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



                                  Form 10-Q/A
                                Amendment No. 1


(Mark One)

  X               Quarterly Report Pursuant to Section 13 or 15(d) of the
----              Securities Exchange Act of 1934. For the quarterly period
                  ended September 30, 2002.

                                      OR

-----             Transition Report Pursuant to Section 13 or 15(d) of the
                  Securities Exchange Act of 1934. For the transition period
                  from________________ to ________________.


                      Commission File Number: 333-98529


                                  ZiLOG, Inc.
            (Exact name of registrant as specified in its charter)


            Delaware                                            13-3092996
 (State or other jurisdiction of                            (I.R.S. Employer
  incorporation or organization)                          Identification Number)


                 532 Race Street, San Jose, California, 95126
                   (Address of principal executive offices)

              Registrant's telephone number, including area code:
                                (408) 558-8500

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

                              Yes     X    No
                                    -----       -----

   The Company has voluntarily filed all reports required by Section 13 or
   15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
   in accordance with terms agreed to in its previous indenture and its plan
   of reorganization.

   As of October 31, 2002, there were 29,938,045 shares of the Company's
   Common Stock, $0.01 par value outstanding.

         This Report on Form 10-Q and other oral and written statements we
make contain and incorporate forward-looking statements regarding future
events and our plans and expectations that involve risks and uncertainties.
When used in this Report, the words "estimate," "project," "intend," "expect,"
"anticipate," "believe," "may," "will," and similar expressions are intended
to identify such forward-looking statements. Forward-looking statements in
this report include, but are not limited to, those relating to the general
direction of our business; the effects of our chapter 11 reorganization; the
costs relating to our 280, Z8 and IRDA projects currently in development and
the timing of completion of our projects and our expected capital expenditures
and expenses for future periods. Although we believe our plans, intentions,
and expectations reflected in these forward-looking statements are reasonable,
we can give no assurance that these plans, intentions, or expectations will be
achieved. Actual results, performance, or achievements could differ materially
from those contemplated, express or implied, by the forward-looking statements
contained in this report. Factors that may cause or contribute to differences
include, but are not limited to: continued availability of third-party foundry
and assembly services at commercially reasonable quality and prices;
under-absorption of manufacturing costs in our wafer fabrication facilities
from under-utilization of production capacity; our distributors and customers
significantly reducing their existing inventories before ordering new
products; and those factors discussed in the sections entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Risk Factors," as well as those discussed elsewhere in this Report and in
other reports filed with the Securities and Exchange Commission. These factors
are not intended to represent a complete list of the general or specific
factors that affect us. Other factors, including general economic factors and
business strategies, may be significant, presently or in the future, and the
factors set forth in this report may affect us to a greater extent than
indicated. We caution the reader not to place undue reliance on the
forward-looking statements contained herein, which reflect our position as of
the date of this report. We undertake no obligation to publicly release
updates or revisions to these statements.

         Based in San Jose, California, we were incorporated in California in
October 1981 and reincorporated in Delaware in April 1997. 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. ZiLOG and Z80 are
registered trademarks of ZiLOG, Inc.


Extreme Connectivity (C) ZiLOG, Inc. 1999.
<PAGE>

<TABLE>

                                  ZiLOG, INC.
     QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2002
                               TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION                                                                                Page

<S>      <C>                                                                                                      <C>
Item 1.  Financial Statements........................................................................         1
         Unaudited Condensed Consolidated Statements of Operations for the three months ended
         September 30, 2002 and three months ended September 30, 2001................................         1

         Unaudited Condensed Consolidated Statements of Operations for the five months ended
         September 30, 2002, four months ended April 30, 2002 and nine months
         ended September 30, 2001....................................................................         2

         Unaudited Condensed Consolidated Balance Sheets at September 30, 2002, May 1, 2002,
         April 30, 2002 and December 31, 2001.........................................................        3

         Unaudited Condensed Consolidated Statements of Cash Flows for the five months ended
         September 30, 2002, four months ended April 30, 2002 and nine months
         ended September 30, 2001....................................................................         4

         Notes to Unaudited Condensed Consolidated Financial Statements..............................         5

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.......         19

Item 3.  Quantitative and Qualitative Disclosures About Market Risk..................................         42

