers, in the Philippines, Indonesia, Taiwan, Thailand, India and other locations in Asia. There can be no assurances that we will be
successful in overcoming the risks that relate to, or arise from, operating in international markets. Risks inherent in doing business on an
international level include:

- economic and political instability;
- changes in regulatory requirements, tariffs, customs, duties and other trade barriers;
- transportation delays;
- power supply shortages and shutdowns;
- difficulties in staffing and managing foreign operations and other labor problems;
- existence of language barriers and cultural distinctions;
- acts of God, including floods, typhoons and earthquakes;
- taxation of our earnings and the earnings of our personnel; and
- other uncertainties relating to the administration of, or changes in, or new interpretation of, the laws, regulations and policies of the
jurisdictions in which we conduct our business.

In addition, our activities outside the United States are subject to risks associated with fluctuating currency values and exchanges rates,
hard currency shortages and controls on currency exchange.  While our sales are primarily denominated in U.S. dollars, worldwide
semiconductor pricing is influenced by currency rate fluctuations, and such fluctuations could harm our operating results materially.

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The risks inherent in our international operations have been increased by the threat of terrorist attacks.  These attacks, coupled with an
international military response, have created an uncertain economic environment, and we cannot predict the impact of these political threats or
any related military action, on our customers or our business

We have had a history of losses, and we may not be profitable in the future.

We have had a history of losses since the one-time gain on extinguishment of debt and fresh-start adjustments in 2002.
We may not be profitable in the future.

We depend on key personnel, and the loss of our current personnel or our failure to hire and retain additional personnel could harm
our business.

We depend on our ability to attract and retain highly skilled technical and managerial personnel. We believe that our future
success in developing marketable products and achieving a competitive position will depend in large part on our ability to identify, recruit, hire,
train, retain and motivate highly skilled technical, executive, managerial, marketing and customer service personnel. Competition for these
personnel is intense, especially in Northern California, where our headquarters are located, and we may not be able to successfully recruit,
assimilate or retain sufficiently qualified personnel. Our failure to recruit and retain necessary technical, executive, managerial, marketing and
customer service personnel could harm our business and our ability to obtain new customers and develop new products. In addition, our history
of losses and our 2002 bankruptcy reorganization could impair our ability to recruit and retain employees.  We do not have employment contracts
with any of our executive officers.  We have recently received unsolicited proposals to acquire our company. Our ability to recruit and
retain key personnel may be negatively impacted by uncertainties relating to potential future changes in the ownership and control of our
company.

For a portion of our employee incentives, we issue common stock options that generally have exercise prices at the market value at time of
the grant and that are subject to vesting.  At times, our stock price has declined, reducing the effectiveness of these incentives.

We may fail to protect our proprietary rights, and the cost of protecting those rights, whether we are successful or not, may harm our
ability to compete.

The extent and value of our intellectual property is necessarily uncertain, and our efforts to protect our intellectual property
rights may not be successful. Despite our precautions, a third party may copy or otherwise obtain our devices or technology without
authorization, requiring patent litigation to enforce our rights. Patent litigation is, by its nature, expensive and unpredictable. If litigated, one or
more of our patents may be found invalid or unenforceable or to have claims of such narrow scope as to be of little economic value. Third
parties may design around our patents. Third parties may independently develop technology similar to our trade secrets. In addition, the laws of
some foreign countries where we have patent and trademark rights may not protect our intellectual property rights to the same extent as the
laws of the United States.

Additionally, our pending and future patent applications should not be relied upon as they may not issue as patents, and
even if they do issue, such future patents may not be of sufficient scope or strength to provide meaningful economic or competitive value.

Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets or to determine the
validity and scope of our proprietary rights or the proprietary rights of others. Any such litigation may be unsuccessful and could require us to
incur substantial costs and divert significant valuable resources, including the efforts of our technical and management personnel, which may
harm our business materially.

The semiconductor industry is characterized by frequent litigation regarding patent and other intellectual property rights, both
defensive and offensive.

In addition to the Microchip lawsuit described elsewhere, from time to time we have received, and may in the future receive,
communications from other third parties asserting that a product offered by us, or an aspect of our business, infringes a patent held by the other
third party and/or requires a license thereto. With respect to those other third party communications that are currently pending, we believe, after
having consulted with counsel, that either (i) we have meritorious defenses, (ii) based on license terms previously offered to us or typically
available in the industry, we can obtain any necessary licenses on commercially reasonable terms, or (iii) we can modify our products to avoid
such rights, but if this is not the case, we may be

18

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sued and assessed damages for past infringement. Indeed, licenses may not be available on
commercially reasonable terms, or at all. In addition, we have certain indemnification obligations to customers with respect to the infringement of
third party intellectual property rights by our devices.

Intellectual property lawsuits are subject to inherent uncertainties due to the complexity of the technical issues involved, and we may not be
successful in defending ourselves against intellectual property claims. The cost of defending against patent infringement or other intellectual
property litigation, in terms of management time and attention, legal fees and product delays, could be substantial, whatever the outcome. If any
patent or other intellectual property claims against us are successful, we may be prohibited from using the technologies subject to these claims,
and if we are unable to obtain a license on acceptable terms, license a substitute technology, or design new technology to avoid infringement,
we could be prohibited from using or selling the infringing products or technologies and be required to pay substantial damages. Such a result
could have a material adverse effect on our business.

We could be forced to spend significant time and money on products that contain, or are rumored to contain, design
defects or errors.

Because the design and production process for semiconductors is highly complex, we may produce products whose
design deviates from published specifications. In addition, one or more of our products may be found to contain production defects after we
have already shipped such products. These production defects could be caused by either raw materials or errors in the production process. If
errors or production defects are discovered after we have already shipped one or more of our products in volume, we could be materially
adversely affected in one or more of the following ways:

- replacements or recalls could impose substantial costs on us;
- rumors, false or otherwise, may be circulated by the press and other media, which could cause a decrease in sales of our products;
and
- customers or end users may file suits, or assert other legal claims against us, alleging damages caused by defective products or errors in
products. If we do not successfully defend such suits, we could be required to pay substantial damages. Even if we prevail in suits filed by
customers or end users, we may be required to expend significant funds in defense.

Changes in technologies or consumption patterns could reduce the demand for our products.

As a result of technological changes, from time to time our customers change the design of their products so as not to include our
products, which may have a negative impact on our net sales. Because we do not have long-term supply contracts with most of our customers,
changes in the designs of their products can have sudden and significant impacts on our sales. Reduced sales due to customer design changes
have harmed us in the past, and additional customer design changes could result in lower revenues in the future.

We may forecast the future demand for our products incorrectly and produce excess or insufficient inventories of particular products, which
may adversely affect our results of operations.

Since we must order products and build inventory substantially in advance of product shipments, we may forecast incorrectly and
produce excess or insufficient inventories of particular products. The ability of our customers to reschedule or cancel orders without significant
penalty could adversely affect our liquidity, as we may be unable to adjust our purchases from our wafer suppliers to match any customer
changes and cancellations. As part of our business strategy, we maintain a substantial inventory of sorted wafers in a die bank but limit our
investment in finished goods. We may have adequate wafer inventory to meet customer needs but may be unable to finish the manufacturing
process prior to the delivery date specified by the customer. Demand for our products is volatile and customers often place orders with short
lead times. Our inventory may not be reduced by sufficient demand of customer orders and in the future we may produce excess quantities of
our products.

It is our policy to fully write down all inventories that we do not expect to be sold in a reasonable period of time. We may suffer reductions in
values of our inventories in the future and we may be unable to liquidate our inventory at acceptable prices. To the extent we have excess
inventories of particular products, our operating results could be adversely affected by charges to cost of revenues that we would be required to
recognize due to significant reductions in demand for our products or rapid declines in the market value of our inventory, resulting in inventory
write downs or other adverse consequences.

We have implemented measures to consolidate our activities and/or significantly reduce our costs, and we may be required to
implement additional measures depending upon our future revenues and operating results.

19

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In the past, we have implemented measures designed to consolidate our activities and/or reduce our costs, including during the three years
ended March 31, 2009. These cost reduction efforts have included:

- transferring our production test operations currently performed in our Philippines facility to third party suppliers;
- consolidation of our research and development activities including the closure of design and development sites in Shanghai, China and
Seattle, Washington;
- restructuring our manufacturing operations, which has included closing and subsequently outsourcing all of our wafer fabrication, assembly,
wafer test and final test operations and consolidating probe and final test operations, as well as certain customer service and accounting
functions at our Philippines site;
- refocusing our strategic priorities;
- reallocating personnel and responsibilities to better utilize human resources;
- reducing our worldwide workforce; and
- instituting temporary office and facility shutdowns.

Cost reduction measures may not increase our efficiency or lead to profitability.  In the past, we have reduced our spending on research
and development.  Reducing research and development spending could harm our ability to introduce new products in the future. If our revenue
or operating results significantly decline in the future, we may be required to institute further cost reduction measures.

From time to time, we evaluate our strategic alternatives with respect to our facilities and we may take actions which may result in the
occurrence of accounting charges. Some or all of these charges may be non-cash. Such charges would have a negative impact on our GAAP
profitability and may have a negative impact on our cash balance.

As a result of our recent disposition of assets, costs associated with being a public company will constitute a larger portion of our
overheard.

As a public company, we have incurred and will continue to incur significant accounting, legal and other expenses. As a result of the sale of
our universal remote control and secured transaction processor businesses to Maxim and UEI, our financial compliance and legal costs will
necessarily constitute a larger portion of our overhead making profitability difficult to attain.

We are subject to various environmental laws and regulations that could have a material adverse effect
on us.

Until 2005, we operated wafer fabrication activities in our Nampa, Idaho facilities. Until February 2006, we owned
an 8-inch wafer manufacturing facility and until April 2007, we owned a 5-inch wafer manufacturing facility. Our manufacturing processes
required us to use various hazardous substances, and, as a result, we are subject to a variety of environmental laws and regulations governing
the storage, use, emission, discharge and disposal of, and human exposure to, such substances.  In particular, the process of manufacturing
silicon wafers used large amounts of corrosive and other hazardous chemicals and huge quantities of distilled, de-ionized water.  Any failure by
us to control the use of, or adequately restrict the discharge of, hazardous substances could subject us to future liabilities that could materially
harm our business, have a materially adverse affect on our financial condition and results of operations, including under laws and regulations
that impose liability and clean-up responsibility for releases of hazardous substances into the environment. Subsequent to the ceasing of wafer
manufacturing activities in these facilities, the facilities were cleaned and prepared for sale and the equipment was decommissioned and sold.
We no longer conduct manufacturing activities in Nampa, Idaho.

With respect to environmental remediation, we could incur substantial costs for the clean up of contaminated properties, either those we
own or operate or to which we have sent wastes in the past. Under certain of these laws and regulations, current or previous owners or
operators of property may be liable for cleanup costs and other damages without regard to whether they knew of, or caused, the contamination.
The presence of, or failure to remediate, contamination could materially adversely affect the value of, and the ability to transfer or encumber, our
property.  In addition, we may be required to incur significant expense in connection with governmental investigation of environmental or
employee health and safety matters.

We may engage in acquisitions and other forms of business combinations or partnerships that could materially adversely affect our
operating results, dilute our stockholders' equity, or cause us to incur additional debt or assume contingent liabilities.

20

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To increase our business and maintain our competitive position, we have made acquisitions in the past and may do so in the future.
 Acquisitions and other forms of business combinations or partnerships involve a number of risks that could harm our business and result
in the acquired business not performing as expected, including:

- insufficient experience with technologies and markets in which the acquired or combined business is involved, which may be necessary to
successfully operate and integrate the business;
- problems integrating the acquired or combined operations, personnel, technologies or products with the existing business and
products;
- diversion of management time and attention from our core business to the acquired or combined business;
- potential failure to retain key technical, management, sales and other personnel of the acquired or combined business;
- difficulties in retaining relationships with suppliers and customers of the acquired or combined business; and
- subsequent impairment of the acquired or combined assets, including intangible assets.

In addition, acquisitions and other forms of business combinations or partnerships could require investment of significant financial resources
and may require us to obtain additional equity financing, which may dilute our stockholders' equity, or to incur additional indebtedness.

Acts of war or terrorism could harm our business.

The long-term effects of potential terrorist attacks on the world economy and our business are unknown, but could be material to
our business. Terrorist acts or acts of war, whether in the United States or abroad, also could cause damage or disruption to our business, our
suppliers, our freight carriers, or our customers, or could create political or economic instability, any of which could have a material adverse
effect on our business.

Failure to achieve and maintain effective internal control over financial reporting could have a material adverse effect on our
business and stock price.

Failure to achieve and maintain effective internal control over financial reporting in accordance with rules of the Securities and
Exchange Commission promulgated under Section 404 of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"),
or failure to maintain adequate disclosure controls and
procedures, could harm our business and operating results and/or result in a loss of investor confidence in our financial reports, which could in
turn have a material adverse effect on our business and stock price.

Change in fiscal calendar and Sarbanes-Oxley Section 404 report.

On December 29, 2005, our Board of Directors unanimously adopted resolutions to change our fiscal year end from December 31
to March 31. We revised our fiscal year so that our audit work could be performed during non-peak periods with our independent registered
public accountants, which has resulted in and we believe will result in cost savings over the long-term. During the on-going reviews of our
control environment and our internal controls, as part of our review for the three-month period ended December 31, 2005, we identified
deficiencies in our information technology controls, including the need to better segregate duties as it relates to the use of our Oracle
Information Systems modules and to improve our General Computing Controls compliance and documentation. We have completed a thorough
review of our control environment and have made improvements to our information technology controls in the areas where these deficiencies
were identified. We believe we have adequately remediated our information technology environment and controls and results of our testing have
not uncovered any errors. Our auditors have not performed a formal review of our control environment and it is possible that material
weaknesses or deficiencies exist.

Changes in securities laws and regulations may increase our costs.

The Sarbanes-Oxley Act has previously required us to make changes to some of
our corporate governance practices.  The Sarbanes-Oxley Act requires annual management assessments of the effectiveness of a company's
internal controls over financial reporting and also a report by a company's independent registered public accounting firm assessing the
effectiveness of such company's internal controls over financial reporting. The Securities and Exchange Commission

21

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extended the dates for
initial compliance with the internal control reporting requirements mandated by Section 404 of the Sarbanes-Oxley Act for filers that do not meet
the definition of either an "accelerated filer" or a "large accelerated filer."  Under the extension, a company that does not
meet the definition of either an "accelerated filer" or a "large accelerated filer," as these terms are defined in Rule 12b-2
under the Exchange Act, is not required to comply with the requirement to provide the auditor's attestation report on internal auditing over
financial reporting until it files an annual report for its first fiscal year ending on or after December 15, 2009.  The measurement criteria for
determining filing status, was based on our market capitalization as of September 29, 2007, at which time, our market capitalization was below the
defined threshold for accelerated filers.  For the fiscal year ended March 31, 2009, we did not meet the definition of either an
"accelerated filer" or a "large accelerated filer," as those terms are defined in Rule 12b-2 under the Securities Exchange
Act of 1934, as amended, for the purposes of compliance with Section 404 of the Sarbanes-Oxley Act. Thus, under the extension, beginning
with our fiscal year 2010, we will be required to provide an auditor's attestation report on internal controls over financial reporting, which will
substantially increase our general and administrative expenses.

Changes in our effective tax rate may reduce our net income in future periods.

A number of factors may increase our future effective tax rates, including:

- the jurisdictions in which profits are determined to be earned and taxed;
- the resolution of issues arising from tax audits with various tax authorities;
- changes in the valuation of our deferred tax assets and liabilities;
- increases in expense not deductible for tax purposes, including write-offs of acquired in-process R&D and impairments of goodwill in
connection with acquisitions;
- changes in available tax credits;
- changes in share-based compensation;
- changes in tax laws or the interpretation of such tax laws, and changes in generally accepted accounting principles;
- the repatriation of non-U.S. earnings for which we have not previously provided for U.S. taxes; and
- challenges to the transfer pricing policies related to our global supply chain management structure.

At any given time, the Company is likely to have multiple year examinations open with federal, state, and foreign taxing authorities.
If the taxing authorities were to successfully challenge a material tax position, we could become
subject to higher taxes and our earnings would be adversely affected. In addition, proposals for changes in U.S. tax laws that may be adopted in
the future, including recently announced proposals which would substantially reduce or eliminate our ability to defer the income generated by
the earnings of our foreign subsidiaries, could subject us to higher taxes or result in changes to tax law provisions that currently provide
favorable tax treatment

Changes in accounting principles generally accepted in the United States may materially adversely affect our reported financial
results or otherwise harm our business.

We prepare our financial statements in conformity with accounting principles generally accepted in the United States. These
accounting principles are subject to interpretation by the Financial Accounting Standards Board, the American Institute of Certified Public
Accountants, the Securities and Exchange Commission and various bodies formed to interpret and create appropriate accounting policies. A
change in these policies or interpretations could have a significant effect on our reported financial results, and could affect the reporting of
transactions completed before the announcement of a change.

Changes in our business conditions could result in impairment of our goodwill.

In accordance with Statement of Financial Accounting Standards No.142, "Accounting for Goodwill and Other Intangible
Assets" (SFAS 142), the Company must perform at least an annual testing of the Company's stated value of its net assets including
goodwill and other intangible assets in relation to the implied fair market value of the Company.  If the Company's market capitalization or fair
market value declines, we may be required to record financial adjustments to the stated values of our goodwill and other intangible assets,
resulting in a material adverse effect on our financial condition and results of operations. Our year end testing analysis of market capitalization
as compared to our book value indicated no impairment in our Goodwill. Analysis of our continuing businesses estimated future cash flows
resulted in a write off of the remaining balance of the intangibles asset value as of March 31, 2009. Our Goodwill had an aggregated net book
value of  $2.2 million at March 31, 2009.

22

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Provisions in our organizational documents and Delaware law could discourage acquisition proposals or delay a change in control that
would be beneficial to our stockholders.

Our amended and restated certificate of incorporation and bylaws contain anti-takeover provisions that could make it more difficult
for a third party to acquire control of us, even if that change in control would be beneficial to our stockholders. These provisions include:

- providing for a classified board of directors with staggered terms;
- limiting the persons who may call special meetings of stockholders; and
- prohibiting stockholders from taking action by written consent.

In addition, provisions of Delaware law may discourage, delay or prevent someone from acquiring or merging with us.

Our directors, named executive officers and our two largest stockholders, who beneficially own approximately 36%
of our common stock in the aggregate, may have interests that conflict with the interests of our other stockholders.

Our directors and named executive officers, together with our largest stockholders, UBS Willow Management, L.L.C., and funds managed
by Capital Research and Management Company, beneficially owned approximately 36% of our outstanding common stock, in the aggregate, as
of March 31, 2009.  As a result of their ownership and positions, our directors and named executive officers, together with UBS Willow
Management and Capital Research and Management Company, collectively are able to significantly influence all matters requiring stockholder
approval, including the election of directors and approval of significant corporate transactions. Such concentration of ownership may also have
the effect of delaying or preventing a change in control. If the ownership of our common stock continues to be highly concentrated, it may
prevent you and other stockholders from influencing significant corporate decisions. The investment objectives of our largest institutional
stockholders may differ from those of our other stockholders.

ITEM 1B.	UNRESOLVED STAFF COMMENTS

None.

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ITEM 2.	PROPERTIES

San Jose, California

Our corporate headquarters are located in an approximately 42,000 square foot facility in San Jose,
California, which we occupied effective July 2007 under a lease term of five years with an option to renew for two three-year periods. The lease
includes an expansion opportunity for an additional 7,000 square feet, upon which we have right of first refusal. We have consolidated our
operations onto one floor or approximately 14,000 square feet of the facility and are currently marketing the remaining 28,000 square feet for
sublease.

Meridian, Idaho

In May of 2004, we entered into a 5 year lease for a 15,500 square foot facility in Meridian, Idaho, which
may be extended at our option for an additional three years.  This facility is used as our Idaho Technology Center and supports our foundry
supplier partnerships, product and design engineering, failure analysis and customer manufacturing support activities.

Manila, Philippines

In November 2008, we renewed the lease of our 140,000 square foot facility in the Philippines for a
period of 5 years expiring March 2014. This facility is used for product testing, test development and global support activities which includes
inventory warehousing and management, logistics, customer service and support, manufacturing planning, Finance and IT.

El Dorado Hills, CA

In May 2008, we entered into a 2 year lease for a 3,000 square foot facility in El Dorado Hills, California, expiring in June
2010 with the option to renew for an additional 3 years.  The facility is used for marketing and applications activities.

Short-Term Leases

We have short-term leases for sales offices located in the U.S., Canada, England, and the People's Republic of China, Singapore and
Taiwan.

Currently, we believe that all of our properties are adequate to meet our needs.

ITEM 3.	LEGAL PROCEEDINGS

On August 11, 2005, Microchip Technology, Inc. ("Microchip") filed a patent infringement claim
against us in the U.S. District Court of Arizona (case number CV05-2406-PHX-MHM). Microchip alleges that we have infringed, and currently
infringe, its patents numbered 5,847,450, 6,696,316 and 6,483,183. Microchip claims that unspecified products of ours, including the Z8 Encore!
XP 4K Series of products, infringe these patents and is seeking preliminary and permanent injunctive relief, unspecified damages and
costs, including attorneys' fees. We filed a response to the claims on September 15, 2005 generally denying the claims and challenging
the validity of the patents. On January 10, 2006, we filed a request for patent re-examination with the U.S. PTO, which was granted in February
and March 2006 for all 3 patents. On April 11, 2008, we received a notice that all of Microchip's claims under these three patents have been
rejected by the U.S. PTO.  After this favorable ruling, Microchip filed appeal notices in the U.S. PTO in May 2008.  We do not believe it is
feasible to predict or determine the outcome or resolution of this litigation at this time. We believe we have meritorious defenses and will defend
ourselves against these claims vigorously. We may incur substantial expenses in our defense against these claims. In the event of a
determination adverse to us, we may incur substantial monetary liabilities and be required to change our business practices. Either of these
could have a material adverse effect on our financial position, results of operations and/or cash flows.

On December 1, 2006, we filed a patent infringement claim against Altera Corporation ("Altera") and Actel Corporation ("Actel") in the U.S.
District Court of California (civil docket number 4:06-cv-07388-SBA). We alleged that Altera and Actel have infringed our patent numbered
4,670,749 which we believe to be the fundamental patent for programmable logic. We claimed that Altera's and Actel's products infringed these
patents and we sought unspecified damages and costs, including attorneys' fees. Actel settled their case with us on June 11, 2007 for an
undisclosed amount.

On May 23, 2008, Altera filed a patent infringement claim against us in the U.S. District Court of Texas (civil action number 2:08-CV-218).
Altera alleged that we infringed its patents numbered 6,097,211, 6,147,511 and 6,314,550. Altera claimed that unspecified products of ours,
including the eZ80 and Zneo series of products, infringed these patents and sought preliminary and permanent injunctive relief, unspecified
damages and costs, including attorneys' fees.  On March 31, 2009, we agreed with Altera to settle all pending litigation.  As part of this
agreement, we made a one-time payment of an undisclosed amount to Altera and both parties have agreed to dismiss their patent infringement
lawsuits.

24

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We are participating in other litigation and responding to claims arising in the ordinary course of business.  We
intend to defend ourselves vigorously in these other matters.  Our management believes that it is unlikely that the outcome of these other
matters will have a material adverse effect on our consolidated financial statements, although there can be no assurance in this regard.

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

None.











25

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PART II

ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

PRICE RANGE OF COMMON STOCK

Our Common Stock

Our common stock is traded on the NASDAQ Global Market under the symbol "ZILG." The following
table sets forth the high and low per share trading prices by quarter on the NASDAQ Global Market.



|                                                    |   | High |  |   | Low 
|--------------------------------------------------- | - | ---- |  | - | ----
|2008 Fiscal Year                                    |   |      |  |   |     
|First Quarter   April 1 - June 30, 2007             | $ | 6.08 |  | $ | 4.30
|Second Quarter   July 1 - September 29, 2007        | $ | 5.50 |  | $ | 3.20
|Third Quarter   September 30 - December 29, 2007    | $ | 3.73 |  | $ | 2.30
|Fourth Quarter   December 30, 2007 - March 31, 2008 | $ | 3.90 |  | $ | 2.68
|                                                    |   |      |  |   |     
|2009 Fiscal Year                                    |   |      |  |   |     
|First Quarter   April 1 - June 28, 2008             | $ | 4.37 |  | $ | 3.00
|Second Quarter   June 29 - September 27, 2008       | $ | 3.99 |  | $ | 2.84
|Third Quarter   September 28 - December 27, 2008    | $ | 3.40 |  | $ | 1.40
|Fourth Quarter   December 28, 2008 - March 31, 2009 | $ | 2.96 |  | $ | 1.76

EQUITY COMPENSATION PLAN INFORMATION

The following is a summary of the shares reserved for
issuance pursuant to outstanding options, rights or warrants granted under our equity compensation plans as of March 31, 2009:

|Plan Category                                                |  | Number ofsecurities to beissued uponexercise ofoutstandingoptions, warrantsand rightsColumn A |  |   | Weighted-average exerciseprice ofoutstandingoptions, warrantsand rightsColumn B |  | Number of securitiesremaining availablefor future issuanceunder equitycompensation plans(excluding securitiesreflected inColumn A)Column C
|------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------- |  | - | ------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans approved by security holders (1&2) |  | 1,814,563                                                                                     |  | $ | 4.87                                                                            |  | 2,225,978                                                                                                                                 
|Equity compensation plans not approved by security holders   |  | -                                                                                             |  |   | -                                                                               |  | -                                                                                                                                         
|Total                                                        |  | 1,814,563                                                                                     |  | $ | 4.87                                                                            |  | 2,225,978                                                                                                                                 

_____________

(1)	The ZiLOG 2002 Omnibus Stock Incentive Plan was originally approved under the terms of our plan of
reorganization on May 13, 2002. 
   (2)	The ZiLOG 2004 Omnibus Stock Incentive Plan was approved by stockholders on February 12, 2004 and the amended ZiLOG 2004
Omnibus Stock Incentive Plan was approved by stockholder of September 6, 2007.

As of March 31, 2009, we had approximately 29 holders of record of our common stock. We have not paid any
dividends and currently intend to retain any future earnings for investment in our business.

26

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PERFORMANCE MEASUREMENT COMPARISON

The following graph shows the change in our cumulative total stockholder return for the period from December 31, 2004
until the end of fiscal 2009, based upon the market price of our common stock, compared with: (i) the
cumulative total return on the Nasdaq Composite Index and (ii) the Philadelphia Stock Exchange Semiconductor Sector Index. The graph
assumes a total initial investment of $100 as of December 31, 2004, and shows a "Total Return" that assumes reinvestment of dividends,
if any, and is based on market capitalization at the beginning of each period. The performance on the following graph is not necessarily
indicative of future stock price performance.





The performance graph above shall not be deemed "filed" for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") or otherwise subject to the liabilities under that Section and shall not be
deemed to be incorporated by reference into any filing of ZiLOG under the Securities Act of 1933, as amended or the Exchange Act.

27

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ITEM 6.	SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data set forth below should be read in conjunction with the section
entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," our consolidated financial
statements and the notes to those statements appearing elsewhere in this Form 10-K. The consolidated statement of operations data for the
fiscal years ended March 31, 2009, March 31, 2008 and March 31, 2007, and the consolidated balance sheet data as of March 31, 2009 and March
31, 2008 are derived from our respective consolidated financial statements included elsewhere in this Form 10-K, which have been audited by
Armanino McKenna LLP, an independent registered public accounting firm.

Effective December 29, 2005, we changed our fiscal year end from December 31 to March 31. Our interim results
are based on fiscal quarters of approximately thirteen weeks in duration ending on the closest Saturday to each calendar quarter end, with the
exception of the last quarter, which ends on March 31 beginning in fiscal 2006.  The operating results for any interim period are not necessarily
indicative of results for any subsequent period or the full fiscal year.

As a result of the sale of the universal remote control and secured transaction processor businesses to Maxim and UEI in February 2009
and in accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long Lived
Assets", the assets and liabilities, results of operations and cash flows related to the sale businesses, have been classified as
discontinued operations in the consolidated financial statements for all periods presented through the date of the sale.  Cash flows associated
with the discontinued operations have been segregated in the consolidated statements of cash flows as separate line items within operating,
investing and financing activities.  As a result, our historical financial statements have been restated to exclude assets, liabilities and results of
operations and cash flows related to the discontinued operations. Restatement of these balances may make reconciliation or reference to
previously filed financial statements difficult.

28

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|                                                                        |  | Twelve Months Ended
|----------------------------------------------------------------------- |  | -------------------
|                                                                        |  | Mar. 31,           
|(In thousands, except per share data)                                   |  | 2009               
|Consolidated Statements of Operations Data:                             |  |                    
|                                                                        |  |                    
|Net sales                                                               |  | $36,157            
|Cost of sales                                                           |  | 21,815             
|Gross margin                                                            |  | 14,342             
|Gross margin percent of sales                                           |  | 39.7%              
|                                                                        |  |                    
|Operating expenses:                                                     |  |                    
|Research and development                                                |  | 6,265              
|Selling, general and administrative                                     |  | 19,353             
|Special charges, credits and reorganization items(1), net               |  | 6,318              
|Amortization of intangible assets                                       |  | 801                
|Total operating expenses                                                |  | 32,737             
|Operating loss from continuing operations                               |  | (18,395)           
|                                                                        |  |                    
|Other income (expense):                                                 |  |                    
|Interest income                                                         |  | 188                
|Interest expense                                                        |  | (40)               
|Other income (expense), net                                             |  | 378                
|Total other income (expense)                                            |  | 526                
|Loss from continuing operations before provision for income taxes       |  | (17,869)           
|Provision for income taxes                                              |  | 181                
|Net loss from continuing operations                                     |  | (18,050)           
|Net profit (loss) from discontinued operations                          |  | (372)              
|Gain from sale of discontinued operations, net of tax                   |  | 21,606             
|Net income (loss)                                                       |  | $3,184             
|                                                                        |  |                    
|Basic and diluted net loss per share - continuing operations            |  | ($1.06)            
|Basic and diluted net income (loss) per share - discontinued operations |  | (0.02)             
|Basic and diluted gain on sale of discontinued operations per share     |  | 1.27               
|Basic and diluted net income (loss) per share                           |  | $0.19              
|                                                                        |  |                    
|Weighted-average shares, basic (2)                                      |  | 17,031             
|Weighted-average shares, diluted (2)                                    |  | 17,114             

(1)	Special charges, credits and reorganization items
consist of asset impairments, restructuring charges, net reimbursement of MOD III sustaining and maintenance costs and debt restructuring
fees in all periods presented. 
(2)      Share data has been restated for a 1 for 2 reverse split effected in 2004.

|                                  |  | Mar. 31, | Mar. 31, |  | Mar. 31, |  | Mar. 31, |  | Dec. 31,
|--------------------------------- |  | -------- | -------- |  | -------- |  | -------- |  | --------
|(In thousands)                    |  | 2009     | 2008     |  | 2007     |  | 2006     |  | 2004    
|Consolidated Balance Sheets Data: |  |          |          |  |          |  |          |  |         
|Cash and cash equivalents         |  | $32,230  | $16,625  |  | $19,390  |  | $26,954  |  | $37,678 
|Long term investments             |  | $1,100   | $1,925   |  | -        |  | -        |  | -       
|Working capital                   |  | $26,827  | $14,355  |  | $21,901  |  | $24,603  |  | $41,711 
|Total assets                      |  | $51,652  | $47,840  |  | $55,803  |  | $71,630  |  | $98,073 
|Current liabilities               |  | $18,088  | $19,443  |  | $19,407  |  | $23,875  |  | $24,844 
|Total liabilities                 |  | $20,026  | $20,961  |  | $21,056  |  | $29,773  |  | $34,083 
|Stockholders' equity              |  | $31,626  | $26,879  |  | $34,747  |  | $41,857  |  | $63,990 

29

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ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Some of the statements under this heading may constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors
including those set forth in the section entitled "Risk Factors" and in other sections of this Form 10-K.

The following is management's discussion and analysis of financial condition and results of operations of the
Company and its subsidiaries for the fiscal years ended March 31, 2009, March 31, 2008 and March 31, 2007. This discussion and analysis
should be read in conjunction with the section entitled "Selected Consolidated Financial Data" and the consolidated financial
statements and notes thereto included elsewhere herein. Management's discussion and analysis provides information concerning our business
environment, consolidated results of operations and liquidity and capital resources.

We prepare and release quarterly unaudited financial statements prepared in accordance with generally
accepted accounting principles or GAAP. We present EBITDA amounts to reflect non-GAAP measure of liquidity. EBITDA reflects our Earnings
Before Interest, Taxes, Depreciation and Amortization. We believe the disclosure of such information helps investors more meaningfully
evaluate our liquidity position by the elimination of non-cash related items, such as depreciation and amortization. We believe our investor base
regularly uses EBITDA as a measure of the liquidity of our business.  Our management uses EBITDA as a supplement to cash flow from
operations as a way to assess the cash generated from our business available for capital expenditures and debt service.  However, we
recommend that investors carefully review the GAAP financial information included as part of our Quarterly Reports on Form 10-Q, our annual
reports on Form 10-K and our quarterly earnings release, compare GAAP financial information with the non-GAAP financial results disclosed in
our quarterly earnings releases and investor calls, and read the associated reconciliation.

Effective December 29, 2005, we changed our fiscal year end from December 31 to March 31. Our interim
results are based on fiscal quarters of thirteen weeks in duration ending on the last Saturday of each calendar quarter with the exception of the
last quarter, which ends on March 31 beginning in fiscal 2006.   The operating results for any interim period are not necessarily indicative
of results for any subsequent period or the full fiscal year.

Overview

Founded in 1973, we are a global supplier of 8-bit micrologic semiconductor devices. We design, develop and
market various families of devices in this market segment. Using proprietary technology that we have developed over our 30-year operating
history, we provide semiconductor integrated circuit devices that our customers design into their end products. Our devices often include related
application software and typically combine a microprocessor with memory and various peripheral functions on a single device. Our products
enable a broad range of consumer and industrial electronics manufacturers to control the functions and performance of their products. For
example, some typical applications include devices that control the speed of a motor, security systems and battery chargers. In addition to our
micrologic devices, we sell other integrated circuit devices that have a wide variety of uses, including the processing and transmission of
information for communications and consumer electronics products. These devices include serial communication controllers, modems, IrDA
transceivers, TV display controllers and personal computer peripheral controllers. Historically, we performed wafer fabrication foundry services
for third parties, which were terminated in 2004.

During 2000, we began to experience declining sales. During the first half of calendar year 2001, James M.
Thorburn joined the Company as Chief Executive Officer ("CEO") and Chairman of the Board of Directors to restructure our
operations, financials and product portfolio with the goals of: i) eliminating the high interest debt that we had at that time, ii) positioning the
Company for growth, iii) transferring and outsourcing manufacturing to third party suppliers and partners and iv) returning the Company to
profitability. In 2002, we completed our recapitalization whereby we eliminated the debt and established the MOD III special purpose subsidiary
as a result of our voluntary pre-packaged plan of reorganization under Chapter 11 of the United States Bankruptcy Code.  In 2002 and 2004 we
closed our wafer manufacturing facilities in Nampa, Idaho and completed the transfer of wafer production to third party suppliers in the U.S. and
Taiwan. In 2004, we issued stock, raised approximately $24.4 million in capital and registered our common stock to trade on the Nasdaq under
the ticker symbol "ZILG".  In August 2006, Mr. Thorburn resigned his position as CEO and Chairman of the Board of Directors.

30

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In January 2007, under the leadership of our current CEO, Darin Billerbeck, we completed a comprehensive strategic plan update. One of
the key actions resulting from this plan update was the decision to consolidate our engineering activities in order to better concentrate our core
competencies and improve our product development cycle time while reducing our overall research and development spending. Our business
model is structured around our fabless manufacturing approach and our market focus will be on those opportunities were we can best leverage
our technology.  We will continue to service the 8 -bit markets where more complexity and greater value can be obtained by the customer. We
are a trusted supplier of application specific, embedded system-on-chip (SoC) solutions for the industrial and consumer markets. From its roots
as an award-winning architect in the microprocessor and microcontroller industry, we have evolved to become a leader in providing customized
embedded solutions including silicon, SoCs, single board computers, application specific software stacks and development tools that allow
embedded designers quick time to market in areas such as energy management, monitoring and metering and motion detection.

During fiscal 2009, we experienced a significant reduction in sales reflecting lower demand for product and the global worldwide
recession.  Following a review of our strategy in light of an anticipated continuation of contraction in the market place, on February 18,
2009, we sold our universal remote control and secured transaction processor businesses to Maxim and UEI for approximately $31
million in cash including $3.1 million that is held in escrow to satisfy any losses incurred by Maxim or UEI that may result from inaccuracies in
our representations and warranties in the acquisition agreement or our failure to fulfill certain obligations in the
acquisition agreement.  The escrow is scheduled to be released 50% after 6 months and 100% after 12 months.  A gain on the sale of $21.6
million was recorded.  In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long Lived Assets", the assets and liabilities, results of operations and cash flows related to the sale businesses, have been classified as
discontinued operations in the consolidated financial statements for all periods presented through the date of the sale.  Cash flows associated
with the discontinued operations have been segregated in the consolidated statements of cash flows as separate line items within operating,
investing and financing activities.  As a result, our historical financial statements have been restated to exclude assets, liabilities and results of
operations and cash flows related to the discontinued operations.
Restatement of these balances may make reconciliation or reference to previously filed financial statements difficult.

Stock Repurchase Programs

On April 17, 2003, our Board of Directors approved the 2003 stock repurchase program under which we could
repurchase up to 500,000 shares of our outstanding common stock at market value.

On July 29, 2004, our Board of Directors approved the 2004 stock repurchase program under which we could repurchase
up to $5.0 million in market value of our outstanding shares of common stock. Pursuant to this program, during 2004 we purchased 572,100
shares of our common stock at a net aggregate cost of $4.4 million.

Other stock repurchases were approved by the Board of Directors and include; 1) the repurchase of 92,735 shares of common stock
from a former officer in 2004 at a fair market purchase price of $6.20 per share in consideration for the repayment of loans payable to us
totaling $0.6 million; 2) the repurchase of 17,389 shares from former employees during fiscal 2006, as consideration for the repayment of
loans payable to us totaling less than $0.1 million; and 3) the repurchase of 73,151 shares during fiscal 2008 from our Chief Financial Officer
Perry J. Grace, as consideration for the repayment of loans payable to us totaling less than $0.3 million. Additionally, during fiscal 2009, the
Company repurchased 23,313 shares of common stock from its former Chief Technical Officer, Norm Sheridan and 23,261 shares of
common stock from its Chief Financial Officer, Perry Grace having a combined value of approximately $0.1 million to cover withholding
taxes in connection with the release of vested shares of common stock.

As of March 31, 2009, other stock repurchases totaled 229,849 shares and total stock repurchases under all plans were 1,207,113 with a
net aggregate cost of $7.5 million as summarized below:

|                             |  |  | Treasury Shares Outstanding
|---------------------------- |  |  | ---------------------------
|                             |  |  | Mar. 31,                   
|                             |  |  | 2009                       
|2003 Repurchase Program      |  |  | 405,164                    
|2004 Repurchase Program      |  |  | 572,100                    
|Other Repurchases            |  |  | 229,849                    
|Ending Balance               |  |  | 1,207,113                  
|                             |  |  |                            
|Net aggregate cost  ($000's) |  |  | $       7,563              

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Critical Accounting Policies and Estimates

We believe our critical accounting policies are as follows:

- estimating sales returns and allowances;
- estimating allowance for doubtful accounts;
- estimating write-downs of excess and obsolete inventories;
- asset impairments;
- stock-based compensation and,
- income taxes and deferred tax estimates.

A brief description of each of these policies is set forth below.

On an on-going basis, we evaluate our estimates, including those related to sales returns, allowance for doubtful
accounts, inventory write-downs and asset impairments. We base our estimates on historical trends and various other assumptions that we
believe to be reasonable at the time the estimates are made. Actual results could differ from those estimates.

Estimating Sales Returns and Allowances

Our net sales to direct customers consist of gross product sales reduced by expected future sales returns and
price allowances. To estimate sales returns and price allowances, we analyze historical returns and allowance activity to establish a baseline
reserve level. We then evaluate whether there are any underlying product quality or other customer specific issues that require additional
specific reserves above the baseline level. Because the reserve for sales returns and price allowances is based on our judgments and
estimates, our reserves may not be adequate to cover actual sales returns and price allowances. If our reserves are not adequate, our net sales
and accounts receivable could be materially adversely affected.

Our net sales to distributors that have rights of return and/or price protection allowances on unsold merchandise
held by them are deferred until such products are resold by the distributors to end users of our devices. At the time that we recognize distributor
re-sales as revenue, we record a reserve for estimated price adjustments that the distributors will reclaim from us on the merchandise they
resold to end users. These reserves are recorded as a reduction to our net sales and a reduction to our accounts receivable. To estimate this
distributor price adjustment reserve, we analyze our historical price adjustment payments, price adjustments taken by distributors but not yet
processed by us and pending price adjustments that have been authorized by us but have not yet been claimed by our distributors. Because our
distributor allowance reserve is based upon our judgments and estimates, such reserves may not be adequate to cover actual distributor price
allowances. If our reserves are not adequate, our net sales and accounts receivable could be materially adversely affected.

Estimating Allowance for Doubtful Accounts

We maintain an allowance for losses we may incur as a result of our customers' inability to make required
payments. Any increase in the allowance results in a corresponding increase in our selling, general and administrative expenses. In establishing
this allowance, and then evaluating the adequacy of the allowance for doubtful accounts, we consider the aging of our accounts receivable,
historical bad debts, customer concentrations, customer credit-worthiness and, to a lesser extent, current economic trends and changes in our
customer payment terms. Historically, we have not experienced material bad debt write-offs. If the financial condition of one or more of our
customers unexpectedly deteriorates, resulting in their inability to make payments, or if we otherwise underestimate the losses we will incur as a
result of our customers' inability to pay us, we could be required to increase our allowance for doubtful accounts which, could materially
adversely affect our operating results.

Estimating Write-Downs of Excess and Obsolete Inventories

Each inventory component, excluding raw materials, is assessed for excess or obsolescence by using an
algorithm that we have established. This algorithm is based on historical trends, demand forecasts and inventory age. We review the result of
this algorithm and generally reserve work-in-process inventories based upon aging and finished goods inventory quantities in excess of our
current backlog or historical demand. In addition to analyzing the results of our reserve algorithm calculations,

32

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we also review known exposures,
market conditions and other relevant factors to determine whether our inventory reserves are appropriate based on our best estimates.
Reserves for excess and obsolete inventories are reflected as a reduction to inventory values in the accompanying consolidated balance
sheets, and an increase in cost of sales in the accompanying consolidated statements of operations. If actual market conditions or customer
demand patterns are less favorable than, or inconsistent with our assumptions, we may be required to take further write-downs of our inventory
value, which could materially adversely impact our cost of sales and operating results.

Asset Impairments

We apply the provisions of SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" and SFAS 142, "Goodwill and Other Intangible Assets." We evaluate long-lived assets for possible impairment
whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which
could trigger an impairment review include the following:

- significant changes in the manner of our use of the acquired assets;
- decrease in our market value below our stockholder's equity book value;
- significant changes in the strategy for our overall business;
- significant negative industry or economic trends; and
- periods of operating or cash flow losses.

When we determine that the carrying value of long-lived assets may not be recoverable based upon the
existence of one or more of the above indicators of impairment, and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying value, the carrying value of the assets are reduced to their estimated fair value. The estimated fair value is usually
determined based on an estimate of discounted future cash flows. Asset impairments are recorded as a reduction in the asset value in our
consolidated balance sheets and as special charges in our consolidated statements of operations.

The intangible assets created by the adoption of fresh-start accounting on our emergence from bankruptcy in
2002, consist of existing technology and brand name, as well as excess enterprise value, or goodwill. The existing technology and brand name
are being amortized based on a pattern-of-use method in proportion to the forecast discounted cash flows from such assets. The goodwill is not
subject to amortization.

We evaluate existing technology and brand name whenever events and circumstances indicate that their fair
value may be less than their carrying value. Additionally, goodwill is tested for impairment at least annually and more often if events and
circumstances indicate that its fair value may be less than its carrying value. We performed the annual impairment test for goodwill in the fourth
quarter of fiscal 2009, and we normally perform this test in the fourth quarter of each fiscal year unless the existence of triggering events
indicates that an earlier review should be performed.

Adjustments to record impairment of long-lived assets or intangible assets could have a material adverse impact
on our financial condition and results of operations in the period or periods in which such impairment is identified.

Stock-Based Compensation

Effective April 1, 2006, the Company adopted Statement of
Financial Standard No. 123,

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Accounting for Income Taxes

As part of the process of preparing our consolidated financial statements we are required to estimate our taxes in each of the
jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary
differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These differences result in
deferred tax assets and liabilities, which are included in our unaudited condensed consolidated balance sheets. We must then assess the
likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we
must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must record
an expense within the tax provision included in the condensed consolidated statements of operations.