Item 4.    Disclosure Controls and Procedures........................................................         42


PART II. OTHER INFORMATION

Item 1.  Legal Proceedings...........................................................................         44

Item 6.  Exhibits and Reports on Form 8-K............................................................         44

</TABLE>

<PAGE>

                                    PART I
                             FINANCIAL INFORMATION

Item 1.  Financial Statements

<TABLE>

                                  ZiLOG, INC.
           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in millions except per share data)

<CAPTION>

                                                                 Successor Company |  Predecessor Company
                                                                ------------------ |  -------------------
                                                                   Three Months    |     Three Months
                                                                Ended Sep. 30, 2002|  Ended Sep.30, 2001
                                                                -------------------|  ------------------
<S>                                                               <C>                   <C>
Net sales...................................................      $   36.0         |    $   42.6
Cost of sales ..............................................          19.9         |        29.4
                                                                -------------------|  ------------------
Gross margin................................................          16.1         |        13.2
Operating expenses:                                                                |
   Research and development ................................           4.1         |         5.8
   Selling, general and administrative......................           8.2         |         9.6
   Special charges and reorganization items.................           0.8         |         4.5
   Amortization of intangible assets........................           3.0         |         --
                                                                -------------------|  ------------------
       Total operating expenses.............................          16.1         |        19.9
                                                                -------------------|  ------------------
Operating  income (loss)....................................           -           |        (6.7)
Other income (expense):                                                            |
   Interest income..........................................           0.1         |         0.2
   Interest expense ........................................          (0.1)        |        (7.3)
   Other, net...............................................           0.4         |        (0.5)
                                                                -------------------|  ------------------
Income (loss) before  income taxes and loss                                        |
   from equity method investment............................           0.4         |       (14.3)
Provision for income taxes..................................           0.2         |         --
                                                                -------------------|  ------------------
Income (loss) before equity method investment...............           0.2         |       (14.3)
Loss from equity method investment..........................           --          |        (0.4)
                                                                -------------------|  ------------------
Net income (loss)...........................................      $    0.2         |    $  (14.7)
                                                                ===================|  ==================
Preferred stock dividends accrued...........................           --          |         1.3
                                                                -------------------|  ------------------
Net income (loss) attributable to common stockholders.......      $    0.2         |    $  (16.0)
                                                                ===================|  ==================
Basic and diluted net income per share......................      $    0.01        |
                                                                ===================|
Weighted-average shares used in computing basic                                    |
   and diluted net income per share.............                       28.7        |
                                                                ===================|
                                                                                   |
                                                                                   |
Stock-based compensation included in the above expense line-items:                 |
                                                                                   |
     Cost of sales                                                $     0.1        |
     Research and development...................                         --        |
     Selling, general and administrative........                        0.5        |
                                                                -------------------|
                                                                  $     0.6        |
                                                                ===================|

</TABLE>

         See accompanying notes to condensed consolidated financial statements.

<PAGE>

<TABLE>
                                             ZiLOG, INC.
                      UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (in millions except per share data)
<CAPTION>