Management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation
allowance recorded against our net deferred tax assets. We have established a full valuation allowance against our deferred tax assets at
March 31, 2009 based upon our determination that it is more likely than not that all of the deferred tax assets may not be realized in the
foreseeable future due to historical operating losses. The net operating losses and research and development tax credit carryovers that make
up the vast majority of the deferred tax asset will expire at various dates through the year 2024, with the exception of the California tax credit
which can be carried forward indefinitely. Going forward, we will assess the continued need for the valuation allowance. After we have
demonstrated profitability for a period of time and begin utilizing a significant portion of the deferred tax assets, we may reverse the valuation
allowance, likely resulting in a significant benefit to the statement of operations in some future period. At this time, we cannot reasonably
estimate when this reversal might occur, if at all.

Reporting Segments

We conduct our business in one reportable segment to reflect the manner in which our chief operating decision-
maker allocates resources and assesses the performance of our business. For convenience and ease of reference, we disclose net sales by
region and by channel.

Period Comparisons

Effective December 29, 2005, we changed our fiscal year end from December 31 to March 31. Our interim results
are based on fiscal quarters of approximately thirteen weeks in duration ending on the closest Saturday to each calendar quarter end, with the
exception of the last quarter, which ends on March 31 beginning in fiscal 2006.

Results of Operations

Our net sales by region and by channel are summarized in dollars for each period indicated, as follows (in
thousands):

|                       |  |   | Years Ended
|---------------------- |  | - | -----------
|                       |  |   | Mar. 31,   
|                       |  |   | 2009       
|Net sales by region:   |  |   |            
|Americas               |  | $ | 14,288     
|Asia (including Japan) |  |   | 15,079     
|Europe                 |  |   | 6,790      
|Net sales              |  | $ | 36,157     
|                       |  |   |            
|Net sales by channel:  |  |   |            
|Direct                 |  | $ | 7,507      
|Distribution           |  |   | 28,650     
|Net sales              |  | $ | 36,157     

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Other Key Indices

Other key indices relevant in understanding our business and financial performance of our continuing operations
include the following metrics:

|                                   |  | As of Mar. 31, | As of Mar. 31, | As of Mar. 31,
|---------------------------------- |  | -------------- | -------------- | --------------
|                                   |  | 2009           | 2008           | 2007          
|Days sales outstanding             |  | 17             | 18             | 22            
|Net sales to inventory ratio       |  | 9              | 6              | 7             
|Weeks of inventory at distributors |  | 10             | 8              | 10            
|Current ratio                      |  | 2.5            | 1.7            | 2.0           

We calculate each of these key metrics based on annual results of operations data and balance sheets data as of
the end of the period indicated. Each of these key metrics is described below.

Days sales outstanding ("DSOs"), is a common metric used to analyze how quickly our customers pay
us. This metric is influenced largely by the timing of our customer billings and collections. DSOs for continuing operations were 17 days at
March 31, 2009, 18 days at March 31, 2008 and 22 days at March 31, 2007. Our DSOs reflect a high mix of distribution sales and royalty
revenue that generally tend to pay faster than the average of our direct customers.

Net sales to inventory ratio is a metric we use to analyze how quickly our investment in inventories is recovered
by our sales. This metric may not be comparable to those other companies use to analyze inventory and is not the same as a typical inventory
turns ratio. Our net sales to inventory ratio for continuing operations increased from March 31, 2008 to March 31, 2009, on lower sales, at 9
times annual sales, reflecting relatively lower inventories in relationship to lower sales. The increase is reflective of shorter lead times from our
suppliers and tight inventory management.

Weeks of inventory at distributors measures the level of inventories on hand at our distributors available for sale
to their end customers, and as such, is relative to the level of sales we record for distribution sales. We do not recognize revenue on shipments
to distributors who have rights of return and/or price protection on unsold merchandise held by them until our distributors resell our products to
their end customers. We generally target 10 to 13 weeks of inventory in the distribution channel to allow these distributors to react to market
demand and buffer their cycle time as they reorder new product from us and await delivery. As of March 31, 2009, our distributor inventory
levels were at 10 weeks and were within our target range.

Current ratio represents current assets divided by current liabilities and is commonly used to assess a company's
liquidity. The Company uses this ratio to make spending determinations on discretionary items.

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Comparison of Financial Results

Results of Operations from Continuing Operations for the Year Ended March 31, 2009 as compared to the Year ended March 31,
2008.

|                                       |  | Years Ended
|-------------------------------------- |  | -----------
|                                       |  |            
|                                       |  |            
|Net sales                              |  | $          
|Cost of sales                          |  |            
|Gross margin                           |  |            
|Percent of sales                       |  |            
|                                       |  |            
|Operating expenses:                    |  |            
|Research and development               |  |            
|Selling, general and administrative    |  |            
|Special charges and credits            |  |            
|Amortization of intangible assets      |  |            
|Total operating expenses               |  |            
|                                       |  |            
|Operating loss                         |  |            
|                                       |  |            
|Total other income (expense), net      |  |            
|Loss before provision for income taxes |  |            
|Provision for income taxes             |  |            
|Net loss from continuing operations    |  | $          

Net Sales

Net sales were $36.2 million for the fiscal year ended March 31, 2009, as compared to net sales of $44.6 million for the fiscal year
ended March 31, 2008.

Our net sales declined 19% during the year ended March 31, 2009, reflecting the impact of the recessionary trends in the worldwide
economy that affected the demand for our products both regionally and within market applications including consumer and industrial type
products.

Gross Margin

Cost of sales primarily represents manufacturing costs relating to wafer fabrication, package assembly, product testing operations
and logistics costs. Cost of sales fluctuates, depending on materials and services prices from our vendors, manufacturing productivity, product
mix, equipment utilization and depreciation. Gross margin on continuing operations was 40% of net sales for the fiscal year ended March 31, 2009,
compared to gross margin of 44% for the fiscal year ended March 31, 2008. During the fiscal year ended March 31, 2009, our gross margin decrease was
primarily the result of a lower mix of our higher margin traditional 8-bit classic products and associated manufacturing variances from lower
volumes. This was partially offset by improved operating efficiencies related to the completion of our production test outsourcing and other cost
reduction activities.

We have focused on manufacturing cost controls, yield enhancements and price management and have continued to consolidate and
streamline our manufacturing and support activities. We operate with a fully fabless model and outsource all of our wafer manufacturing needs
from foundries in the United States and Taiwan. We have the flexibility to use lower geometry fab processes from our suppliers for design,
allowing us to reduce the physical size of our flash products, which has allowed us to improve our gross margins on these specific products over
time. We have continued to multi-source our product assembly and test activities with several Asian suppliers to enhance our supply source
flexibility and obtain continued competitive vendor pricing.

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Research and Development Expenses

Research and development expenses were $6.3 million and $8.1 million for the fiscal years ended March 31, 2009 and
March 31, 2008, respectively. Research and development spending for the fiscal year ended March 31, 2009 is lower compared to the fiscal year ended
March 31, 2008 due to savings associated with our worldwide headcount reductions during the fiscal fourth quarter of 2009 and the  completion
of certain product development activities. Our design resources are focused on servicing the segments of the 8-bit markets where more
complexity and greater value can be obtained from our solutions by the customer.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $19.3 million for the fiscal years ended March 31, 2009 and March
31, 2008, respectively. General sales, marketing and general and administrative expenses decreased as we continued to streamline our global
support activities and reduce our general support costs, offset by increased stock compensation expenses. Stock compensation expense
increased reflecting the fiscal 2009 incentive compensation plan. The fiscal 2009 incentive plan awarded restricted stock versus cash awards for
certain employees based on performance goal achievement for the first half of fiscal 2009.  There were no plan payouts or awards for the fiscal
2009 second half.  The selling, general and administrative expenses for the fiscal years ended March 31, 2008 included a credit of $0.7 million related
to the reversal of stock compensation expense due to the cancellation of certain previously expensed stock options and stock awards.

Special Charges and Credits

Special charges and credits in fiscal 2009, fiscal 2008 and fiscal 2007 were as follows (in thousands):

|                                                   |   | Years Ended
|-------------------------------------------------- | - | -----------
|                                                   |   | Mar. 31,   
|                                                   |   | 2009       
|Asset impairments:                                 |   |            
|Impairment of intangible assets                    | $ | 1,727      
|Write-off of property, plant, equipment            |   |            
|and other assets                                   |   | 1,504      
|                                                   |   |            
|Restructuring of operations:                       |   |            
|Reorganization, severance and termination benefits |   | 3,188      
|Defined benefit plan refund and other              |   | (101)      
|MOD II sustaining and other selling costs          |   | -          
|Total special charges and credits                  | $ | 6,318      

The following table details the beginning accrual balance as of March 31, 2007 and the accrued special charges
for the fiscal years ended March 31, 2008 and March 31, 2009 (in thousands):

|                              |  |   | Severance   |  |  |   |         |  |   |        
|----------------------------- |  | - | ----------- |  |  | - | ------- |  | - | -------
|                              |  |   | and         |  |  |   | MOD II  |  |   |        
|                              |  |   | Termination |  |  |   | Closure |  |   |        
|                              |  |   | Benefits    |  |  |   | Costs   |  |   | Total  
|Balance at March 31, 2007     |  | $ | 1,215       |  |  | $ | -       |  | $ | 1,215  
|Provisions to special charges |  |   | 1,726       |  |  |   | 248     |  |   | 1,974  
|Cash payments                 |  |   | (2,452)     |  |  |   | (248)   |  |   | (2,700)
|Balance at March 31, 2008     |  |   | 489         |  |  |   | -       |  |   | 489    
|Provisions to special charges |  |   | 2,160       |  |  |   | -       |  |   | 2,160  
|Cash payments                 |  |   | (2,011)     |  |  |   | -       |  |   | (2,011)
|Balance at March 31, 2009     |  | $ | 638         |  |  | $ | -       |  | $ | 638    

Special charges and credits totaled $6.3 million for the fiscal year ended March 31, 2009 and $2.0 million for the fiscal year ended March 31, 2008.

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Fiscal 2009 Activities

Associated with our continued focus to reduce costs and streamline our activities, we completed our plan to outsource our
test production operations formerly performed in our Philippines facility to third parties, completed a worldwide workforce reduction including
consolidation and elimination of certain office sites, began the outsource of certain IT functions and hardware facilities to third parties and
consolidated our Headquarters functions onto one floor of our San Jose facility. During fiscal 2009, we incurred $3.1 million of reorganization,
severance and termination costs including $1.1 million associated with our test outsource, $1.6 million for our worldwide workforce reduction,
and $0.4 million of severance and other costs related to certain office closures and consolidations. We also recorded special charges totaling
$1.5 million, including $0.8 million of lease costs, leasehold improvements and obsolete equipment associated with our San Jose headquarters
consolidation and $0.7 million related to facilities, hardware and software costs for our consolidation activities and IT outsource plan.

Additionally, we incurred an impairment charge of $1.7 million relating to certain intangible assets originally created by

the adoption of fresh-start accounting on our emergence from bankruptcy in 2002.  Consistent with SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" and SFAS 142, "Goodwill and Other Intangible Assets", we annually review the
carrying values of our goodwill and intangible assets to determine if portions of the carrying value may be impaired.  Based upon our analysis,
the carrying value of our goodwill of $2.2 million on March 31, 2009, was not impaired.  Based upon relevant factors including the current
economic conditions and the sale of a significant portion of our business in February 2009, the analysis of discounted future cash flows
indicated the impairment of the carrying value of our intangible assets as of March 31, 2009.

Fiscal 2008 Activities

As part of our ongoing efforts to reduce costs and streamline activities, in November 2007, we initiated a plan to outsource our test
production operations previously performed in our Philippines facility to third parties which was completed in September 2008. We
also reorganized certain of our sales offices and relocated our corporate headquarters to a new facility in San Jose, California. During fiscal
2008, we incurred $1.3 million of severance, benefits related costs, transition, conversion and equipment costs related to our test outsourcing
activity and other reorganization costs including the relocation to our new corporate headquarters facility, $0.9 million for severance, benefits
and other costs related to our research and development site consolidation activities, $0.3 million of period expenses were incurred to sustain
the dormant MOD II facility until it was sold in May 2007 for a net sales price of $3.1 million, partially offset by $0.5 million credit primarily
representing a refund received from our Philippines defined benefit plan.

Stock-Based Compensation

During fiscal 2009, we recognized $1.3 million of stock-based compensation expense, as compared to $0.7
million during fiscal 2008. Our stock-based compensation expense is primarily related to the award of restricted stock and stock options to
certain executives and employees.  We implemented a fiscal 2009 incentive compensation plan that awarded certain employees using restricted
stock instead of cash.  The actual incentive awards included in our stock compensation expense related to first half fiscal 2009 performance.  A
credit of $0.7 million was taken in fiscal 2008 stock-based compensation expense for previously expensed stock based compensation related to
certain terminated employees. Stock-based compensation expense for employee stock awards was measured on the award date and is being
recognized over the vesting period of these awards. This non-cash stock-based compensation expense is included in our cost of sales,
research and development and selling, general and administrative expenses.

Amortization of Intangible Assets

We have adopted the provisions of SFAS 142, "Goodwill and Other Intangible Assets" under which
goodwill and
intangible assets with indefinite lives are not amortized, but are reviewed annually or more frequently if impairment indicators arise.
Separable intangible assets that are deemed to have defined lives will continue to be amortized over their useful lives. In connection with our
fresh-start reporting, separable intangible assets based on independent valuations were created with deemed defined lives. These intangible
assets are being amortized utilizing the pattern-of-use method over their estimated useful lives of 3 to 7 years for current technology and ten
years for brand name. We evaluate existing technology and brand name whenever events and circumstances indicate that their fair value may
be less than their carrying value and, if appropriate, record an impairment charge. Additionally, goodwill is tested for impairment at least
annually and more often if events and circumstances indicate that its fair value may be less than its carrying value. We performed an annual
impairment test for goodwill at March 31, 2009, and no impairment charge against the carrying value was indicated. Further, based upon

38

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relevant factors including the current economic conditions and the sale of a significant portion of our business in February 2009, an analysis of
estimates and associated discounted future cash flows indicated the impairment of the carrying value of our intangible assets as of March 31,
2009.  As a result the company incurred an impairment charge of $1.7 million in fiscal 2009.

The amortization expense for intangible assets in fiscal 2009 excluding the impairment charge, was $0.8 million
as compared to $1.0 million in fiscal 2008. Amortization expense, excluding the impairment charge, was recorded on a consistent basis with the
amounts determined in May 2002.

Interest Income and Interest Expense

Interest income was $0.19 million and $0.8 million for the fiscal years ended March 31, 2009 and March 31, 2008,
respectively.  Interest income was earned on our short term investment portfolio invested in U.S Treasury money market funds and auction rate
securities at an average rate of 1.05% in fiscal 2009. In fiscal 2008, interest income was earned on our short term investment portfolio at an
average rate of 4.6%.

Interest expense for fiscal 2009 was $0.04 million related to existing short term debt.  There was no interest expense in fiscal 2008.

Other Income/ Expense

There was $0.4 million of other income in fiscal 2009 as compared to $0.3 million of other expense in fiscal 2008.
Other income and expense includes currency translation gains and losses and other miscellaneous items.

Income Taxes

For the fiscal years ended March 31, 2009 and March 31, 2008, our income tax provision for continuing operations was $0.2 million and $0.9
million, respectively.  For the fiscal year ended March 31, 2009, our income tax provision primarily provides for taxes in our profitable foreign
jurisdictions.  For the fiscal year ended March 31, 2008, our income tax provision reflects the amortization of deferred charges, which were fully
amortized as of March 31, 2008, provisions for taxes in certain profitable foreign jurisdictions and the release of a 2003 tax reserve on which the
statute of limitation expired during the quarter ended September 29, 2007.   We have operated at a loss for U.S. tax purposes and we provide
for income tax expense in foreign jurisdictions where the foreign subsidiaries operations generate profits that are taxable.

Deferred tax assets have been recorded net of valuation allowances. A valuation allowance is required to be recorded if in management's
judgment, and based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
 Based on available evidence, we have concluded that a valuation allowance is necessary and have reduced our net deferred tax assets
to the extent of our deferred tax liabilities.

39

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Results of Operations from Continuing Operations for the Year Ended March 31, 2008 as compared to the Year ended
March 31, 2007.

|                                          |  | Years Ended
|----------------------------------------- |  | -----------
|                                          |  |            
|                                          |  |            
|Net sales                                 |  | $          
|Cost of sales                             |  |            
|Gross margin                              |  |            
|Percent of sales                          |  |            
|                                          |  |            
|Operating expenses:                       |  |            
|Research and development                  |  |            
|Selling, general and administrative       |  |            
|Special charges and credits               |  |            
|Amortization of intangible assets         |  |            
|Total operating expenses                  |  |            
|                                          |  |            
|Operating loss from continuing operations |  |            
|                                          |  |            
|Total other income (expense), net         |  |            
|Loss before provision for income taxes    |  |            
|Provision for income taxes                |  |            
|Net loss from continuing operations       |  | $          

Net Sales

Net sales were $44.6 million for the fiscal year ended March 31, 2008, as compared to net sales of $58.0 million for the fiscal year
ended March 31, 2007.

Sales of our 8-bit products decreased in 2008, reflecting a decline in demand for certain consumer, security and telecommunications
applications and lower distribution resales into broad based general purpose market including consumer and industrial market applications.
Compared to year ago levels, we experienced a reduction in sales of certain security applications reflecting what we believe is the impact of a
slow down in the U.S. economy as it relates to the housing market and lower overall housing starts.

Gross Margin

Cost of sales primarily represents manufacturing costs relating to wafer fabrication, package assembly, product testing operations
and logistics costs. Cost of sales fluctuates, depending on materials and services prices from our vendors, manufacturing productivity, product
mix, equipment utilization and depreciation. Gross margin was 44% of net sales for the fiscal year ended March 31, 2008, compared to gross margin
of 49% for the fiscal year ended March 31, 2007. During the fiscal year ended March 31, 2008, our gross margin decrease was primarily the result of a
lower mix of our higher margin 8-bit classic products and associated manufacturing variances from lower volumes primarily in the first half of
fiscal 2008. This was partially offset by improved operating efficiencies and yields as well as reductions in wafer costs for certain of our
embedded flash products.

We have focused on manufacturing cost controls, yield enhancements and price management and have
continued to consolidate and streamline our manufacturing and support activities. We operate with a fully fabless model and outsource all of our
wafer manufacturing needs from foundries in the United States and Taiwan. We have the flexibility to use lower geometry fab processes from
our suppliers for design, allowing us to reduce the physical size of our flash products, which has allowed us to improve our gross margins on
these products. We have continued to multi-source our product assembly activities with several Asian suppliers to enhance our supply source
flexibility and obtain continued competitive vendor pricing.

40

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Research and Development Expenses

Research and development expenses were $8.1 million and $12.5 million for the fiscal years ended March 31, 2008
and March 31, 2007, respectively. Research and development spending for the fiscal year ended March 31, 2008 was lower compared to the fiscal year
ended March 31, 2007 due to savings from our engineering site consolidation efforts and the completion of certain new product development
activities.

In March 2007, we initiated actions to consolidate our research and development activities from 4 sites to 2 sites by closing our Seattle,
Washington and Shanghai, China design centers. Although we have taken these actions to consolidate our research and development activities
which are designed to reduce our overall spending, our research and development efforts were, and continue to be, primarily directed towards
the development of core micrologic architectures and the associated design tools.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased to $19.3 million for the fiscal year ended March 31, 2008 down
from $22.0 million for the fiscal year ended March 31, 2007. Both sales and marketing and general and administrative costs decreased as we
continue to streamline our global support activities thereby reducing our general support costs. Selling, general and administrative expenses for
the fiscal year ended March 31, 2008 included a credit of $0.7 million for the reversal of stock compensation expense related to the cancellation of
certain previously expensed stock options and restricted stock awards.

Special Charges and Credits

Special charges and credits totaled $2.0 million for the fiscal year ended March 31, 2008 and $2.5 million for the fiscal year ended March 31, 2007.

Fiscal 2008 Activities

As part of our ongoing efforts to reduce costs and streamline activities, in November 2007, we initiated a plan to outsource our test
production operations previously performed in our Philippines facility to third parties which was expected to be completed by September 2008.
We also reorganized certain of our sales offices and relocated our corporate headquarters to a new facility in San Jose, California. During fiscal
2008, we incurred $1.3 million of severance, benefits related costs, transition, conversion and equipment costs related to our test outsourcing
activity and other reorganization costs including the relocation to our new corporate headquarters facility, $0.9 million for severance, benefits
and other costs related to our research and development site consolidation activities, $0.3 million of period expenses were incurred to sustain
the dormant MOD II facility until it was sold in May 2007 for a net sales price of $3.1 million, partially offset by $0.5 million credit primarily
representing a refund received from our Philippines defined benefit plan.

Fiscal 2007 Activities

As part of the our ongoing efforts to reduce costs and streamline activities, in March 2007, we initiated a plan to
consolidate certain research and development activities and transfer certain of these activities from our Shanghai, China and Seattle,
Washington facilities to our San Jose, California and Meridian, Idaho facilities. During fiscal 2007, we incurred $1.0 million of severance and
benefits costs related to this activity, which

Stock-Based Compensation

During fiscal 2008, we recognized $0.7 million of stock-based compensation expense, as compared to $1.3
million during fiscal 2007. Our stock-based compensation expense is primarily related to the award of restricted stock and stock options to
certain executives and employees including a credit of $0.7 million in fiscal 2008 for previously expensed stock based compensation related to
terminated employees. Stock-based compensation expense for employee stock awards was measured

41

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on the award date and is being
recognized over the vesting period of these awards. This non-cash stock-based compensation expense is included in our cost of sales,
research and development and selling, general and administrative expenses.

Amortization of Intangible Assets

We performed the annual
impairment test for goodwill at March 31, 2008, and no impairment charge was recorded as no impairment of the carrying value was indicated.
The amortization expense for intangible assets in fiscal 2008 was $1.0 million as compared to $1.3 million in
fiscal 2007. Amortization expense was recorded on a consistent basis with the schedules and amounts determined in May 2002.

Other Expense

There was $0.3 million of other expense in fiscal 2008 as compared $19,000 of other expense in fiscal 2007.
Other expense includes income on the sale of certain private company securities, currency translation gains and losses and other
miscellaneous items.

Interest Income and Interest Expense

Interest income was $0.8 million and $1.1 million for the years ended March 31, 2008 and March 31, 2007,
respectively.  Interest income was earned on our short term investment portfolio and auction rate securities at an average rate of 4.6% in fiscal
2008. In fiscal 2007, interest income was earned on our short term investment portfolio at an average rate of 5.0%.

There was no interest expense in fiscal 2008 and fiscal 2007.

Income Taxes

For the fiscal years ended March 31, 2008 and March 31, 2007, our income tax provision for continuing operations
was $0.9 million and $1.5 million, respectively. For the
fiscal year ended March 31, 2008, our income tax provision reflected the amortization of deferred charges, which have been fully amortized as of March
31, 2008, provisions for taxes in certain profitable foreign jurisdictions and the release of a 2003 tax reserve on which the statute of limitation
expired during the quarter ended September 29, 2007. For the fiscal year ended March 31, 2007, our income tax provision reflected the amortization
of deferred charges and provisions for taxes in certain profitable foreign jurisdictions. We have operated at a loss for U.S. tax purposes and we
provide for income tax expense in foreign jurisdictions where the foreign subsidiaries operations generate profits that are taxable.

42

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Quarterly Results (Unaudited)

The following table presents unaudited quarterly financial information for continuing operations for each of the
quarters in the eight-quarter period ended March 31, 2009. The Company's fiscal year-end is March 31 effective with the reporting dates after
our transition period ending on March 27, 2005. Interim results are based on fiscal quarters of thirteen weeks of duration ending on the last
Saturday of each quarter.

|                                          |  |   | For the Quarters Ended               
|----------------------------------------- |  | - | -------------------------------------
|                                          |  |   | Mar. 31,                             
|                                          |  |   | 2009                                 
|                                          |  |   | (in thousands, except per share data)
|Net sales                                 |  | $ | 7,044                                
|Cost of sales                             |  |   | 4,379                                
|Gross margin                              |  |   | 2,665                                
|Gross margin as a percentage of           |  |   |                                      
|net sales                                 |  |   | 38%                                  
|Operating Expenses:                       |  |   |                                      
|Research and development                  |  |   | 1,118                                
|Selling, general and administrative       |  |   | 3,442                                
|Special charges and credits               |  |   | 3,478                                
|Amortization of intangible assets         |  |   | 174                                  
|Operating loss from continuing operations |  |   | (5,547)                              
|Other income (expense):                   |  |   |                                      
|Interest income                           |  |   | 4                                    
|Other, net                                |  |   | (85)                                 
|Loss from continuing operations before    |  |   |                                      
|provision for income taxes                |  |   | (5,628)                              
|Provision for income taxes                |  |   | (2)                                  
|Net loss from continuing operations       |  |   | (5,626)                              
|Net profit (loss) from discontinued       |  |   |                                      
|operations                                |  |   | (3,831)                              
|Gain from sale of discontinued            |  |   |                                      
|operations, net of tax                    |  |   | 21,606                               
|Net income (loss)                         |  | $ | 12,149                               
|                                          |  |   |                                      
|Net loss per share -                      |  |   |                                      
|basic & diluted                           |  | $ | 0.71                                 

Our net sales generally decline in the December quarter reflecting the seasonality of our consumer based product sales and the timing of
distributor inventory management cycles.  The quarters ended March 31, 2009 and December 27, 2008, include the impact of the current global
recession.

Overall, our gross margin as a percentage of net sales generally decreased on a sequential quarterly basis from
the quarter ended June 30, 2007 through the quarter ended March 31, 2009. Gross margins on our embedded flash products have generally
continued to improve although they are significantly lower than gross margin on our traditional classic products.  The quarters ended March 31,
2009 and December 27, 2008 reflect lower volumes of higher margin classic products and generally lower total volumes negatively impacting
overhead absorption and gross margin.

Our research and development expenses have generally decreased sequentially since the quarter ended June
30, 2007 reflecting our savings related to the consolidation of our research and development sites as we continue our product development
efforts to support our embedded flash-based microcontroller devices.

Our selling, general and administrative expenses were generally flat during the quarterly periods of fiscal 2009 as compared with fiscal
2008 primarily due to savings from our cost reduction programs to reduce headcount, savings from the transition and consolidation of certain
administrative functions in our Philippines global support facility, offset by increases in stock compensation expenses in fiscal 2009.

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Our special charges and credits for the eight quarterly periods ended March 31, 2009 are summarized below (in
thousands):

|                                |  |   | For the Quarters Ended
|------------------------------- |  | - | ----------------------
|                                |  |   | Mar. 31,              
|                                |  |   | 2009                  
|                                |  |   | (in thousands)        
|Asset impairments:              |  |   |                       
|Impairment of intangible assets |  | $ | 1,727                 
|Write-off of property, plant,   |  |   |                       
|equipment and other assets      |  |   | 1,504                 
|                                |  |   |                       
|Restructuring of operations:    |  |   |                       
|Reorganization, severance and   |  |   |                       
|termination  benefits           |  |   | 348                   
|Reimbursement from defined      |  |   |                       
|benefit plan and other          |  |   | (101)                 
|MOD II sustaining costs for     |  |   |                       
|post-closure maintenance        |  |   | -                     
|                                |  | $ | 3,478                 

As previously discussed, we have focused our business around our core microcontroller solutions and have
moved to an outsourced model for manufacturing. The special charges over these periods have generally been aligned around this strategy.
Additionally, we have continued to resize our support organizations to a lower sales base in an effort to scale down these organizations and
focus the activities around these strategies.

Liquidity and Capital Resources

At March 31, 2009, we had $0.3 million of bank borrowings outstanding primarily reflecting borrowings under a
short term bank arrangement utilized to finance a three-year license agreement for engineering development software.

At March 31, 2009, we had cash and cash equivalents of $32.2 million, which includes the net cash proceeds we received from the sale of
our remote control and point of sale businesses on February 18, 2009.  In February 2008, tightening of the U.S. liquidity markets caused the
auction rate preferred securities (ARPS) process to default and as such ARPS could not be successfully sold. At that time, we had $3.9 million
invested in ARPS. Our remaining investment in ARPS of $1.1 million has been classified as long term investments at full par value on our
consolidated balance sheet as of March 31, 2009.  At March 31, 2009, our $32.2 million of cash and cash equivalents when combined with our
remaining $1.1 million of ARPS, classified as long term investments, totaled $33.3 million. Cash and cash equivalents including long term
investments were $18.5 million at March 31, 2008 and $19.4 million at March 31, 2007. Cash and cash equivalents consist primarily of cash in
bank accounts and money market accounts, which are readily convertible to cash and have maturities of three months or less at the time of
acquisition.

Cash Flows from Operating Activities

During fiscal 2009, net cash used in continuing operating activities was $15.0 million compared to net cash used of $4.8 million in
fiscal 2008.   The net cash used in operating activities in fiscal 2009 primarily includes our net loss of $18 million, partially offset by non-cash
charges of $6.7 million and changes in certain assets and liabilities of $3.7 million. Non-cash charges include amortization of fresh-start
intangibles of $0.8 million, depreciation and other amortization of $1.8 million, stock-based compensation expense of $1.3 million and
disposition of fixed assets of $1.0 million.  An increase in deferred income of $2.4 million, reduction of net accounts receivable of $0.5 million
and a reduction in inventories of $0.8 million, all provided cash from operating activities and were offset by an increase in prepaid expenses and
other current and non-current assets of $5.1 million and decreases in accounts payable of $1.1 million, accrued compensation and employee
benefits of $1.0 million and accrued and other current and non-current liabilities of $0.1 million.

During fiscal 2008, net cash used in continuing operating activities was $4.8 million as compared to net cash used of $3.2 million in
fiscal 2007.  The net cash used in operating activities in fiscal 2008 primarily includes our net loss of $11.1 million, partially offset by non-cash
charges of $4.1 million and changes in certain assets and liabilities of $2.1 million. Non-cash charges include amortization of fresh-start
intangibles of $1.0 million, depreciation and other amortization of $2.1 million, stock-based compensation expense of $0.7 million and
disposition of fixed assets of $0.3 million.  A reduction in prepaid expenses and other current and non-current assets of $1.9 million, reduction of
net accounts receivable of $1.3
million, reduction in inventories of $0.9 million and an increase in accounts payable of $0.7 million all provided
cash from operating activities and were offset by decreases in deferred income on shipments to distributors of $1.4 million,  accrued and other
current and non-current liabilities of $0.8 million and accrued compensation and employee benefits of $0.4 million.

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During fiscal 2007, net cash used in continuing operating activities was $3.2 million as compared to net cash
used of $6.4 million during fiscal 2006. The net cash used in operating activities in fiscal 2007 primarily includes our net loss of $10.3 million and
changes in certain assets and liabilities of $2.4 million, partially offset by non-cash charges of $9.4 million. Non-cash charges include an
adjustment to goodwill of $4.5 million, amortization of fresh-start intangibles of $1.3 million, depreciation and other amortization of $2.3 million
and stock-based compensation expenses of $1.3 million. A reduction in accounts receivable of $2.4 million, a reduction in prepaid and other
current and non-current assets of $2.2 million, an increase in deferred income of $1.0 million, and an increase in accrued compensation and
employee benefits of $0.2 million all provided cash from operating activities and were offset by an increase in net inventories of $1.8 million and
decreases in accrued and other current and non-current liabilities of $6.2 million and accounts payable of $0.2 million.

Cash Flows from Investing Activities

During fiscal 2009, net cash provided by continuing investing activities of $24.9 million includes proceeds from
the sale of discontinued operations of $24.7 million, redemptions of long term investments of $0.8 million offset by capital expenditures of $0.6
million

During fiscal 2008, net cash used in continuing investing activities includes our investment in auction rate securities
classified as long term investments of $1.9 million, capital expenditures of $1.3 million, offset by net proceeds from assets held for sale of $3.2
million.

During fiscal 2007, net cash used in investing activities was $6.4 million, an increase of $6.1 million as compared to $0.3 million in fiscal
2006. Cash used in investing activities in fiscal 2007, primarily reflects the $2.8 million payment to ZiLOG MOD III, Inc. Series A Preferred
shareholders for the remaining net proceeds upon liquidation of the special purpose entity, capital expenditures of $2.1 million and costs of $1.4
million incurred for the decommissioning of primarily land and buildings of our MOD II facility, which is classified as assets held for sale on the
consolidated balance sheets as of March 31, 2007.  The capital expenditures primarily reflect the addition of test equipment to support
increased demand for our embedded flash products and system and software upgrades to support Oracle systems and applications.

Cash Flows from Financing Activities

Net cash used in continuing financing activities was $0.3 million in fiscal 2009 as compared to cash provided of
$0.9 million in fiscal 2008 and $0.5 million in fiscal 2007.

Net cash used in financing activities of $0.3 million in 2009 primarily includes net payments against short term debt of $1.0 million offset by
$0.7 million of net short term borrowings.

Net cash provided by financing activities of $0.9 million in 2008 includes the receipt of cash under our short term financing arrangement of
$0.7 million, proceeds from the issuance of common stock under employee stock plans of $0.5 million, partially offset by the repurchase of
restricted shares from our Chief Financial Officer as consideration for payment on an outstanding loan plus interest payable to us of $0.3
million.

Net cash provided by financing activities of $0.5 million in 2007 includes proceeds from the issuance of common stock under employee
stock plans.

Off-Balance Sheet Arrangements

As of March 31, 2009, we were not involved in any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC
Regulation S-K.

Non-GAAP EBITDA Measure

The EBITDA figures presented below reflect a non-GAAP measure of our liquidity. EBITDA reflects our net
income adjusted for certain non-cash items, interest and income taxes.

45

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Our reconciliation of net loss to EBITDA and our reconciliation of EBITDA to net cash provided by (used in)
operating activities (the most directly comparable measure of liquidity under generally accepted accounting principles) for each unaudited period
presented, is as follows (in thousands):

|                                                 |  |   | For the Quarters Ended
|------------------------------------------------ |  | - | ----------------------
|                                                 |  |   | Mar. 31,              
|                                                 |  |   | 2009                  
|                                                 |  |   | (in thousands)        
|Reconciliation of net loss                       |  |   |                       
|to EBITDA:                                       |  |   |                       
|Net loss from continuing operations              |  | $ | (5,626)               
|Depreciation and amortization                    |  |   | 452                   
|Interest income                                  |  |   | (4)                   
|Provision for income taxes                       |  |   | (2)                   
|EBITDA from continuing operations                |  | $ | (5,180)               
|                                                 |  |   |                       
|Reconciliation of EBITDA to net                  |  |   |                       
|cash provided by (used in) operating activities:
|                                                 |  |   |                       
|EBITDA                                           |  | $ | (5,180)               
|Interest income                                  |  |   | 4                     
|Provision for income taxes                       |  |   | 2                     
|Stock-based compensation                         |  |   | 198                   
|Loss on disposition of operating assets          |  |   | 986                   
|Changes in operating assets and                  |  |   |                       
|liabilities                                      |  |   | (4,119)               
|                                                 |  |   |                       
|Net cash provided by (used in)                   |  |   |                       
|continuing operating activities                  |  | $ | (8,109)               

As of March 31, 2009, we had no outstanding commitments for capital expenditures. We currently estimate fiscal
2010 capital expenditures will range from 1% - 2% of net sales, and may include purchases of leasehold improvements, internal use software
and other items. Decisions related to how much cash is used for investing are influenced by the expected amount of cash to be provided by
operations. We currently anticipate that available cash and cash equivalents will be adequate to satisfy our cash requirements for at least the
next year.

Contractual Obligations

We lease certain of our facilities and equipment under non-cancelable operating leases, which expire in fiscal
2010 through fiscal 2013. The facility lease agreements generally provide for base rental rates, which increase at various times during the terms
of the leases and also provide for renewal options at fair market rental value. We are also responsible for common area maintenance charges
on certain office leases, which are not included in the table below. These charges are generally less than 10% of base rents. Total operating
lease expenses, including month-to-month rentals, were approximately $1.8 million, $1.9 million and  $2.1 million, for the fiscal years ended March 31,
2009, March 31, 2008 and March 31, 2007 respectively.

We generally make purchases under cancelable purchase orders and do not enter into long-term supply
agreements. Certain of our wafer foundry, assembly, materials suppliers, software vendors and support tool manufacturers require
non-cancelable purchase orders since they often provide products and services tailored to our specifications. Summarized in the table below are
minimum future commitments under operating leases and non-cancelable purchase obligations as of March 31, 2009 (in thousands):

|                            |  |   |       |  |   | Within |  |   |           |  |   |           |  |   |          
|--------------------------- |  | - | ----- |  | - | ------ |  | - | --------- |  | - | --------- |  | - | ---------
|                            |  |   | Total |  |   | 1 year |  |   | 1-3 years |  |   | 3-5 years |  |   | > 5 years
|Operating lease obligations |  | $ | 3,911 |  | $ | 1,225  |  | $ | 2,365     |  | $ | 321       |  | $ | -        
|Purchase obligations        |  |   | 4,375 |  |   | 3,348  |  |   | 1,027     |  |   | -         |  |   | -        
|Total                       |  | $ | 8,286 |  | $ | 4,573  |  | $ | 3,392     |  | $ | 321       |  | $ | -        

From time to time, we have agreed to indemnify and hold harmless certain customers for potential allegations of
infringement of intellectual property rights and patents arising from the use of our products. During the ordinary course of business, in certain
limited circumstances, we have agreed to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally
parties with which we have commercial relations, in connection with certain intellectual
property infringement claims by any third party with
respect to its products and services. We have indemnification arrangements that limit our net contingent obligation to pay for defense costs, if
any, up to a maximum of $2 million. To date,

46

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there have not been any costs incurred in connection with such indemnification arrangements;
therefore, there is no accrual of such amounts at March 31, 2009.

On February 18, 2009, we sold our universal remote control and secured transaction processor businesses to Maxim and
UEI for approximately $31 million in cash including $3.1 million that is held in escrow to satisfy our indemnification obligations for any losses
incurred by Maxim or UEI that may result from inaccuracies in our representations and warranties in the acquisition agreement or our failure to
fulfill certain obligations in the acquisition agreement.  In certain limited circumstances our indemnification obligations are not limited to the
escrow amount. The escrow is scheduled to be released 50% after 6 months and 100% after 12 months.

We disclose indemnification liabilities according to FASB Staff Position FIN45-1, "Accounting for Intellectual Property Infringement
Indemnifications under SFAS Interpretation No. 45." Under SFAS No. 5, "Loss Contingencies," a claim would be accrued when a
loss is probable and the amount can be reasonably estimated. At March 31, 2009, no such amounts are accrued.

Effects of Inflation and Changing Prices

We believe that inflation and/or deflation had a minimal impact on our overall operations during the periods
presented in this report.

Seasonality

Sales typically increase in the June quarter and peak in the September quarter driven by increased holiday
demand from our customers in the home entertainment and consumer products markets, while sales are generally lower in the March and
December quarters as compared to the June and September quarters, although our trends have fluctuated considerably in the most recent
periods. Our sales have been impacted by non-seasonal trends including sales reductions by certain direct customers and declines in our
classic business. Additionally, general world-wide economic, political and regional instabilities have impacted and may impact our results of
operations in any given period.

Recent Accounting Pronouncements

See "Note 1- Description of Business and Summary of Significant Accounting Policies" to our
consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data," for information about recent
accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial
statements.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our short-term investment portfolio.
We do not use derivative financial investments in our investment portfolio. Our primary investment objectives are to preserve capital and
maintain liquidity. These objectives are met by investing in high-quality credit issuances and limiting the amount of credit exposure to any one
company. Our policy is to mitigate default risk by investing in only the highest quality securities and monitoring the credit ratings of such
investments. As of March 31, 2009, our cash and cash equivalents of $32.2 million were invested in bank time deposits and U.S Treasury
money market funds. Cash and cash equivalents combined with long term investments totaled $33.3 million at March 31, 2009.  We have no
significant cash flow exposure due to rate changes for our cash equivalents as these instruments have near term maturities.

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The table below presents principal amounts and related interest rates for our cash equivalents and long term
investments as of March 31, 2009 (dollars in thousands):

|                                     |  |  |  |  |  |  |  |   | Carrying |  |   | Fair  
|------------------------------------ |  |  |  |  |  |  |  | - | -------- |  | - | ------
|As of March 31, 2009                 |  |  |  |  |  |  |  |   | Value    |  |   | Value 
|Cash Equivalents:                    |  |  |  |  |  |  |  |   |          |  |   |       
|Fixed rate                           |  |  |  |  |  |  |  | $ | 32,230   |  | $ | 32,230
|Long Term Investments:               |  |  |  |  |  |  |  |   |          |  |   |       
|Fixed rate - auction rate securities |  |  |  |  |  |  |  |   | 1,100    |  |   | 1,100 
|Average interest rate                |  |  |  |  |  |  |  |   | 1.05%    |  |   |       

At March 31, 2009, we had cash and cash equivalents of $32.2 million. In February 2008, tightening of the U.S. liquidity markets caused the
auction rate process to default and ARPS could not be successfully sold. At that time, we had $3.9 million invested in ARPS. Our remaining
investment in ARPS of $1.1 million has been classified as long term investments at full par value on our consolidated balance sheet as of March
31, 2009.  At March 31, 2009, our $32.2 million of cash and cash equivalents when combined with our remaining $1.1 million of ARPS,
classified as long term investments, totaled $33.3 million. Cash and cash equivalents including long term investments were $18.5 million at
March 31, 2008 and $19.4 million at March 31, 2007. Cash and cash equivalents consist primarily of cash in bank accounts and money market
accounts, which are readily convertible to cash and have maturities of three months or less at the time of acquisition.

Foreign Currency Exchange Risk

We transact business in various foreign countries, but the vast majority of our consolidated net sales and purchases are denominated in
U.S. dollars. Currently, we do not employ a foreign currency hedging program to mitigate our foreign currency exchange risk related to foreign
currency transactions and we believe the risks to date have not been significant. We maintain local currency bank accounts in our international
offices to facilitate payment of local operating costs.

48

---

ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe following financial statements and supplementary data are provided herein:

|                                                                                                  |     
|------------------------------------------------------------------------------------------------- | ----
|                                                                                                  | Page
|                                                                                                  |     
|Report of Armanino McKenna LLP, Independent Registered Public Accounting Firm                     | 50  
|                                                                                                  |     
|Consolidated Balance Sheets as of March 31, 2009 and 2008                                         | 51  
|                                                                                                  |     
|Consolidated Statements of Operations for the years ended March 31, 2009, 2008 and 2007           | 52  
|                                                                                                  |     
|Consolidated Statements of Cash Flows for the years ended March 31, 2009, 2008 and 2007           | 53  
|                                                                                                  |     
|Consolidated Statements of Stockholders' Equity for the years ended March 31, 2009, 2008 and 2007 | 54  
|                                                                                                  |     
|Notes to Consolidated Financial Statements                                                        | 55  

49

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of ZiLOG, Inc.We have audited the accompanying consolidated balance sheets of ZiLOG, Inc. and subsidiaries (the
"Company") as of March 31, 2009 and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended March 31, 2009. Our audits also included the financial statement schedule
for each of the years in the three year period ended March 31, 2009 listed in Item 15a (2). These consolidated financial statements and related
financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal controls over financial
reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over
financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of ZiLOG, Inc. and subsidiaries as of March 31, 2009 and the results of its operations and its cash flows
for each of the three years in the period ended March 31, 2009, in conformity with U.S. generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule for the three years ended March 31, 2009, when considered in relation to the
consolidated financial statements taken as a whole, presents fairly, in all material aspects, the information set forth therein./s/    Armanino McKenna LLPSan Ramon, California 
   June 27, 2009

50ZiLOG, INC.
                  CONSOLIDATED BALANCE SHEETS 
                  (Amounts in thousands, except shares)

Mar. 31,


Mar. 31,2009


2008ASSETSCurrent assets:Cash and cash equivalents

$
32,230

$
16,625Accounts receivable, less allowance for doubtful accounts of $129at March 31, 2009 and $139 at March 31, 2008


1,698


2,203Inventories


4,022


6,908Deferred tax assets


10


263Prepaid expenses and other current assets


5,995


1,266Current assets associated with discontinued operations


960


6,533Total current assets


44,915


33,798Long term investments


1,100


1,925Property, plant and equipment, net


2,347


4,594Goodwill


2,211


2,211Intangible assets, net


-


2,528Other assets


1,079


581Non current assets associated with discontinued operations


-


2,203Total assets

$
51,652

$
47,840LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Short term debt

$
346

$
720Accounts payable


4,368


5,508Income taxes payable


195


513Accrued compensation and employee benefits


1,349


2,312Other accrued liabilities


2,550


2,086Deferred income, net of costs


8,024


5,571Current liabilities associated with discontinued operations


1,256


2,733Total current liabilities


18,088


19,443Deferred tax liabilities


10


263Other non-current liabilities


1,928


1,255Total liabilities


20,026


20,961Stockholders' equity:Common stock, $0.01 par value; 60.0 million shares authorized:17.1 million and 16.9 million shares issued andoutstanding at March 31, 2009 and March 31, 2008, respectively


186


185Additional paid-in capital


127,436


125,838Treasury stock


(7,563)


(7,456)Other comprehensive income


173


102Accumulated deficit


(88,606)


(91,790)Total stockholders' equity


31,626


26,879Total liabilities and stockholders' equity

$
51,652

$
47,840See accompanying notes to the consolidated financial statements.