                                                 Successor Company  |             Predecessor Company
                                                ------------------- |  ------------------------------------------
                                                    Five Months     |    Four Months              Nine Months
                                                Ended Sep. 30, 2002 |  Ended April 30, 2002   Ended Sep. 30, 2001
                                                ------------------- |  --------------------   -------------------
<S>                                               <C>                      <C>                    <C>
Net sales.....................................    $   64.1          |      $   46.0               $  130.9
Cost of sales.................................        35.3          |          26.1                  103.1
Cost of sales-fresh-start inventory adjustment         3.9          |           --                     --
                                                ------------------- |  --------------------   -------------------
Gross margin..................................        24.9          |          19.9                   27.8
Operating expenses:                                                 |
   Research and development ..................         7.3          |           6.8                   22.1
   Selling, general and administrative .......        15.4          |          10.8                   36.1
   Special charges and reorganization items...         1.2          |           6.9                   12.6
   Amortization of intangible assets..........         4.9          |           --                     --
   In-process research and development........        18.7          |           --                     --
                                                ------------------- |  --------------------   -------------------
       Total operating expenses...............        47.5          |          24.5                   70.8
                                                ------------------- |  --------------------   -------------------
Operating loss................................       (22.6)         |          (4.6)                 (43.0)
Other income (expense):
   Fresh-start adjustments....................         --           |          83.7                    --
   Net gain on discharge of debt..............         --           |         205.7                    --
   Interest income............................         0.1          |           0.1                    1.0
   Interest expense (1).......................        (0.4)         |          (5.0)                 (21.9)
   Other, net.................................         0.5          |           0.1                   (0.7)
                                                ------------------- |  --------------------   -------------------
Income (loss) before reorganization items,                          |
   income taxes and loss from equity method                         |
   investment.................................       (22.4)         |         280.0                  (64.6)
Reorganization items..........................         --           |           4.0                   --
Provision for income taxes....................         0.7          |           0.1                    0.2
                                                ------------------- |  --------------------   -------------------
Income (loss) before equity method investment.       (23.1)         |         275.9                  (64.8)
Loss from equity method investment............        --            |          --                     (1.1)
                                                ------------------- |  --------------------   -------------------
Net income (loss).............................    $  (23.1)         |      $  275.9              $   (65.9)
                                                =================== |  ====================   ===================
Preferred stock dividends accrued.............        --            |           1.9                    3.8
                                                ------------------- |  --------------------   -------------------
Net income (loss) attributable to common
   stockholders...............................    $  (23.1)         |      $  274.0              $   (69.7)
                                                =================== |  ====================   ===================
Basic and diluted net loss per share..........    $  (0.81)         |
   Weighted-average shares used in computing                        |
   basic and diluted net loss per share.......        28.6          |
                                                =================== |
                                                                    |
                                                                    |
Stock-based compensation included in the above expense line-items:  |
                                                                    |
     Cost of sales                                $    0.1          |
     Research and development.................         0.1          |
     Selling, general and administrative......         2.4          |
                                                ------------------- |
                                                  $    2.6          |
                                                =================== |
_____________________

(1) Excludes contractual interest of $4.2 in the four months ended April 30, 002 not recorded during reorganization.

</TABLE>


          See accompanying notes to condensed consolidated financial statements.

<PAGE>
<TABLE>

                                             ZiLOG, INC.
                           UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
                                            (in millions)
<CAPTION>