51ZiLOG, INC.CONSOLIDATED STATEMENTS OF OPERATIONS 
                  (In thousands, except per share data)

Years EndedMar. 31,


Mar. 31,


Mar. 31,2009


2008


2007Net sales

$
36,157

$
44,644

$
58,026Cost of sales


21,815


25,035


29,513Gross margin


14,342


19,609


28,513Gross margin percent of sales


39.7%


43.9%


49.1%Operating expenses:Research and development


6,265


8,143


12,528Selling, general and administrative


19,353


19,279


22,028Special charges and credits


6,318


1,974


2,471Amortization of intangible assets


801


961


1,284Total operating expenses from continuing operations


32,737


30,357


38,311Operating loss from continuing operations


(18,395)


(10,748)


(9,798)Other income (expense):Interest income


188


819


1,112Interest expense


(40)


-


-Other, net


378


(332)


(19)Total other income, net


526


487


1,093Loss from continuing operations before provision for income taxes


(17,869)


(10,261)


(8,705)Provision for income taxes


181


853


1,547Net loss from continuing operations


(18,050)


(11,114)


(10,252)Net income (loss) from discontinued operations


(372)


1,823


1,214Gain from sale of discontinued operations, net of tax


21,606


-


-Net income (loss)

$
3,184

$
(9,291)

$
(9,038)Basic and diluted net loss per share - continuing operations

$
(1.05)

$
(0.66)

$
(0.61)Basic and diluted net income (loss) per share - discontinued operations


(0.02)


0.11


0.07Basic and diluted gain on sale of discontinued operations per share


1.26


-


-Basic and diluted net income (loss) per share

$
0.19

$
(0.55)

$
(0.54)Weighted-average shares, basic


17,031


16,893


16,665Weighted-average shares, diluted


17,114


16,893


16,665See accompanying notes to the consolidated financial statements.


52ZiLOG, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS 
                  (In thousands) 

Years EndedMar.  31,


Mar.  31,


Mar.  31,2009


2008


2007Cash Flows from Operating Activities:Net loss from continuing operations

$
(18,050)

$
(11,114)

$
(10,252)Adjustments to reconcile net loss to net cash provided by(used in) continuing operating activities:Amortization of fresh-start intangible assets


801


961


1,284Depreciation and other amortization


1,832


2,092


2,259Goodwill adjustment


-


-


4,529Disposition of operating assets


1,032


318


8Impairment of intangible assets


1,727


-


-Stock-based compensation


1,324


721


1,347Changes in operating assets and liabilities:Accounts receivable, net


505


1,293


2,436Inventories


759


901


(1,811)Prepaid expenses and other current and non-current assets


(5,147)


1,926


2,216Accounts payable


(1,140)


682


(177)Accrued compensation and employee benefits


(963)


(418)


244Deferred income


2,453


(1,392)


967Accrued and other current and non-current liabilities


(138)


(809)


(6,251)Net cash used in continuing operating activities


(15,005)


(4,839)


(3,201)Net cash provided by discontinued operating activities


6,078


3,220


1,522Cash Flows from Investing Activities:Assets held for sale - vacant property


-


-


(1,437)Payable to ZiLOG Mod III, Inc. Series A Preferred shareholders


-


-


(2,848)Proceeds from sale of assets


-


3,237


-Proceeds from sale of discontinued businesses, net of transaction costs


24,695


-


-Redemption of long term investments


825


-


-Investment in long term securities


-


(1,925)


-Capital expenditures


(626)


(1,299)


(2,097)Net cash provided by (used in) continuing investing activities


24,894


13


(6,382)Net cash used in discontinued investing activities


-


(2,076)


-Cash Flows From Financing Activities:Proceeds from short term debt


660


720


-Payments on short term debt


(1,034)


-


-Repurchase of treasury shares


(54)


(282)


-Proceeds from issuance of common stock under employee stockpurchase and stock option plans


116


470


497Net cash provided by (used in) continuing financing activities


(312)


908


497Net cash provided by (used in) discontinued financing activities


(50)


9


-Net increase (decrease) in cash and cash equivalents


15,605


(2,765)


(7,564)Cash and cash equivalents at beginning of period


16,625


19,390


26,954Cash and cash equivalents at end of period

$
32,230

$
16,625

$
19,390Supplemental Disclosure of Cash Flow Information:Income taxes paid during the period

$
186

$
345

$
340Supplemental Disclosure of Non-Cash Investing andFinancing Activities:Value of shares repurchased through employee loanrepayments

$
-

$
282

$
-See accompanying notes to the consolidated financial statements.

53ZiLOG, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 
                  (In thousands)

Common Stock


Deferred 
Stock
Compen-


Additional
Paid-in


Treasury


Other
Compre-hensive


Accumu-
lated


Total
Stock-
holders'Shares


Amount


sation


Capital


Stock


Income


Deficit


EquityBalance at March 31, 2006

16,585

$
181

$
(566)

$
123,198

$
(7,174)

$
-

$
(73,782)

$
41,857Issuance of common stock under stock option plans

121


1


-


247


-


-


-


248Issuance of restricted shares

91


-


-


-


-


-


-


-Issuance of common stock under employee stock






















-purchase plan

93


1


-


247


-


-


-


248Restricted shares cancelled

(76)


-


-


-


-


-


-


-Stock-based compensation expense

26


-


-


1,432


-


-


-


1,432Adoption of FAS123R

-


-


566


(566)


-


-


-


-Net loss and comprehensive loss

-


-


-


-


-


-


(9,038)


(9,038)Balance at March 31, 2007

16,840


183


-


124,558


(7,174)


-


(82,820)


34,747Adoption of FIN48

-


-


-


-


-


-


321


321Issuance of common stock under stock option plans

101


2


-


311


-


-


-


313Issuance of common stock under employee stock






















-purchase plan

53


-


-


166


-


-


-


166Restricted shares cancelled

(25)


-


-


-


-


-


-


-Repurchase of treasury shares

(73)











(282)


-





(282)Stock-based compensation expense

27


-


-


803


-


-


-


803Comprehensive income:Other comprehensive income - defined benefit plan

-


-


-


-


-


102


-


102Net loss

-


-


-


-


-


-


(9,291)


(9,291)Total comprehensive loss

-


-


-


-


-


-


-


(9,189)Balance at March 31, 2008

16,923


185


-


125,838


(7,456)


102


(91,790)


26,879Adoption of FIN48

-


-


-


-


-


-


-


-Issuance of common stock under stock option plans

5


-


-


15


-


-


-


15Issuance of common stock under employee stock






















-purchase plan

43


1


-


103


-


-


-


104Restricted shares cancelled

(79)


-


-


-


-


-


-


-Restricted shares granted - employee stock incentive plan

235


-


-


549


-


-


-


549Repurchase of treasury shares

(47)


-


-


-


(107)


-


-


(107)Stock-based compensation expense

31


-


-


931


-


-


-


931Comprehensive income:Other comprehensive income - defined benefit plan

-


-


-


-


-


71


-


71Net income

-


-


-


-


-


-


3,184


3,184Total comprehensive income

-


-


-


-


-


-


-


3,255Balance at March 31, 2009

17,111

$
186

$
-

$
127,436

$
(7,563)

$
173

$
(88,606)

$
31,626See accompanying notes to the consolidated financial statements.


54ZiLOG, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 1.	DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESNature of BusinessZiLOG, Inc. ("ZiLOG" or the "Company") is a worldwide supplier of semiconductor
products. The Company designs, develops and markets various families of products in support of the micrologic semiconductor market
segment. Using proprietary technology, ZiLOG provides semiconductor devices that its customers design into their end products. These devices
typically combine a microprocessor memory, and input and output functions on a single device. ZiLOG's micrologic devices enable a broad
range of consumer and industrial electronics manufacturers to control the functions and performance of their products. ZiLOG's other devices
have a wide variety of uses including the processing and transmission of information for data communications, telecommunications and
consumer electronics companies.Basis of PresentationThe consolidated financial statements include the accounts of ZiLOG, Inc. and its subsidiaries. All significant
transactions and accounts between the Company and these subsidiaries have been eliminated in consolidation. Certain reclassifications have
been made to prior-period balances to present the consolidated financial statements on a consistent basis with the current year presentation.
Any reference to year pertains to the fiscal year unless otherwise indicated.Revenue Recognition

Revenue from product sales to direct customers is recognized when evidence of an agreement exists, customers
or their agents receive the product and title transfers, and collection of amounts due is reasonably assured.  Appropriate allowances for returns,
discounts and warranty costs are recorded concurrent with revenue recognition.

The Company also licenses technology for certain of its products and receives payment in the form of royalties.
Typically, licensees provide shipment and royalty information when the payment is remitted, usually 60 days subsequent to the end of the
quarter in which shipments are made. The Company records royalty revenues as net sales when the cash is received from the licensees.

Revenue on shipments to distributors who have rights of return and/or price protection on unsold merchandise
held by them is deferred until products are resold by the distributors to end users. Although revenue is deferred until it is resold, title of products
sold to distributors transfers upon shipment. Accordingly, shipments to distributors are reflected in the consolidated balance sheets as accounts
receivable and a reduction of inventories at the time of shipment. Deferred revenue and the corresponding cost of sales on shipments to
distributors are reflected in the consolidated balance sheets on a net basis as "Deferred income, net of costs."  Refer to Note 7 of
notes to consolidated financial statements for details regarding deferred revenues.

Cash and Cash Equivalents

Cash and cash equivalents consist of bank deposits and money market funds, which are readily convertible to
cash and have maturities of three months or less at the time of acquisition. As of March 31, 2009, the Company had $1.1 million invested in
auction rate preferred securities ("ARPS") which is classified as long term investments at full par value on the consolidated balance
sheet as of March 31, 2009. Refer to Note 13 of notes to consolidated financial statements for details regarding the classification.

Accounts Receivable and Allowances

The Company maintains an allowance for losses it may incur as a result of its customers' inability to make
required payments. Any increase in the allowance results in a corresponding increase in selling, general and administrative expenses. In
establishing this allowance and evaluating the adequacy of the allowance for doubtful accounts, the Company considers the aging of accounts
receivable, historical bad debts, customer concentrations, customer credit-worthiness and, to a lesser extent, current economic trends and
changes in customer payment terms.

The Company's sales to direct customers consist of gross product sales reduced by expected future sales returns and
price allowances. To estimate sales returns and price allowances, the Company analyzes historical returns and allowance activity to establish a
baseline reserve level. The Company then evaluates whether there are any underlying product quality or other customer specific issues that
require additional specific reserves above the baseline level.

55

---



The Company's sales to distributors that have rights of return and/or price protection allowances on unsold
merchandise held by them are deferred until such products are resold by the distributors to end users. At the time that the Company recognizes
distributor re-sales as revenue, it records a reserve for estimated price adjustments that the distributors may reclaim from the Company on the
merchandise they resold to end users. These reserves are recorded as a reduction to sales and a reduction to accounts receivable. To estimate
this distributor price adjustment reserve, the Company analyzes its historical price adjustment payments, price adjustments taken by distributors
but not processed by the Company and pending price adjustments that have been authorized by the Company but have not yet been claimed
by its distributors.

Fair Value of Financial Instruments, Concentration of Credit Risk

Cash and cash equivalents consist primarily of cash in bank accounts and money market accounts. The carrying value of the Company's
financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and current liabilities, approximates fair value
due to their relatively short maturities. Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash
and cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents and investments with high quality
financial institutions.

As of March 31, 2009 the Company held $1.1 million in auction rate preferred securities ("ARPS"). Since February 2008, due to various
factors including the tightening of liquidity in the financial market, regularly held auctions for these ARPS have been unsuccessful. The
Company has received total redemptions totaling $2.8 million or 72% of the original value in February 2008. The collateralized asset value
ranges exceed the value of ARPS held by the Company by 200 to 300 percent. The Company believes the ARPS values are not impaired and
as such, no impairment has been recognized against the investment. If the issuers are unable to successfully close future auctions and their
credit rating continues to deteriorate, the Company may be required to record an impairment charge against the value of its ARPS holdings. (
See Note 13, Fair Value Measurements)

The Company's customer base is located primarily in North America, Europe and Asia. The Company performs ongoing credit evaluations
of its customers' financial condition and limits its exposure to financial losses by limiting the amount of credit extended whenever deemed
necessary and generally does not require collateral. As of March 31, 2009 and March 31, 2008, respectively, there were two customers with net
accounts receivable comprising more than 10% of total net accounts receivable.

Inventories

Inventories are stated at the lower of cost (which approximates actual cost on a first-in, first-out basis) or market.
Provisions, when required, are made to reduce inventory values from cost to their estimated net realizable values. It is possible that estimates of
net realizable value can change in the short-term. Inventory reserves for excess or obsolete inventory are released only upon sale, scrap or
other disposition of reserved inventory. Inventories, net of provisions, consist of the following (in thousands):

|                    |  |   | Mar. 31, |  |   | Mar. 31,
|------------------- |  | - | -------- |  | - | --------
|                    |  |   | 2009     |  |   | 2008    
|Raw materials       |  | $ | 234      |  | $ | 367     
|Work-in-process     |  |   | 2,762    |  |   | 4,858   
|Finished goods      |  |   | 1,026    |  |   | 1,683   
|Total net inventory |  | $ | 4,022    |  | $ | 6,908   

Property, Plant and Equipment and Intangibles

Depreciation is computed using the straight-line method over the estimated economic lives of the assets, which
are generally between three and seven years for machinery and equipment.

Amortization of leasehold improvements is computed using the shorter of the remaining terms of the leases or the
estimated economic lives of the improvements. Depreciation expense relating to continuing operations for property, plant and equipment was
$1.8 million, $2.1 million and $2.3 million for fiscal years ended March 31, 2009, 2008 and 2007, respectively. The Company did not have any assets
leased under capital leases during the periods indicated.

56

---

Property, plant and equipment consist of the following (in thousands):

Mar. 31,


Mar. 31,2009


2008Property, plant and equipment at cost:Land, buildings and leasehold improvements

$
1,914

$
2,632Machinery and equipment


20,480


37,63222,394


40,264Less accumulated depreciation and amortization


(20,047)


(35,669)Net property, plant and equipment

$
2,347

$
4,594We apply the provisions of SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" and SFAS 142,
"Goodwill and Other Intangible Assets." We evaluate long-lived assets for possible impairment whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review
include the following:

significant changes in the manner of our use of the acquired assets;





When we determine that the carrying value of long-lived assets may not be recoverable based upon the
existence of one or more of the above indicators of impairment, and the undiscounted cash flows estimated to be generated by those assets are
less than the asset's carrying value, the carrying value of the assets are reduced to their estimated fair value. The estimated fair value is usually
determined based on an estimate of discounted future cash flows. Asset impairments are recorded as a reduction in the asset value in our
consolidated balance sheets and as special charges in our consolidated statements of operations.

The intangible assets created by the adoption of fresh-start accounting on our emergence from bankruptcy in
2002 consist of existing technology and brand name, as well as excess enterprise value, or goodwill. The existing technology and brand name
are being amortized based on a pattern-of-use method in proportion to the forecast discounted cash flows from such assets. The goodwill is not
subject to amortization.

We evaluate existing technology and brand name whenever events and circumstances indicate that their fair
value may be less than their carrying value. Additionally, goodwill is tested for impairment at least annually and more often if events and
circumstances indicate that its fair value may be less than its carrying value. We performed the annual impairment test for goodwill in the fourth
quarter of 2009, and we perform this test in the fourth quarter of each fiscal year unless the existence of triggering events indicates that an
earlier review should be performed.

Adjustments to record impairment of long-lived assets or intangible assets could have a material adverse impact
on our financial condition and results of operations in the period or periods in which such impairment is identified.

Other Accrued Liabilities

The following table further details "other accrued liabilities" (in thousands):

|                          |  |   | Mar. 31, |  |   | Mar. 31,
|------------------------- |  | - | -------- |  | - | --------
|                          |  |   | 2009     |  |   | 2008    
|Accrued audit fees        |  | $ | 144      |  | $ | 30      
|Accrued legal costs       |  |   | 876      |  |   | 876     
|Accrued special charges   |  |   | 638      |  |   | 489     
|Other                     |  |   | 892      |  |   | 691     
|Other accrued liabilities |  | $ | 2,550    |  | $ | 2,086   

Accrued miscellaneous other includes accrued liabilities relating to facility rent, other taxes and tax preparation
fees, marketing costs and expenses, Board of Directors related expenses as well as other various and sundry items.

57

---



Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of net sales and
expenses during the reporting periods. Significant estimates made in preparing these financial statements include, but are not limited to, excess
and obsolete inventories, tax valuation allowance, allowance for doubtful accounts and sales returns and allowances. Actual results could differ
from those estimates.

Advertising Expenses

The Company accounts for advertising costs as an expense in the period in which they are incurred. Advertising
expenses were $0.3 million, $0.5 million and $0.5 million for the fiscal years ended March 31, 2009, 2008 and 2007, respectively. Advertising costs
are included in selling, general and administrative expenses in the accompanying consolidated statements of operations.

Shipping Costs

Shipping costs are included in cost of sales.

Research and Development Expenses

The Company's policy is to record all research and development expenditures with no future alternative use, as period expenses, when
incurred. Research and development expenditures incurred and expensed were $6.3 million for the fiscal year ended March 31, 2009, $8.1 million for
the fiscal year ended March 31, 2008 and $12.5 million for the fiscal year ended March 31, 2007.

Stock Awards

Effective April 1, 2006, the Company adopted SFAS 123R, which
requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors
including employee stock options, restricted stock awards and employee stock purchases related to the 2004 Employee Stock Purchase Plan
based on estimated fair values. SFAS 123R supersedes the Company's previous accounting under APB 25 and SFAS 123 for periods
beginning in fiscal 2007. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (

Recent Accounting Pronouncements

In April 2009, the FASB issued FSP FAS No. 157-4, "Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly" (FSP FAS 157-4). FSP
FAS 157-4 amends SFAS 157 and provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and
level of activity for the asset or liability have significantly decreased and also includes guidance on identifying circumstances that indicate a
transaction is not orderly for fair value measurements. This FSP will be required to be applied prospectively to all fair value measurements
where appropriate and will be effective for interim and annual periods ending after June 15, 2009. Xilinx will be required to implement the
standard during the first quarter of fiscal 2010, which began on March 29, 2009. The Company is currently evaluating this new FSP but does not
believe that its adoption will have a significant impact on its consolidated financial condition or results of operations.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, "Interim Disclosures About Fair Value of Financial Instruments"
(FSP FAS 107-1 and APB 28-1). FSP FAS 107-1 and APB 28-1 amends SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," (SFAS 107) to require disclosures about fair value of financial instruments not measured on the balance sheet at fair value
in interim financial statements as well as in annual financial statements. Prior to this FSP, fair values for these assets and liabilities were only
disclosed annually. This FSP applies to all financial instruments within the scope of SFAS 107 and requires all entities to disclose the method(s)
and significant assumptions used to estimate
June 15, 2009. FSP FAS

58

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the fair value of financial instruments. This FSP will be effective for interim periods ending after
107-1 and APB 28-1 will result in increased disclosures in the Company's interim periods beginning in the first quarter
of fiscal 2010 our fiscal quarter ending June 28, 2009.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141R). SFAS
No. 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non-controlling interest in the business being acquired and the goodwill acquired. SFAS No.
141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. In
April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That
Arise from Contingencies (FSP FAS 141R-1). FSP FAS 141R-1 amends and clarifies SFAS No. 141R to address application issues on initial
recognition and measurement, subsequent measurement and accounting and disclosure of assets and liabilities arising from contingencies in
a business combination. SFAS No. 141R and FSP FAS 141R-1 are effective for fiscal years beginning after December 15, 2008, and will be
adopted by the Company in the first quarter of fiscal 2010, our fiscal quarter ending June 28, 2009. The Company is currently evaluating this
new FSP but does not believe that its adoption will have a significant impact on its consolidated financial condition or results of
operations.

NOTE 2. GOODWILL AND INTANGIBLE ASSETS

The Company has adopted the provisions of SFAS 142, under which goodwill and intangible assets with
indefinite lives are not amortized, but are reviewed annually or more frequently if impairment indicators arise. In connection with its
reorganization in 2002, the Company recorded a valuation allowance against deferred tax assets and recorded deferred income tax liabilities
and income tax contingencies in accordance with Statement of Financial Accounting Standards No. 5, "Accounting for
Contingencies." Since 2002, the Company has reassessed and updated its deferred income tax liabilities and income tax contingencies
requirements and reduced the associated liabilities as an adjustment to goodwill. In addition, reductions in the valuation allowance that were
established as liabilities on the consolidated balance sheets under fresh-start reporting in 2002 have been recorded as a reduction in the
carrying value of goodwill.  No such reassessments or adjustments were recorded for the fiscal years ended March 31, 2009 and 2008.

Intangible assets established in connection with the Company's fresh-start reporting, separable intangible assets
that are deemed to have defined lives (primarily related to existing technology and brand name), are being amortized utilizing the pattern-of-use
method over estimated useful lives ranging from 3 to 10 years. During the fiscal year ended March 31, 2009 the Company recorded an
impairment charge of $1.7 million.  Changes in the carrying value of separable intangible assets for the periods indicated are as follows (in
thousands):

|                                       |  |   | Existing   |  |   | Brand   |  |   | Total      
|-------------------------------------- |  | - | ---------- |  | - | ------- |  | - | -----------
|                                       |  |   | Technology |  |   | Name    |  |   | Intangibles
|Balance at March 31, 2007              |  | $ | 172        |  | $ | 3,317   |  | $ | 3,489      
|Amortization during fiscal 2008        |  |   | (124)      |  |   | (837)   |  |   | (961)      
|Balance at March 31, 2008              |  |   | 48         |  |   | 2,480   |  |   | 2,528      
|Amortization during fiscal 2009        |  |   | (48)       |  |   | (753)   |  |   | (801)      
|Impairment recorded during fiscal 2009 |  |   | -          |  |   | (1,727) |  |   | (1,727)    
|Balance at March 31, 2009              |  | $ | -          |  | $ | -       |  | $ | -          

Consistent with SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" and SFAS 142, "Goodwill
and Other Intangible Assets", the Company annually reviews the carrying values of its Goodwill and Intangible assets to determine if
portions of the carrying value may be impaired.  Based upon the Company's analysis, the carrying value of its Goodwill of $2.2 million on March
31, 2009, was not impaired as the market value as determined by market capitalization exceeded book value.  Based upon relevant factors
including the current economic conditions and the sale of a significant portion of the Company's business in February 2009, estimates and the
analysis of associated discounted future cash flows indicated the impairment of the carrying value of the intangible assets as of March 31,
2009.

59

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NOTE 3.  DISCONTINUED OPERATIONS

During fiscal 2009 the company experienced a significant reduction in sales reflecting lower demand for product
and the global worldwide recession.  Following a review of its strategy in light of an anticipated continuation of contraction in the market place,
on February 18, 2009, the Company sold its universal remote control and secured transaction processor businesses to Maxim and UEI for
approximately $31 million in cash including $3.1 million that is held in escrow to satisfy any losses incurred by Maxim or UEI that may result
from inaccuracies in the Company's representations and warranties in the acquisition agreement or the Company's failure to fulfill certain
obligations in the acquisition agreement.  The escrow is scheduled to be released 50% after 6 months and 100% after 12 months.  A gain on the
sale of $21.6 million was recorded.  In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long Lived Assets", the assets and liabilities, results of operations and cash flows related to the sale businesses, have
been classified as discontinued operations in the consolidated financial statements for all periods presented through the date of the sale.  Cash
flows associated with the sale businesses have been segregated in the consolidated statements of cash flows as separate line items within
operating, investing and financing activities.
As a result, our historical financial
statements have been restated to exclude assets, liabilities and results of operations and cash flows related to the discontinued operations.
Restatement of these balances may make reconciliation or reference to previously filed financial statements difficult.

The following table summarizes results from discontinued operations (in thousands):

|                                                      |  |   | Years Ended
|----------------------------------------------------- |  | - | -----------
|                                                      |  |   | Mar. 31,   
|                                                      |  |   | 2009       
|Net sales                                             |  | $ | 23,214     
|Cost of sales                                         |  |   | 11,965     
|Gross margin                                          |  |   | 11,249     
|                                                      |  |   |            
|Operating expenses:                                   |  |   |            
|Research and development                              |  |   | 7,870      
|Selling, general and administrative                   |  |   | 511        
|Special charges and credits                           |  |   | 3,123      
|Total operating expenses                              |  |   | 11,504     
|Operating profit (loss)                               |  |   | (255)      
|                                                      |  |   |            
|Total other income (expense), net                     |  |   | 11         
|Net profit (loss) before provision for income taxes   |  |   | (244)      
|Provision for income taxes                            |  |   | 128        
|Net profit (loss) from discontinued operations        |  |   | (372)      
|Gain from sale of discontinued operations, net of tax |  |   | 21,606     
|Net income from discontinued operations               |  | $ | 21,234     

60

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The following table summarizes assets and liabilities classified as discontinued operations (in thousands):

Mar. 31,


Mar. 31,2009


2008ASSETS:Current assets:Accounts receivable, net

$
960

$
4,631Inventories, net


-


1,505Prepaid expenses and other current assets


-


397Total current assets of discontinued operations


960


6,533Property, plant and equipment, net


-


2,009Other assets


-


194Total assets of discontinued operations

$
960

$
8,736LIABILITIES:Current liabilities:Accounts payable

$
1,256

$
2,275Income taxes payable


-


22Accrued compensation and employee benefits


-


132Other accrued liabilities


-


8Deferred income on shipments to distributors, net


-


296Total current liabilities of discontinued operations


1,256


2,733Other non-current tax liabilities


-


-Total liabilities of discontinued operations

$
1,256

$
2,733The following table summarizes the gain on sale of discontinued operations (in thousands):

Mar. 31,2009Gross proceeds from sale

$
31,00010% Escrow


(3,100)Reimbursable items


281Transactions costs


(3,219)Other charges and expenses including taxes


(1,229)Cost of inventory related to the sale


(2,127)Gain (loss) from sale of discontinued operations, net of tax

$
21,606NOTE 4. SPECIAL CHARGES AND CREDITS
Fiscal 2009 Special Charges and Credits Analysis

Associated with the Company's continued focus to reduce costs and streamline its activities, the Company completed its
plan to outsource its test production operations formerly performed in its Philippines facility to third parties, completed a worldwide workforce
reduction including consolidation and elimination of certain office sites, began the outsource of certain IT functions and hardware facilities to
third parties and consolidated its Headquarters functions onto one floor of its San Jose facility. During fiscal 2009, the Company incurred $3.1
million of reorganization, severance and termination costs including $1.1 million associated with its test outsource, $1.6 million for its worldwide
workforce reduction, and $0.4 million of severance and other costs related to certain office closures and consolidations. The Company also
wrote-off certain assets61totaling $1.5 million, including $0.8 million of lease costs, leasehold improvements and obsolete equipment associated
with its San Jose headquarters consolidation and $0.7 million pertaining to facilities, hardware and software costs for its IT outsource plan.

Additionally, the Company incurred an impairment charge of $1.7 million relating to certain intangible assets
originally created by the adoption of fresh-start accounting on its emergence from bankruptcy in 2002.  Consistent with SFAS 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" and SFAS 142, "Goodwill and Other Intangible
Assets", we annually review the carrying values of goodwill and intangible assets to determine if portions of the carrying value may be
impaired.  Based upon its analysis, the carrying value of goodwill of $2.2 million on March 31, 2009, was not impaired as the market value as
determined by market capitalization exceeded book value.  Based upon relevant factors including the current economic conditions and the sale
of a significant portion of its business in February 2009, the analysis of discounted future cash flows indicated the impairment of the remaining
carrying value of its intangible assets as of March 31, 2009. Accordingly the Company recorded charges of $1.7 million to fully impair such
remaining intangible assets.
Fiscal 2008 Special Charges and Credits Analysis
As part of the Company's ongoing efforts to reduce costs and streamline activities, in November 2007, the Company initiated a
plan to outsource its test operations previously performed in its Philippines facility to third parties. The Company also reorganized certain of its
sales offices and relocated its corporate headquarters to a new facility in San Jose, California. During fiscal 2008, the Company incurred $1.3
million of severance, benefits related costs, transition, conversion and equipment costs related to its test outsourcing activity and other
reorganization costs including the relocation to its new corporate headquarters facility, $0.9 million for severance, benefits and other costs
related to its research and development site consolidation activities, $0.3 million of period expenses the Company incurred to sustain the
dormant MOD II facility until it was sold in May 2007 for a net sales price of $3.1 million, partially offset by $0.5 million credit primarily
representing a refund received from its Philippines defined benefit plan.

Fiscal 2007 Special Charges and Credits Analysis

As part of the Company's ongoing efforts to reduce costs and streamline activities, in March 2007, a plan of action was initiated to
consolidate certain research and development activities and transfer certain of these activities from its Shanghai, China and Seattle,
Washington facilities to its San Jose, California and Meridian, Idaho facilities. During fiscal 2007, the Company incurred $1.0 million of
severance and benefits costs related to this restructuring activity, whichhave been recorded as special charges.  Other severance and benefit related costs of $0.8 million the Company incurred as a result of
changes in Company's CEO position including departure costs for the Company's former CEO and  new hire costs for the Company's current
CEO, Darin G. Billerbeck.  In addition, the Company continued to incur period expenses of $0.6 million to sustain the dormant MOD II facility
included in assets held for sale on the consolidated balance sheets as of March 31, 2007. In May 2007, the MOD II facility was sold for a net
sales price of $3.1 million.

Special charges and credits in fiscal 2009, fiscal 2008 and fiscal 2007 were as follows (in thousands):

|                                                   |   | Years Ended
|-------------------------------------------------- | - | -----------
|                                                   |   | Mar. 31,   
|                                                   |   | 2009       
|Asset impairments:                                 |   |            
|Impairment of intangible assets                    | $ | 1,727      
|Write-off of property, plant, equipment            |   |            
|and other assets                                   |   | 1,504      
|                                                   |   |            
|Restructuring of operations:                       |   |            
|Reorganization, severance and termination benefits |   | 3,188      
|Defined benefit plan refund and other              |   | (101)      
|MOD II sustaining and other selling costs          |   | -          
|Total special charges and credits                  | $ | 6,318      

62

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The following table details the beginning balance as of March 31, 2007 and the accrued special charges for the periods indicated (in thousands):

|                              |  |   | Severance   |  |  |   |         |  |   |        
|----------------------------- |  | - | ----------- |  |  | - | ------- |  | - | -------
|                              |  |   | and         |  |  |   | MOD II  |  |   |        
|                              |  |   | Termination |  |  |   | Closure |  |   |        
|                              |  |   | Benefits    |  |  |   | Costs   |  |   | Total  
|Balance at March 31, 2007     |  | $ | 1,215       |  |  | $ | -       |  | $ | 1,215  
|Provisions to special charges |  |   | 1,726       |  |  |   | 248     |  |   | 1,974  
|Cash payments                 |  |   | (2,452)     |  |  |   | (248)   |  |   | (2,700)
|Balance at March 31, 2008     |  |   | 489         |  |  |   | -       |  |   | 489    
|Provisions to special charges |  |   | 2,160       |  |  |   | -       |  |   | 2,160  
|Cash payments                 |  |   | (2,011)     |  |  |   | -       |  |   | (2,011)
|Balance at March 31, 2009     |  | $ | 638         |  |  | $ | -       |  | $ | 638    

NOTE 5. RETIREMENT AND PENSION PLANS

The Company has an employee savings plan that qualifies as a deferred salary arrangement under Section
401(k) of the Internal Revenue Code (the "401(k) Plan"). Under the 401(k) Plan, participating U.S. employees may defer a portion of
their pretax earnings, up to the Internal Revenue Service annual contribution limit. The Company may make matching contributions on behalf of
each participating employee in an amount equal to 100% of the participant's deferral contribution, up to 1.5% of the participant's compensation
on a quarterly basis. The Company may also make additional discretionary contributions to the 401(k) Plan. Matching contributions to the 401(k)
Plan were $0.1 million for fiscal year ended March 31, 2009, $0.2 million for the fiscal year ended March 31, 2008 and $0.1 million for the fiscal year ended March
31, 2007. There were no discretionary contributions made in the fiscal years ended March 31, 2009, 2008 and 2007, respectively.

The Company's Philippines subsidiary maintains a defined benefit pension plan for local employees, which is consistent with local statutes
and practices. As of March 31, 2009, the pension plan was over-funded by approximately $0.3 million which is classified as other assets on the
consolidated balance sheet.  The over-funded position reflects a decline in the number of
employees who are eligible for entitlements under the
plan and the associated projected benefit obligation as compared to the fair value of the plan. During fiscal 2009, $0.2 million is included as a
reclassification adjustment of other comprehensive income as a result of being recognized as a component of net periodic benefit costs for fiscal
2009.

In April 2007, the Company requested, and was granted, certain contribution refunds and in May 2007, the Company received $0.7 million.

The Company adopted SFAS 158, which supersedes the previous accounting under SFAS 87 and its associated literature, for the fiscal
year ended March 31, 2008.

NOTE 6. STOCK-BASED COMPENSATION AND STOCKHOLDERS' EQUITY

Common Stock

The following description summarizes information regarding the Company's capital stock after confirmation of the
plan of reorganization. This information is subject in all respects to applicable provisions of ZiLOG's amended and restated certificate of
incorporation and its amended and restated bylaws.

General

The Company's authorized capital stock consists of 60,000,000 shares of common stock, par value $0.01 per
share. The holders of outstanding shares of common stock are entitled to receive dividends or distributions as may be lawfully declared by the
Board of Directors. In the event that the corporation is dissolved, the holders of common stock would be entitled to share ratably in all assets
that may be available for distribution after the satisfaction of all liabilities. The common stock has no preemptive or conversion rights and is not
subject to redemption. All outstanding shares of common stock are fully paid and non-assessable.

63

---

VotingThe holders of common stock are entitled to one vote per share on all matters submitted to a vote of
stockholders. The holders of a majority of the outstanding shares of common stock must approve all matters brought before the stockholders,
except as otherwise required by the Delaware General Corporation Law and except as otherwise set forth below.Employee Stock Purchase Plan

The 2004 Employee Stock Purchase Plan ("2004 ESPP") was adopted by the Compensation Committee of the
Company's Board of Directors on December 17, 2003 and was approved by the Company's stockholders on February 12, 2004. The 2004
ESPP became effective on May 15, 2004. A total of 1,250,000 shares of common stock have been reserved for issuance under the 2004 ESPP
to eligible employees. These shares will be either authorized as un-issued shares, or shares that have been reacquired by the Company. The
2004 ESPP is implemented by 12-month offering periods, each of which is composed of four 3-month purchase periods. Four overlapping
offering periods generally commence during each fiscal year, with an offering period commencing on the first day of each fiscal quarter. Four
purchase periods also commence during each fiscal year, with a purchase period commencing on the first day of each fiscal quarter. An eligible
employee is granted an option at the start of the offering period to purchase shares of the Company's common stock with payroll deductions
ranging from 1% to 15% of their eligible compensation during the offering period. The payroll deductions are accumulated and, at the end of
each purchase period, applied to purchase shares of common stock, unless the employee withdraws from the 2004 ESPP prior to such date.
The purchase price is the lower of 85% of the fair market value of the common stock either on the first business day of the applicable offering
period or the last business day of the purchase period within such offering period.

At March 31, 2009, a total of 323,054
shares of the Company's common stock have been purchased under the 2004 ESPP, leaving a total of 926,946 shares available to be
purchased.

Stock Repurchase Programs

The Company's Board of Directors approved the 2003 stock repurchase program on April 17, 2003, under which
the Company may repurchase up to 500,000 shares of its outstanding common stock. As of March 31, 2009, the Company had repurchased
405,164 shares of its common stock under this program from employees, former employees and others, pursuant to repurchase rights, at an
aggregate cost of $2.1 million.

The Company's Board of Directors approved the 2004 stock repurchase program on July 29, 2004, pursuant to which the
Company may repurchase up to $5.0 million in market value of its outstanding shares of common stock. As of March 31, 2009, the Company
had repurchased 572,100 shares under this program at an aggregate cost of $4.4 million.

Other stock repurchases were approved by the Board of Directors and include the repurchase of 92,735 shares of common stock from a
former officer in 2004 at a fair market purchase price of $6.20 per share in consideration for the repayment of loans payable to the Company
totaling $0.6 million, the repurchase of 17,389 shares from former employees during fiscal 2006, as consideration for the repayment of loans
payable to the Company totaling less than $0.1 million and the repurchase of 73,151 shares during fiscal 2007 from the Company's Chief
Financial Officer, Perry J. Grace, as consideration for the repayment of loans payable to the Company totaling less than $0.3 million
Additionally, during fiscal 2009, the Company repurchased 23,313 shares of common stock from its former Chief Technical Officer, Norm
Sheridan and 23,261 shares of common stock from its Chief Financial Officer, Perry Grace having a combined value of approximately $0.1
million to cover withholding taxes in connection with the release of vested shares of common stock.

As of March 31, 2009, stock repurchases for the 2003 and 2004 stock repurchase programs and other stock repurchases totaled 1,207,113
shares with a net aggregate cost of $7.6 million, which are comprised of the following:

|                             |  |  | Treasury Shares Outstanding
|---------------------------- |  |  | ---------------------------
|                             |  |  | Mar. 31,                   
|                             |  |  | 2009                       
|2003 Repurchase Program      |  |  | 405,164                    
|2004 Repurchase Program      |  |  | 572,100                    
|Other Repurchases            |  |  | 229,849                    
|Ending Balance               |  |  | 1,207,113                  
|                             |  |  |                            
|Net aggregate cost  ($000's) |  |  | $       7,563              

64

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2004 Omnibus Stock Incentive Plan

The 2004 Omnibus Stock Incentive Plan (the "2004 Plan") was adopted by the Compensation
Committee of the Company's Board of Directors on December 17, 2003 and was approved by the Company's stockholders on February 12,
2004. The 2004 Plan became effective on March 10, 2004. The 2004 Plan was amended and approved by the Company's stockholders on
September 6, 2007. Under the 2004 Plan, the committee may grant incentive stock options ("ISO"), non-statutory stock options
("NSO") or restricted shares to certain employees, officers, directors, advisors and consultants of the Company who may purchase
up to 3,000,000 shares of the Company's common stock, par value $0.01 per share.

In general, the options and shares granted pursuant to the 2004 Plan are exercisable at such time or times, and
subject to such terms and conditions (including the vesting schedule, period of exercisability and expiration date) as the Compensation
Committee determines, in the applicable option agreement. The exercise price per share, payable upon the exercise of an option, is established
by the committee at the time of the grant and is not less than the par value per share of common stock on the date of the grant and in the case
of an ISO generally is not less than 100% of the fair market value per share on the date of grant.

In general, restricted stock awards granted pursuant to the 2004 Plan are subject to the restricted stock award
agreement that reflects the terms, conditions and restrictions related to the restricted stock award. The agreement includes, among other things,
the period during which the restricted stock is subject to forfeiture, the imposition of any performance-based conditions or other restrictions on
the award, if any.

2002 Omnibus Stock Incentive Plan

Common Stock

The 2002 Omnibus Stock Incentive Plan (the "Omnibus Plan") was adopted by the Board of Directors
in May 2002. Subject to adjustment pursuant to the terms of the Omnibus Plan, the Compensation Committee of the Board of Directors may
grant options to purchase up to an aggregate of 1,058,140 shares of the Company's common stock. Stock options granted under the Omnibus
Plan were permitted to be: (1) incentive stock options or non-qualified stock options, or (2) EBITDA-linked options and/or non-EBITDA linked
options. The term of a non-EBITDA-linked option is determined by the Compensation Committee at the time of grant, but will not exceed ten
years.

Each EBITDA-linked option will be immediately exercisable on the date of grant and cliff-vest on the sixth
anniversary from the date of grant. Vesting can be accelerated for EBITDA-linked options based on the "adjusted EBITDA," as
defined, reported for the immediately preceding 12-month period as follows: (1) one-third if the Company reports adjusted EBITDA for the
previous 12 months in excess of $17.2 million, (2) two-thirds if the Company reports adjusted EBITDA for the previous 12 months in excess of
$25.7 million, and (3) 100% if the Company reports adjusted EBITDA for the previous 12 months in excess of $30.0 million.

In accordance with Securities and Exchange Commission guidelines, EBITDA figures presented in this Form 10-K
represent a non-GAAP measure of liquidity. EBITDA reflects net income (loss) adjusted for non-cash items, interest and income taxes.
Management uses a separate "adjusted EBITDA" calculation for purposes of determining certain employees' incentive
compensation and, subject to meeting specified adjusted EBITDA amounts, for accelerating the vesting of EBITDA-linked options. This measure
of adjusted EBITDA was approved as part of the plan of reorganization. Adjusted EBITDA excludes interest, income taxes, effects of changes in
accounting principles and equity adjustments and non-cash charges such as depreciation, amortization, in-process research and development,
and stock-based compensation expense. It also excludes cash and non-cash charges associated with special charges and credits, which
represent operational restructuring charges, including asset write-offs, employee termination costs, and lease termination costs. The differences
between EBITDA and ZiLOG's adjusted EBITDA relate to the following cash-settled reorganization and special items that are added-back in
adjusted EBITDA computations:

- Employee retention bonuses, severance pay and termination benefits;
- Professional fees for debt restructuring;
- Lease termination costs;
- Termination and exit charges; and
- MOD III closure costs.

65

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At March 31, 2009, 167,285 shares of EBITDA-linked options were vested and outstanding (granted, net of cancellations
and exercises) even though the adjusted EBITDA thresholds have not been satisfied. The per share exercise price of shares purchasable under
an EBITDA-linked option is $5.52 and each such option will be exercisable for ten years after the date such option is granted, unless earlier
terminated. In general, non-EBITDA-linked options granted pursuant to the Omnibus Plan will be exercisable at such time or times and subject
to such terms and conditions (including the vesting schedule, period of exercisability and expiration date) as the Compensation Committee
determines, in the applicable award agreements or thereafter. The exercise price per share payable upon the exercise of an option will be
established by the committee, in its sole discretion, at the time of grant.Restricted StockThe Company is permitted to grant up to 1,220,930 restricted shares of common stock under the Omnibus Plan.
The restricted shares granted vest in accordance with the terms stipulated for each individual grant as approved by the Compensation
Committee of the Company's Board of Directors at the time of grant.The Omnibus Plan was amended by the Company's Board of Directors on October 18, 2002, subsequent to the
passing of the Sarbanes-Oxley Act of 2002, and no longer allows the Compensation Committee to make loans available to participants with
respect to certain restricted stock awards for the payment of any federal or state income tax attributable to the restricted stock award.When a holder of restricted shares exercises their right of ownership before the restricted share is vested, the
holder will receive shares of restricted stock equal to the number of shares exercised. If the holder terminates employment or service before the
restrictions on the restricted stock have lapsed, then the Company has the right to repurchase these shares.At March 31, 2009 there were no outstanding loans to officers of the Company.Stock-based CompensationFor the fiscal years ended March 31, 2009, March 31, 2008 and March 31, 2007, respectively, the Company recorded
$1.3 million, $0.7 million and $1.3 million, respectively, of stock-based compensation expense for continuing operations.

Stock based compensation expense, for continuing operations, for the fiscal year ended March 31, 2009 includes the grant of 234,600
shares associated with the first half fiscal 2009 employee incentive plan.  No awards were granted in the second half as incentive goals were
not achieved.  A total of 167,138 shares of restricted stock have been granted for the fiscal 2010 employee incentive plan.  Such shares are
earned by certain employees and restrictions removed only when certain cash generation targets are achieved or on change in control of the
Company.

66Stock Plan ActivityA summary of the Company's stock plan activity for the periods indicated is as follows:

Weighted-Weighted-


AverageShares





Average


Remaining


($000's)Available


Options


Exercise Price


Contractural Term


Aggregatefor Grant


Outstanding


(per share)


(in years)


Intrinsic ValueBalance as of March 31, 2006


1,121,381


1,803,309

$
6.45


8.02


$247

Restricted shares granted


(116,386)


-


0.01Options granted


(777,050)


777,050


4.07Options exercised


-


(122,067)


2.04Options cancelled


672,235


(672,235)


6.88Restricted shares cancelled


75,500


-


0.01Balance as of March 31, 2007


975,680


1,786,057


5.55


7.99


782Approved shares added to plan


1,500,000


-


-Restricted shares granted


(27,114)


-


-Options granted


(761,923)


761,923


3.49Options exercised


-


(100,670)


3.08Options cancelled


364,574


(364,574)


5.73Restricted shares cancelled


24,350


-


-Restricted shares repurchased


73,151


-


-Balance as of March 31, 2008


2,148,718


2,082,736


4.89


7.98


323Approved shares added to plan


-


-


-Restricted shares granted


(265,268)


-


-Options granted


(94,139)


94,139


3.21Options exercised


-


(5,240)


2.70Options cancelled


356,591


(356,591)


4.57Restricted shares cancelled


79,595


-


-Options PP Adj per Valuation Disclosure


481


(481)


4.89Balance as of March 31, 2009


2,225,978


1,814,563

$
4.87


6.15


$    3The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference
between the Company's closing stock price on the last trading day of each respective fiscal year ended March 31, and the exercise price, times
the number of shares) that would have been received from the option holders had all option holders exercised their options on March 31. This
amount changes as the fair market value of the Company's stock fluctuates. There were 5,240 options exercised during the years ended March
31, 2009 with a total intrinsic value of $14 thousand. Total intrinsic value of options vested and expected to vest is approximately $3 thousand
as of March 31, 2009.

The following table summarizes information about stock options outstanding as of March 31, 2009:

Options Outstanding

Options ExercisableWeighted-


Weighted-




Weighted-Average


Average




AverageNumber

Remaining


Exercise




ExerciseRange of Exercise Prices

Shares

Contractual


Price

Shares


Priceper share

Outstanding

Life (in years)


(per share)

Exercisable


(per share)$2.16-$2.85

189,228

6.12

$
2.69

126,907

$
2.69$3.14-$3.15

19,750

9.33


3.14

8,438


3.14$3.16-$3.16

324,663

7.80


3.16

125,168


3.16$3.19-$3.85

215,320

8.11


3.56

131,981


3.52$3.91-$4.29

123,398

6.01


4.07

87,984


4.07$4.31-$4.31

400,000

7.83


4.31

216,667


4.31$4.41-$5.43

71,500

6.10


4.61

49,417


4.63$5.52-$5.52

247,954

1.97


5.52

244,204


5.52$6.20-$12.44

212,600

3.51


11.31

212,600


11.31$13.58-$14.30

10,150

0.23


13.69

10,150


13.69$2.16-$14.30

1,814,563

6.15

$
4.87

1,213,516

$
5.4767Options that were exercisable as of March 31, 2009, 2008 and 2007 were 1,213,516, 724,393 and 625,922, respectively.

Stock-Based Compensation

The Company has a stock-based compensation program that includes non-statutory stock option awards and restricted stock awards
("RSAs").  Stock options are generally time-based, vesting 25% on the first anniversary of the grant-date and monthly thereafter over
four years and expire ten years from the grant-date.

The following table sets forth the total stock-based compensation expense resulting from stock options, restricted stock awards and ESPP
included in the respective expense categories of the Company's consolidated statements of operations (in thousands):

Years EndedMar. 31,


Mar. 31,


Mar. 31,Expense Category


2009


2008


2007Cost of sales

$
137

$
126

$
66Research and development


221


177


205Selling, general and administrative


966


418


1,076$
1,324

$
721

$
1,347No income tax benefit was realized from stock option exercises during the fiscal years ended March 31, 2009, 2008 and 2007. In accordance with
SFAS 123R, the Company presents excess tax benefits from the exercise of stock options, if any, as financing cash flows rather than operating
cash flows.

The weighted-average exercise price of options granted for the fiscal years ended March 31, 2009, 2008 and 2007, were $3.21, $3.49 and $4.07
per share, respectively.

The fair value of stock-based awards was estimated on the date of grant using the Black-Scholes valuation pricing model based on the
following weighted-average assumptions:

Stock OptionsYears EndedMar. 31,


Mar. 31,


Mar. 31,2009


2008


2007Annual average risk-free interest rate


2.6%


3.8%


4.7%Estimated life in years


4.8


5.0


5.0Dividend yield


0.0%


0.0%


0.0%Volatility


51.9%


45.3%


45.9%The fair value of employee stock purchases was estimated using the Black-Scholes valuation pricing model based on the following
weighted-average assumptions:

Employee Stock Purchase PlanYears EndedMar. 31,


Mar. 31,


Mar. 31,2009


2008


2007Risk-free interest rate


2.4%


3.5%


4.8%Estimated life in years


0.7


0.8


0.6Dividend yield


0.0%


0.0%


0.0%Volatility


57.6%


38.6%


50.6%68The Company calculates its expected volatility based on the historical and implied volatility of a peer group of publicly
traded entities as the Company has lacked sufficient historical market data on its common stock commensurate
with its expected term.  The historical volatility is based on the daily closing common stock prices of the peer
group over a period equal to the expected term of the option.  Market-based implied volatility is determined using market data from
actively traded options of the peer group's stock. These options are at-or near-the-money traded options and are at a point in time
as close to the grant of the employee options as reasonably practical and with similar terms to the employee share options, or a remaining
maturity of at least 6 months if no similar terms are available.   The Company does not believe that one estimate is more
reliable than any other and as such uses a 50/50 blend of historic and market-based implied volatility to determine volatility when
calculating incentive stock compensation expense.  Effective April 1, 2009, beginning the Company's 2010 fiscal year, the Company expects to
use its own volatility measures as there will be sufficient trading history to cover the expected term of the Company's option grants.
The computation of expected life is based on a combination of historical and expected exercise patterns. The interest rate for periods
within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant.

The weighted-average exercise price of options granted and the weighted-average fair value of employee stock purchases are as follows:

Years EndedMar. 31,


Mar. 31,


Mar. 31,2009


2008


2007Weighted-average exercise price of options grantedduring the period

$
3.21

$
3.49

$
4.07Weighted-average fair value of employee stock optionsgranted durung the period

$
1.49

$
1.59

$
1.89Weighted-average fair value of employee stockpurchases under employee stock purchase planduring the period

$
0.87

$
0.86

$
0.78As of March 31, 2009, $1.0 million of total unrecognized compensation costs related to stock options are expected to be recognized over a
weighted-average remaining period of 2.1 years.  The total unrecognized compensation costs related to RSAs as of March 31, 2009 of $25,000
are expected to be recognized over a weighted-average remaining period of 0.2 years.
NOTE 7. DEFERRED INCOME

The Company ships products to distributors who, contractually have rights of return and/or price protection on unsold merchandise held
by them. As such, revenue and the associated product costs are deferred until products are resold by the distributors to end users (sell-through
method). Although revenue is deferred until it is resold, title of products sold to distributors transfers upon shipment. Accordingly, shipments to
distributors are reflected in the consolidated balance sheets as accounts receivable and a reduction of inventories at the time of shipment.
Deferred revenue and the corresponding cost of sales on shipments to distributors that are unsold are reflected in the consolidated balance
sheets on a net basis as "Deferred income, net of costs".

On February 18, 2009, the Company sold its universal remote control and secured transactions processor businesses. Of the total
consideration approximately $3.1 million remains in escrow at March 31, 2009 to account for any unexpected post-transaction discrepancies.
The escrow is scheduled to be released 50% after 6 months and 100% after 12 months.  This escrow amount is also included in other current
assets on the consolidated balance sheet at March 31, 2009.

69The following table represents the details of deferred income for the periods indicated (in thousands):

Mar. 31,


Mar. 31,2009


2008Deferred gross income on shipments to distributors

$
7,899

$
8,174Deferred cost associated with shipments to distributors


(2,975)


(2,900)Deferred income on shipments todistributors, net


4,924


5,274Discontinued operations , deferred incomeon shipments to distributors, net


-


297Discontinued operations, deferredincome on escrow


3,100


-Total deferred income, net

$
8,024

$
5,571NOTE 8. SHORT TERM DEBT

During the fiscal year ended March 31, 2008, the Company entered into a short term financing agreement totaling $1.4 million.
Borrowings on the agreement bear interest at a rate per annum equal, at the Company's option, at the Lender's stated prime rate or LIBOR,
plus 1.75%. As of March 31, 2009, the company had $0.3 million of borrowings outstanding and $0.3 million in standby letters of credit,
respectively, issued to vendors. As of March 31, 2008, the Company had $0.7 million of borrowings outstanding under this agreement and $0.3
million of standby letters of credit, respectively, issued to vendors.

NOTE 9.  NET INCOME (LOSS) PER SHARE

The following table presents the calculation of basic and diluted net loss per share of common stock for the periods indicated (in
thousands, except per share data):

Years EndedMar. 31,


Mar. 31,


Mar. 31,2009


2008


2007Net income (loss), as reported

$
3,184

$
(9,291)

$
(9,038)Weighted-average shares, basic


17,031


16,893


16,665Weighted-average shares, diluted


17,114


16,893


16,665Basic and diluted net income (loss) per share

$
0.19

$
(0.55)

$
(0.54)At March 31, 2009, March 31, 2008 and March 31, 2007, options to purchase 1.9 million, 1.6 million and 1.3 million shares of common
stock, respectively, are excluded from the determination of diluted net income (loss) per share, as the effect of such shares is anti-dilutive.


NOTE 10.  INCOME TAXES

The components of income (loss) before provision for income taxes are as follows (in thousands):

Years EndedMar. 31,


Mar. 31,


Mar. 31,2009


2008


2007United States

$
(4,574)

$
(1,152)

$
(2,100)Foreign


8,081


(6,840)


(4,750)Total income (loss) before provision for income taxes

$
3,507

$
(7,992)

$
(6,850)70The provision for income taxes consists of the following (in thousands):

Years EndedMar. 31,


Mar. 31,


Mar. 31,2009


2008


2007FederalCurrent

$
(13)

$
1,069

$
(226)Deferred


-


-


1,760(13)


1,069


1,534ForeignCurrent


322


230


654Total consolidated provision for income taxes

$
309

$
1,299

$
2,188Total provision for income taxes - continuing operations

$
181

$
853

$
1,547Total provision for income taxes - discontinued operations


128


446


641Total consolidated provision for income taxes

$
309

$
1,299

$
2,188The provision for income taxes differs from the amount computed by applying the statutory income tax rate of
34% to income (loss) before taxes. The provision and tax effects of the differences are as follows (in thousands):

Years EndedMar. 31,


Mar. 31,


Mar. 31,2009


2008


2007Computed expected benefit

$
1,196

$
(2,708)

$
(2,329)Foreign taxes


(2,859)


2,614


628Foreign losses (benefited) not benefited


-


-


(93)Deferred tax assets not benefited


1,814


1,278


1,880Amortization of deferred income tax charge


-


1,320


1,760Stock-based compensation not deductible


290


-


488Non-deductible items


145


-


71Other


(277)


(1,205)


(217)Total consolidated provision for income taxes

$
309

$
1,299

$
2,188Total provision for income taxes - continuing operations

$
181

$
853

$
1,547Total provision for income taxes - discontinued operations


128


446


641Total consolidated provision for income taxes

$
309

$
1,299

$
2,18871Deferred income taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets are as follows (in thousands):

Mar. 31,


Mar. 31,2009


2008Deferred tax liabilities:Intangible assets




$
(789)

$
(1,791)Other





(50)


(838)Total deferred tax liabilities





(839)


(2,629)Deferred tax assets:Net operating loss carryforwards





16,722


16,403Accruals and allowances not currently deductible





2,212


3,186Deferred revenue





868


1,219Tax credit carryforwards





785


271Property, plant and equipment





3,084


3,018Total deferred tax assets





23,671


24,097Net deferred tax assets





22,832


21,468Valuation allowance





(22,832)


(21,468)Deferred income taxes




$
-

$
-Balance Sheet Presentation - Deferred Tax Assets & Liabilities:

Mar. 31,


Mar. 31,2009


2008Total deferred tax assets:




$
839

$
2,629Less: non-current portion - deferred tax asset





(829)


(2,366)Net current deferred tax assets




$
10

$
263Total deferred tax liabilities:




$
(839)

$
(2,629)Less: non-current portion - deferred tax liability





829


2,366Net current deferred tax liability




$
(10)

$
(263)A valuation allowance is required to be recorded if in management's judgment, based on available evidence, it is
more likely than not that some portion or all of the deferred tax assets will not be realized.  Based on available evidence, management
has concluded that a valuation allowance is necessary to reduce the net deferred tax asset.  Accordingly, deferred tax assets have been
recognized only to the extent of deferred tax liabilities. The valuation allowance decreased by approximately $1.4 million for the fiscal year ended
March 31, 2009 as compared to the fiscal year ended March 31, 2008. This net decrease was primarily attributable to the increases in certain tax
credits and state and foreign NOLs.

The Company has federal and state net operating loss carry forwards ("NOLs") of $34.5 million and $57.9 million, respectively.
The federal NOLs will begin to expire in 2024 if not utilized, and the state NOLs will begin to expire in 2015, if not utilized.

The Company has federal and state research and development tax credit carry forwards of approximately $2.8 million and $2.2 million,
respectively.  If not utilized, the federal tax credit carry forward will begin to expire in 2025.  The California tax credit can be carried forward
indefinitely.

In November 2005, the FASB issued Staff Position No. FAS 123(R)-3, "Transition Election Related to Accounting for
Tax Effects of Share-Based Payment Awards".  The Company has elected to adopt the alternative transition method provided in the FASB
Staff Position for calculating the tax effects of stock-based compensation pursuant to SFAS 123(R). The alternative transition method includes
simplified methods to establish the beginning balance of the additional paid-in capital pool ("APIC pool") related to the tax effects of
employee stock-based compensation and to determine the subsequent impact72on the APIC pool and Consolidated Statements of Cash Flows of
the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS 123(R).

The Company has elected to track the portion of its federal and state net operating loss carryforwards attributable to
stock option benefits, in a separate memo account pursuant to SFAS 123(R). Therefore, these amounts are no longer included in the Company
gross or net deferred tax assets.  Pursuant to SFAS 123(R), the benefit of these net operating loss carryforwards will only be recorded to equity
when they reduce cash taxes payable.  The amount recorded in the memo account cumulatively as of March 31, 2009 were not material.

The Company adopted the provisions of Financial Standards Accounting Board Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes", an interpretation of FASB Statement No. 109 ("FIN48") effective April 1, 2007.  As of March 31, 2009,
the total amount of unrecognized tax benefits including accumulated interest and penalty was approximately $5.4 million of which $4.6 million
recorded as a deferred tax asset that is fully offset by a valuation allowance and $0.9 million which if recognized, would affect the Company's
effective tax rate. The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of complex global tax
regulations. Management assesses the Company's tax positions in light of legislative, bilateral tax treaty, regulatory and judicial developments in
the countries in which the Company does business.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Balance at April 1, 2008
$5,167Additions based on tax positions related to the current year
28Additions for tax positions of prior years
68Other -  foreign exchange
125Balance at March 31, 2009
$5,388The Company recognizes interest in accordance with Paragraph 15 of FIN48 and recognizes penalties in accordance with
Paragraph 16 of FIN48 which are classified as part of income taxes. The total amount of interest and penalty recognized in the fiscal year ended
March 31, 2009 is $0.1 million and the accumulated amount of interest and penalty recognized as of March 31, 2009 is $0.1 million.

The Company's operations are subject to income and transaction taxes in the United States and in multiple foreign jurisdictions. 
Significant estimates and judgments are required in determining its worldwide provision for income taxes.  Some of these estimates are
based on interpretations of existing tax laws or regulations and as a result the proper amount of tax liability
may be uncertain.

Tax authorities may challenge the allocation of profits between the Company's subsidiaries and may challenge certain tax benefits claimed
on its tax returns, and the Company may not prevail in any such challenge.  If the Company were not to prevail, it could be subject to
higher tax rates or lose certain tax benefit that could result in a higher tax rate.
The Company is subject to taxation in the United States and various states and foreign jurisdictions.  There are no ongoing examinations by
taxing authorities at this time.  The Company's various tax years beginning in 2001 through 2008 remain open in various taxing jurisdictions.
The Company does not anticipate any significant changes to the FIN48 liability for unrecognized tax benefits within one year of this reporting
date of its unrecognized tax benefits.

The Company provides for U.S. income taxes on the earnings of foreign subsidiaries unless they are considered permanently reinvested
outside of the U.S. At March 31, 2009, the cumulative amount of earnings upon which U.S. income tax has not been provided is approximately
$6.9 million as such earnings are considered permanently reinvested. It is not practicable to determine the U.S. income tax liability that would be
payable if such earnings is not reinvested indefinitely.

In connection with its reorganization in 2002, the Company recorded income tax contingencies in accordance with
Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies." These contingencies were attributable to the
Company's reorganization and included contingent liabilities related to the establishment of the MOD III special purpose subsidiary. The
Company reverses the contingent liabilities previously recorded as the statute of limitations expires.  For the fiscal years ended March 31, 2009 and
2008, the Company recorded a reversal of zero and zero, respectively, of these

73

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contingencies from long-term liabilities, with a resulting
reduction in goodwill from $6.7 million as of March 31, 2007, to $2.2 million as of March 31, 2008 and March 31, 2009.

During the fiscal year ended March 31, 2009, the fiscal year ended March 31, 2008 and the fiscal year ended March 31, 2007 the Company's
income tax provision was $0.3 million, $1.3 million and $2.2 million, respectively, which primarily reflects amortization of deferred charges, which
have been fully amortized as of March 31, 2009 and provisions for taxes in certain profitable foreign jurisdictions. The Company provides for
income tax expense in foreign jurisdictions where its foreign subsidiaries operations generate profits that are taxable.  The Company's income
tax expense reflects the estimated annual effective tax rate at that time based on projections of operations.

NOTE 11. COMMITMENTS AND CONTINGENCIES

Some of the Company's leases for facilities and equipment are under non-cancelable operating leases, which
expire in fiscal years 2010

Minimum future lease payments under these non-cancelable operating leases at March 31, 2009 are as follows (in thousands):

|                                                                             |  |   | Operating
|---------------------------------------------------------------------------- |  | - | ---------
|Fiscal Year                                                                  |  |   | Leases   
|2010                                                                         |  | $ | 1,225    
|2011                                                                         |  |   | 1,146    
|2012                                                                         |  |   | 1,219    
|2013                                                                         |  |   | 321      
|Total minimum lease payments                                                 |  | $ | 3,911    
|                                                                             |  |   |          
|There were no non-cancelable operating lease commitments beyond fiscal 2013.

Commitments



The Company generally makes purchases under cancelable purchase orders and does not enter into long-term supply agreements. Certain
of its wafer foundry, assembly, materials suppliers, software vendors and support tool manufacturers require non-cancelable purchase orders
since they often provide products and services tailored to the Company's specifications.

Summarized in the table below are minimum future commitments under operating leases and non-cancelable purchase obligations as of
March 31, 2009 (in thousands):

|                            |  |   |       |  |   | Within |  |   |           |  |   |           |  |   |          
|--------------------------- |  | - | ----- |  | - | ------ |  | - | --------- |  | - | --------- |  | - | ---------
|                            |  |   | Total |  |   | 1 year |  |   | 1-3 years |  |   | 3-5 years |  |   | > 5 years
|Operating lease obligations |  | $ | 3,911 |  | $ | 1,225  |  | $ | 2,365     |  | $ | 321       |  | $ | -        
|Purchase obligations        |  |   | 4,375 |  |   | 3,348  |  |   | 1,027     |  |   | -         |  |   | -        
|Total                       |  | $ | 8,286 |  | $ | 4,573  |  | $ | 3,392     |  | $ | 321       |  | $ | -        

Contingencies

On August 11, 2005, Microchip Technology, Inc. ("Microchip") filed a patent infringement claim
against us in the U.S. District Court of Arizona (case number CV05-2406-PHX-MHM). Microchip alleges that we have infringed, and currently
infringe, its patents numbered 5,847,450, 6,696,316 and 6,483,183. Microchip claims that unspecified products of ours, including the Z8 Encore!
XP 4K Series of products, infringe these patents and is seeking preliminary and permanent injunctive relief, unspecified damages and
costs, including attorneys' fees. We filed a response to the claims on September 15, 2005 generally denying the claims and challenging
the validity of the patents. On January 10, 2006, we filed a request for patent re-examination with the U.S. PTO, which was granted in February
and March 2006 for all 3 patents. On April 11, 2008, we received a notice that all of Microchip's claims under these three patents have been
rejected by the U.S. PTO.  After this favorable ruling, Microchip filed appeal notices in the U.S. PTO in May 2008.  We do not believe it is

74

---



feasible to predict or determine the outcome or resolution of this litigation at this time. We believe we have meritorious defenses and will defend
ourselves against these claims vigorously. We may incur substantial expenses in our defense against these claims. In the event of a
determination adverse to us, we may incur substantial monetary liabilities and be required to change our business practices. Either of these
could have a material adverse effect on our financial position, results of operations and/or cash flows.

The Company is participating in litigation and responding to claims arising in the ordinary course of business.  The Company intends to
defend itself vigorously in these matters.  The Company's management believes that it is unlikely that the outcome of these matters will have a
material adverse effect on the Company's consolidated financial statements, although there can be no assurance in this regard.

From time to time, the Company has agreed to indemnify and hold harmless certain customers for potential allegations of infringement of
intellectual property rights and patents arising from the use of its products. During the ordinary course of business, in certain limited
circumstances, the Company has agreed to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally
parties with which the Company has commercial relations, in connection with certain intellectual property infringement claims by any third-party
with respect to its products and services. The Company has indemnification arrangements that limit its net contingent obligation to pay for
defense costs, if any, up to a maximum of $500,000. To date, there have not been any costs incurred in connection with such indemnification
arrangements; therefore, there is no accrual of such amounts at March 31, 2009. The Company discloses indemnification liabilities
according to FASB Staff Position FIN45-1, "Accounting for Intellectual Property Infringement Indemnifications under SFAS Interpretation
No. 45." Under SFAS No. 5, "Loss Contingencies," a claim would be accrued when a loss is probable and the amount can be
reasonably estimated. At March 31, 2009, no such amounts are accrued.

On February 18, 2009, we sold our universal remote control and secured transaction processor businesses to Maxim and
UEI for approximately $31 million in cash including $3.1 million that is held in escrow to satisfy our indemnification obligations for any losses
incurred by Maxim or UEI that may result from inaccuracies in our representations and warranties in the acquisition agreement or our failure to
fulfill certain obligations in the acquisition agreement.  In certain limited circumstances our indemnification obligations are not limited to the
escrow amount. The escrow is scheduled to be released 50% after 6 months and 100% after 12 months.

NOTE 12. RELATED PARTY TRANSACTIONS

In 2002, the Company entered into employment agreements with each of its then named executive officers. In
June 2002, prior to the issuance of the Sarbanes-Oxley Act, loans were made to certain executive officers and certain other employees and
consultants to pay the income taxes due on the restricted shares of common stock that were granted to them. At March 31, 2009 no loans were
outstanding to executive officers, employees or consultants. At March 31, 2007 total loans outstanding were $0.3 million, and are included in
other assets on the consolidated balance sheets. Each loan recipient pledged the shares of restricted stock as collateral for these loans
pursuant to their stock pledge agreements. All such loans come due five years from the date of issuance and bear interest at 5.5% per annum.

In March 2007, the Company's Executive Vice President of Engineering and Operations, Norman G. Sheridan, paid $72,590 in cash to
satisfy all of his outstanding loans and interest.

In May 2007, a former consultant paid cash to satisfy an outstanding loan payable to the Company in the amount of $55,000 plus
interest.

In September 2007, the Company repurchased 73,151 shares from its Chief Financial Officer, Perry J. Grace to satisfy an outstanding loan
plus interest payable to the Company in the amount of $0.3 million.

NOTE 13. FAIR VALUE MEASUREMENTS

Effective April 1, 2008, the Company adopted SFAS No. 159 "The Fair Value Option for Financial Assets and Financial
Liabilities" ("SFAS No. 159"). The Company did not elect to adopt the fair value option under this pronouncement which
permits entities to choose to measure many financial instruments and certain other items at fair value on a contract by contract basis.

Effective April 1, 2008, the Company adopted SFAS No. 157, "Fair Value Measurements" ("SFAS
No. 157"). In February 2008, the Financial Accounting Standards Board ("FASB") issued Staff Position
No. FAS 157-2, "Effective Date of FASB Statement No. 157," which provides a one-year deferral of the effective date of
SFAS No. 157 for non-financial assets

75

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and non-financial liabilities, except those that are recognized or disclosed in the financial
statements at fair value at least annually. In September 2008, the FASB issued Staff Position No. FAS 157-3, "Determining the Fair Value
of a Financial Asset When the Market for That Asset is Not Active", which clarifies the application of SFAS No. 157 in a market that is not
active.  The Company has adopted the provisions of SFAS No. 157 with respect to its financial assets and liabilities only. SFAS
No. 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and
enhances disclosures about fair value measurements. Fair value is defined under SFAS No. 157 as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS
No. 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value
hierarchy based on the following three levels of inputs, of which the first two are considered observable and the last unobservable, that may be
used to measure fair value:

|•   Level 1 - | Quoted prices in active markets for identical assets or liabilities;                                                                                                                                                                                                                                                                       
|------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|•   Level 2 - | Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted
prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or liabilities; and
|•   Level 3 - | Unobservable inputs that are supported by little or no market activity and that are significant to
the fair value of the assets or liabilities.                                                                                                                                                                                            

In accordance with SFAS 157, the following table represents the Company's fair value hierarchy for its financial assets (cash
equivalents and available for sale investments) as of March 31, 2009 (in thousands):

|                                  | Mar. 31, 2009       
|--------------------------------- | --------------------
|                                  | Fair Value          
|Money market funds                | $              5,986
|Auction rate preferred securities | 1,100               
|Total                             | $              7,086

Since February 2008, due to various factors including the tightening of liquidity in the financial market, regularly held auctions for Auction
Rate Preferred Securities ("ARPS"), have been unsuccessful. Following the failure of these auctions, the Company has received
$2.8 million from redemptions of its ARPS. The remaining ARPS balances of $1.1 million as of March 31, 2009, have been classified as
long-term investments and continue to pay interest pending their redemption or sale.

In determining fair value, the Company uses various valuation techniques, including market and income approaches to value
available-for-sale investments.  The availability of observable inputs can vary from instrument to instrument and to the extent that valuation is based on
inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. The degree of judgment
exercised by the Company's management in determining fair value is greatest for instruments categorized in Level 3. All of the Company's
ARPS have AAA credit ratings, are 100% collateralized and continue to pay interest in accordance with their contractual terms. Additionally, the
collateralized asset
value ranges exceed the value of ARPS held by the Company by 200 to 300 percent. Accordingly, the remaining ARPS
balance of $1.1 million is categorized as Level 2 for fair value measurement under FAS 157 and has been recorded at full par value on the
consolidated balance sheet as of March 31, 2009. The Company currently believes the ARPS values are not impaired and as such, no
impairment has been recognized against the investment. If future auctions fail to materialize and the credit rating of the issuers deteriorates, the
Company may be required to record an impairment charge against the value of its ARPS.

NOTE 14. GEOGRAPHIC AND SEGMENT INFORMATION

Beginning in May 2002, ZiLOG consolidated its business segments into one reportable segment to reflect the
change in the manner in which its chief operating decision maker allocates resources and assesses the performance of the Company's
business. The Company engages primarily in the design, development, manufacture and marketing of semiconductor products. The Company
sells its products to distributors and direct customer accounts including original equipment manufacturers ("OEMs") and original
design manufacturers ("ODMs") in a broad range of market segments. The Company's operations outside the United States consist
of a final test and global support facility in the Philippines and sales and support

76

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and design centers in certain foreign countries. Domestic
operations are responsible for the design, development and the coordination of production planning and shipping to meet worldwide customer
commitments. The Philippine facility is reimbursed in relation to its value added with respect to test operations and other functions performed,
and certain foreign sales offices receive a commission on export sales within their territory. Accordingly, for financial statement purposes, it is
not meaningful to segregate sales or operating profits for the test and foreign sales office operations.

The Company has one broad product category based on product technologies referred to as 8-bit embedded flash and 8-bit classic
products. These products within the Company's one reportable segment and can be summarized as follows:



|Products                                        | Sample Uses                                                                                    
|----------------------------------------------- | -----------------------------------------------------------------------------------------------
|8-bit products include:                         |                                                                                                
|Embedded flash microcontrollers                 | Motor control, low-power controllers                                                           
|Core 8-bit Microcontrollers and Microprocessors | Security systems, battery chargers, industrial controllers, communications products, treadmills
|Serial Communications Controllers               | Telephone switches/PBX                                                                         
|Modems                                          | Satellite TV set-top box, POS card validation                                                  
|IrDA transceivers                               | PDAs, cell phones                                                                              
|TV, PC peripheral and other products            | TV, keyboard, pointing device                                                                  

The following table summarizes the Company's net sales by region and, by channel (in thousands):

|                       |  |   | Years Ended
|---------------------- |  | - | -----------
|                       |  |   | Mar. 31,   
|                       |  |   | 2009       
|Net sales by region:   |  |   |            
|Americas               |  | $ | 14,288     
|Asia (including Japan) |  |   | 15,079     
|Europe                 |  |   | 6,790      
|Net sales              |  | $ | 36,157     
|                       |  |   |            
|Net sales by channel:  |  |   |            
|Direct                 |  | $ | 7,507      
|Distribution           |  |   | 28,650     
|Net sales              |  | $ | 36,157     

77

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Net sales are attributable to the ship-to location of the Company's customers as presented in the following table (in thousands):

|                          |  |   | Years Ended
|------------------------- |  | - | -----------
|                          |  |   | Mar. 31,   
|                          |  |   | 2009       
|United States             |  | $ | 14,168     
|Other Foreign Countries   |  |   | 9          
|Total North America       |  |   | 14,177     
|Hong Kong (including PRC) |  |   | 3,497      
|Singapore                 |  |   | 4,196      
|Germany                   |  |   | 3,273      
|Taiwan                    |  |   | 4,379      
|Korea                     |  |   | 583        
|Other Foreign Countries   |  |   | 6,052      
|Total International       |  | $ | 21,980     
|                          |  |   |            
|Total net sales           |  | $ | 36,157     

The following table shows the location of tangible long-lived assets (in thousands):

|                        |  |   | Mar. 31, |  |   | Mar. 31,
|----------------------- |  | - | -------- |  | - | --------
|                        |  |   | 2009     |  |   | 2008    
|United States           |  | $ | 2,470    |  | $ | 5,885   
|Philippines             |  |   | 447      |  |   | 446     
|Other                   |  |   | 1,609    |  |   | 2,972   
|Total long-lived assets |  | $ | 4,526    |  | $ | 9,303   

Major Customers

For the year ended March 31, 2009, two distributors accounted for approximately 42% and 11% of net sales,
respectively.  For the year ended March 31, 2008, two distributors accounted for approximately 37% and 13% of net sales, respectively.  For the
year ended March 31, 2007, two distributors accounted for approximately 34% and 15% of net sales, respectively.

78

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ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND FINANCIAL DISCLOSURES

There have been no disagreements with our independent registered public accounting firm.

ITEM 9A.	CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures. The Company's management, with the participation of the
Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) as of March 31, 2009. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial
Officer have concluded that, as of March 31, 2009, the Company's disclosure controls and procedures are effective in recording, processing,
summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under
the Exchange Act and are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b)Management's Report on Internal Control Over Financial Reporting. The Company's management is responsible for establishing
and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control
over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles.

The Company's management, including the CEO and CFO, conducted an evaluation of the effectiveness of its internal control over financial
reporting based on the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on the results of this evaluation, the Company's management concluded that its internal control over financial reporting was
effective as of March 31, 2009.

This annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over
financial reporting.  Management's report was not subject to attestation by the company's registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this annual
report.

(c)Internal Control Over Financial Reporting. There have not been any changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2009 that have
materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

ITEM 9B. 	OTHER INFORMATION

None.

79

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PART III

MANAGEMENT

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE REGISTRANT

Executive Officers and Directors

The information required by this item relating to the Company's directors, executive officers and nominees, and compliance with
Section 16(a) of the Securities Exchange Act of 1934, is incorporated by reference from ZiLOG's Proxy Statement for its September 22, 2009
Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2009.

Code of Ethics

We have adopted a Code of Business Conduct and Ethics that applies to our Chief Executive Officer, Chief
Financial Officer and Controller and a Code of Ethics for Chief Executive and Senior Financial Officers. The Code of Business Conduct and
Ethics and the Code of Ethics for the Chief Executive and Senior Financial Officers are available on our website at

If any substantive amendments to either the Code of Business Conduct and Ethics or the Code of Ethics for the Chief Executive and Senior
Financial Officers are made or any waivers are granted, including any implicit waiver, from a provision of either draft to its Chief Executive
Officer, Chief Financial Officer or Controller, the Company will disclose the nature of such amendment or waiver on the Company's website at

ITEM 11.	EXECUTIVE COMPENSATION

Incorporated by reference from ZiLOG's Proxy Statement for its September 22, 2009 Annual Meeting of
Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2009.

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated by reference from ZiLOG's Proxy Statement for its September 22, 2009 Annual Meeting of
Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2009.

ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference from ZiLOG's Proxy Statement for its September 22, 2009 Annual Meeting of
Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2009.

ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES

Incorporated by reference from ZiLOG's Proxy Statement for its September 22, 2009 Annual Meeting of
Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2009.

80

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PART IV

ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)	The following documents are filed as part of this report:

1.	Consolidated Financial Statements and Supplementary Data:



|                                                                                                          |     
|--------------------------------------------------------------------------------------------------------- | ----
|                                                                                                          | Page
|Report of Armanino McKenna LLP, Independent Registered Public Accounting Firm.                            | 50  
|                                                                                                          |     
|Consolidated Balance Sheets as of March 31, 2009 and March 31, 2008                                       | 51  
|                                                                                                          |     
|Consolidated Statements of Operations for the Fiscal Years Ended March 31, 2009, 2008 and 2007.           | 52  
|                                                                                                          |     
|Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 2009, 2008 and 2007.           | 53  
|                                                                                                          |     
|Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended March 31, 2009, 2008 and 2007. | 54  
|                                                                                                          |     
|Notes to Consolidated Financial Statements.                                                               | 55  

2.	Financial Statement Schedule:



|                                              |   
|--------------------------------------------- | --
|Schedule II-Valuation and Qualifying Accounts | 82

All other schedules are omitted because the information required to be set forth therein is not applicable or is
contained in the consolidated financial statements or notes to the consolidated financial statements.

(b)	Exhibits:

The exhibits listed in the accompanying exhibit index are filed or incorporated by reference (as stated therein) as
part of this annual report.

(c)	Financial Statements Schedule:

See Item 15 (a) (2) above.

81

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SCHEDULE II

ZiLOG, INC. 
                  VALUATION AND QUALIFYING ACCOUNTS 
                              (In thousands)

|                                |  |   |            |  |   | Additions    |  |   |            |  |   |          
|------------------------------- |  | - | ---------- |  | - | ------------ |  | - | ---------- |  | - | ---------
|                                |  |   |            |  |   | (Reductions) |  |   |            |  |   |          
|                                |  |   | Balance at |  |   | Charged to   |  |   |            |  |   | Balance  
|                                |  |   | Beginning  |  |   | Costs and    |  |   |            |  |   | at Ending
|                                |  |   | of Period  |  |   | Expenses     |  |   | Deductions |  |   | of Period
|                                |  |   |            |  |   |              |  |   |            |  |   |          
|Year ended March 31, 2009:      |  |   |            |  |   |              |  |   |            |  |   |          
|Allowance for doubtful accounts |  | $ | 133        |  | $ | (4)          |  | $ | -          |  | $ | 129      
|                                |  |   |            |  |   |              |  |   |            |  |   |          
|Year ended March 31, 2008:      |  |   |            |  |   |              |  |   |            |  |   |          
|Allowance for doubtful accounts |  | $ | 132        |  | $ | 6            |  | $ | (5)        |  | $ | 133      
|                                |  |   |            |  |   |              |  |   |            |  |   |          
|Year ended March 31, 2007:      |  |   |            |  |   |              |  |   |            |  |   |          
|Allowance for doubtful accounts |  | $ | 170        |  | $ | (20)         |  | $ | (18)       |  | $ | 132      

82

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SignaturesPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused the report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of June 2009.

ZiLOG, INC.By:
/s/    Darin G. BillerbeckDarin G. Billerbeck
                  President, Chief Executive Officer and Director

Power of Attorney

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes
and appoints Darin Billerbeck and Perry J. Grace, his/her attorneys-in-fact, each with the power of substitution, for him/her in any and all
capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with Exhibits thereto and other documents in connection
therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or substitute or
substitutes may do or cause to be done by virtue hereof.

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

|Signature                                    | Title                                                                              | Date         
|-------------------------------------------- | ---------------------------------------------------------------------------------- | -------------
|/s/    DARING. BILLERBECKDarin G. Billerbeck | President, Chief Executive Officer and Director                                    | June 29, 2009
|                                             |                                                                                    |              
|/s/    PERRYJ. GRACEPerry J. Grace           | Executive Vice President, Chief Financial Officer and Principal Accounting Officer | June 29, 2009
|                                             |                                                                                    |              
|/s/    FEDERICOFAGGINFederico Faggin         | Director                                                                           | June 29, 2009
|                                             |                                                                                    |              
|/s/    RICHARDL. SANQUINIRichard L. Sanquini | Director                                                                           | June 29, 2009
|                                             |                                                                                    |              
|/s/    ROBINA. ABRAMSRobin A. Abrams         | Director                                                                           | June 29, 2009
|                                             |                                                                                    |              
|/s/    DAVIDG. ELKINSDavid G. Elkins         | Director                                                                           | June 29, 2009
|                                             |                                                                                    |              
|/s/    EricSINGEREric. Singer                | Director                                                                           | June 29, 2009

83

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EXHIBIT INDEX

|Exhibit
Number | Description                                                                                                                                 
|-------------- | --------------------------------------------------------------------------------------------------------------------------------------------
|2.1(a)         | Joint Reorganization Plan, as confirmed by order of the U.S. Bankruptcy Court for the Northern District of California, dated April 30, 2002.
|               |                                                                                                                                             
|3.1(h)         | Amended and Restated Certificate of Incorporation of ZiLOG, Inc., as amended and corrected.                                                 
|               |                                                                                                                                             
|3.2(i)         | Amended and Restated Bylaws of ZiLOG, Inc.                                                                                                  
|               |                                                                                                                                             
|3.3(p)         | Amendment to Amended and Restated Bylaws of ZiLOG, Inc.                                                                                     
|               |                                                                                                                                             
|3.4(q)         | Amendment to Amended and Restated Bylaws of ZiLOG, Inc.                                                                                     
|               |                                                                                                                                             
|4.1(f)         | Form of common stock certificate.                                                                                                           
|               |                                                                                                                                             
|4. 2(c)        | Form of Restricted Stock Purchase Agreement.                                                                                                
|               |                                                                                                                                             
|4.3(c)         | Form of Non-Qualified EBITDA-Linked Option Grant Agreement.                                                                                 
|               |                                                                                                                                             
|4.4(t)         | Form of Non-Qualified Non-EBITDA-Linked Option Grant Agreement.                                                                             
|               |                                                                                                                                             
|4.5(u)         | Form of Non-Qualified Option Grant Agreement, Date of Grant (pursuant to the 2004 Omnibus Stock Incentive Plan).                            
|               |                                                                                                                                             
|4.6(u)         | Form of Non-Qualified Option Grant Agreement, Date of Hire (pursuant to the 2004 Omnibus Stock Incentive Plan).                             
|               |                                                                                                                                             
|4.7(u)         | Form of Non-Qualified Option Grant Agreement, Fully Vested Date of Grant (pursuant to the 2004 Omnibus Stock Incentive Plan).               
|               |                                                                                                                                             
|10.2(e)        | Lease, dated as of December 21, 2001, between ZiLOG, Inc. and the Sobrato Group.                                                            
|               |                                                                                                                                             
|10.3(f)        | Distributor Agreement, dated October 23, 2002, between ZiLOG, Inc. and Future Electronics, Inc.                                             
|               |                                                                                                                                             
|10.4(f)        | Form of Full-Recourse Promissory Note.                                                                                                      
|               |                                                                                                                                             
|10.5(f)        | Form of Stock Pledge Agreement.                                                                                                             
|               |                                                                                                                                             
|10.6(g)        | Summary of 2004 ZiLOG, Inc. Incentive Plan.                                                                                                 
|               |                                                                                                                                             
|10.7(b)        | ZiLOG, Inc. 2002 Omnibus Stock Incentive Plan.                                                                                              
|               |                                                                                                                                             
|10.8(s)        | ZiLOG, Inc. 2004 Omnibus Stock Incentive Plan, as amended and restated.                                                                     
|               |                                                                                                                                             
|10.9(g)        | ZiLOG, Inc. 2004 Employee Stock Purchase Plan.                                                                                              
|               |                                                                                                                                             
|10.10(k)       | Amendment No. 1 to the ZiLOG, Inc. 2004 Employee Stock Purchase Plan.                                                                       
|               |                                                                                                                                             
|10.11(k)       | Form of Indemnification Agreement between ZiLOG, Inc. and its Directors and Officers.                                                       
|               |                                                                                                                                             
|10.13(m)       | Employment Offer Letter dated January 3, 2007 between ZiLOG, Inc. and Darin Billerbeck.                                                     
|               |                                                                                                                                             
|10.14(j)       | Form of Change of Control Agreement.                                                                                                        
|               |                                                                                                                                             
|10.15(n)       | Change in Control Agreement with Perry J. Grace.                                                                                            
|               |                                                                                                                                             
|10.16(n)       | Change in Control Agreement with Norman G. Sheridan.                                                                                        
|               |                                                                                                                                             
|10.17(o)       | Change in Control Agreement with Darin G. Billerbeck.                                                                                       
|               |                                                                                                                                             

84

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|Exhibit
Number | Description                                                                                                                                                                                                                           
|-------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.18(r)       | Asset Purchase Agreement, dated as of February 18, 2009, by and among Maxim Integrated Products, Inc.,
Universal Electronics Inc., UEI Cayman Inc., UEI Electronics Private Limited, ZiLOG, Inc. and ZiLOG India Electronics Pvt. Ltd.
|               |                                                                                                                                                                                                                                       
|10.19          | Transition Services Agreement, dated as of February 18, 2009, by and between Maxim Integrated Products, Inc.
and ZiLOG Inc.     PDF                                                                                                   
|               |                                                                                                                                                                                                                                       
|10.20          | Master License Agreement, dated as of February 18, 2009, by and between UEI Cayman Inc. and ZiLOG, Inc.     PDF                                                                                                                       
|               |                                                                                                                                                                                                                                       
|10.21          | License Agreement, dated as of February 18, 2009, by and between Maxim Integrated Products, Inc. and ZiLOG, Inc.     PDF                                                                                                              
|               |                                                                                                                                                                                                                                       
|21.1           | Subsidiaries of ZiLOG, Inc.     PDF                                                                                                                                                                                                   
|               |                                                                                                                                                                                                                                       
|23.1           | Consent of Armanino McKenna LLP, independent registered public accounting firm.     PDF                                                                                                                                               
|               |                                                                                                                                                                                                                                       
|24.1           | Power of Attorney (see the signature pages of this Annual Report).                                                                                                                                                                    
|               |                                                                                                                                                                                                                                       
|31.1           | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated June 29, 2009.     PDF                               
|               |                                                                                                                                                                                                                                       
|31.2           | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules13a-14 and 15d-14 as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002, dated June 29, 2009.     PDF                                
|               |                                                                                                                                                                                                                                       
|32.1           | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 U.S.C Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated June 29, 2009.     PDF                   

__________________

(a)	Incorporated herein by reference to Exhibit 99.1 to the Company's current report on Form 8-K filed with
the Commission on May 15, 2002.

(b)	Incorporated herein by reference to the item of the same name filed as an exhibit to the Company's registration statement on Form
S-8 (File No. 333-88416) filed with the Commission on May 15, 2002.

(c)	Incorporated herein by reference to the item of the same name filed as an exhibit to the Company's quarterly report on Form 10-Q
filed with the Commission on August 16, 2002.

(e)	Incorporated herein by reference to the item of the same name filed as an exhibit to the Company's annual report on Form 10-K for
the fiscal year ended December 31, 2001.

(f)	Incorporated herein by reference to the item of the same name filed as an exhibit to the Company's registration statement on Form
S-1/A (File No. 333-98529) filed with the Commission on November 5, 2002.

(g)	Incorporated herein by reference to the item of the same name filed as an exhibit to the Company's registration statement on Form
S-1/A (File No. 333-111471) filed with the with the Commission on February 24, 2004.

(h)	Incorporated herein by reference to the item of the same name filed as an exhibit to the Company's annual report on Form 10-K for
the fiscal years ended December 31, 2003.

(i) 	Incorporated herein by reference to Exhibit 3.1 to the Company's current report on Form 8-K filed with the Commission on November
21, 2007.

(j) 	Incorporated herein by reference to Exhibit 99.1 to the Company's current report on Form 8-K filed with the Commission on
December 20, 2005.

(k) 	Incorporated herein by reference to the item of the same name filed as an exhibit to the Company's annual report on Form 10-K for
the fiscal years ended December 31, 2004.

(m)	Incorporated herein by reference to Exhibit 10.1 to the Company's current report on Form 8-K filed with the Commission on January
8, 2007.

(n)	Incorporated herein by reference to the item of the same name filed as an exhibit to the Company's current report on Form 8-K filed
with the Commission on October 16, 2007.

(o)	Incorporated herein by reference to the item of the same name filed as an exhibit to the Company's current report on Form 8-K filed
with the Commission on December 21, 2007.

(p)	Incorporated herein by reference to Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 2008 (filed August 13, 2008).

(q)	Incorporated herein by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the Commission on February 23, 2009.

(r)	Incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Commission on
February 23, 2009.

85

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(s)	Incorporated herein by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed with the Commission on
September 12, 2007.

(t)	Incorporated herein by reference to Exhibit 4.3 to the Quarterly Report on Form 10-Q filed with the Commission on August 14, 2007.

(u)	Incorporated by reference to the item of the same name filed as an exhibit to the Company's Quarterly Report on Form 10-Q with the
Commission on November 10, 2004.









86

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