                                                                       Successor Company       |        Predecessor Company
                                                                -----------------------------  |  ------------------------------
                                                                Sep. 30, 2002     May 1, 2002  |  April 30, 2002   Dec. 31, 2001
                                                                -------------     -----------  |  --------------   -------------
<S>                                                               <C>             <C>                <C>             <C>
ASSETS                                                                                         |
Current assets                                                                                 |
    Cash and cash equivalents.................................    $    24.2       $    18.8    |     $   18.8        $    30.7
    Accounts receivable, less allowance for doubtful accounts          16.0                    |
      of $0.7 at September 30, 2002,  May 1, 2002 and April                                    |
      30, 2002 and $0.9 at December 31, 2001................                           14.5    |         14.5             16.7
    Inventories...............................................         11.6            17.2    |         14.5             17.3
    Prepaid expenses and other current assets.................          3.4             3.8    |          3.8              3.9
                                                                -------------     -----------  |  --------------   -------------
        Total current assets..................................         55.2            54.3    |         51.6             68.6
                                                                -------------     -----------  |  --------------   -------------
MOD III, Inc. assets held for sale............................         30.0            30.0    |         30.0              --
Net property, plant and equipment.............................         23.0            25.0    |         11.9             45.8
Goodwill......................................................         26.7            26.7    |          --               --
Intangible assets, net........................................         21.2            26.2    |          --               --
In-process research and development...........................          --             18.7    |          --               --
Other assets..................................................          3.0             1.0    |          1.0              1.3
                                                                -------------     -----------  |  --------------   -------------
                                                                  $   159.1       $   181.9    |     $   94.5        $   115.7
                                                                =============     ===========  |  ==============   =============
                                                                                               |
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY (DEFICIENCY)                           |
Current liabilities:                                                                           |
  Short-term debt.............................................    $     6.9       $     9.4    |     $    9.4        $    12.8
  Notes payable...............................................          --              --     |          --             280.0
  Interest payable on notes...................................          --              --     |          --              22.5
  Accounts payable............................................         12.5            12.1    |         13.2             13.4
  Accrued compensation and employee benefits..................          8.5             7.2    |          7.2              9.0
  Other accrued liabilities...................................          3.9             4.1    |          4.1              4.9
  Accrued special charges.....................................          0.7             4.1    |          4.1              9.7
  Dividends payable on preferred stock........................          --              --     |          --              16.6
  Deferred income on shipments to distributors................          6.3             4.9    |          6.1              6.6
                                                                -------------     -----------  |  --------------   -------------
     Total current liabilities................................         38.8            41.8    |         44.1            375.5
                                                                -------------     -----------  |  --------------   -------------
Deferred income taxes.........................................          6.0             6.0    |          --               --
Other long-term liabilities...................................         14.7            14.1    |         14.1             14.3
Liabilities subject to compromise.............................          --              --     |        325.7              --
                                                                -------------     -----------  |  --------------   -------------
     Total liabilities........................................         59.5            61.9    |        383.9            389.8
                                                                -------------     -----------  |  --------------   -------------
                                                                                               |
Minority interest in MOD III assets...........................         30.0            30.0    |          --               --
                                                                                               |
Stockholders' equity (deficiency):                                                             |
  Preferred Stock.............................................          --              --     |         25.0             25.0
  Common Stock................................................          0.3             0.3    |          0.4              0.4
  Deferred stock compensation.................................         (5.4)            --     |         (0.5)            (0.6)
  Additional paid-in capital..................................         97.8            89.7    |         13.2             13.2
  Accumulated deficit.........................................        (23.1)            --     |       (327.5)          (312.1)
                                                                -------------     -----------  |  --------------   -------------
     Total stockholders' equity (deficiency)..................         69.6            90.0    |       (289.4)          (274.1)
                                                                -------------     -----------  |  --------------   -------------
Total liabilities and stockholders' equity....................    $   159.1       $   181.9    |     $   94.5        $   115.7
                                                                =============     ===========  |  ==============   =============

                      See accompanying notes to condensed consolidated financial statements.
</TABLE>

<PAGE>
<TABLE>

                                             ZiLOG, INC.
                      UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                            (in millions)
<CAPTION>

                                                                     Successor Company  |        Predecessor Company
                                                                    ------------------  |  ----------------------------------
                                                                       Five Months      |   Four Months        Nine Months
                                                                         Ended          |      Ended             Ended
                                                                       Sep. 30, 2002    |  April 30, 2002     Sep. 30, 2001
                                                                    ------------------  |  ---------------    -------------
<S>                                                                   <C>                  <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:                                                   |
Net income (loss).................................................    $    (23.1)       |  $    275.9         $  (65.9)
Adjustments to reconcile net income (loss) to net cash provided                         |
  (used) by operating activities:                                                       |
   In-process research and development............................          18.7        |         --               --
   Net gain on discharge of debt..................................           --         |      (205.7)             --
   Amortization of fresh-start adjustments........................           --         |       (83.7)             --
   Fresh-start inventory adjustment...............................           3.9        |         --               --
   Loss in equity method investment...............................           --         |         --               1.1
   Depreciation and amortization..................................           7.8        |         2.5             29.0
   Impairment of long lived assets................................           --         |         2.7              2.9
   Stock-based compensation.......................................           2.6        |         0.1              1.8
   Loss from disposition of equipment.............................           --         |         --               0.7
Changes in operating assets and liabilities:                                            |
   Accounts receivable............................................          (1.4)       |         2.1              8.1
   Inventories....................................................           2.9        |         2.9             10.1
   Prepaid expenses and other current and noncurrent assets.......          (1.7)       |         0.1              6.9
   Accounts payable...............................................           0.4        |        (0.1)            (1.8)
   Accrued compensation and employee benefits.....................           1.3        |        (1.8)           (18.8)
   Other accrued and other non-current liabilities, and accrued                         |
      special charges.............................................          (2.8)       |        (0.2)             2.9
                                                                    ------------------  |  ---------------    -------------
      Net cash provided (used) by operations before
        reorganization items......................................           8.6        |        (5.2)           (23.0)
Reorganization items - professional fees paid.....................           --         |        (2.3)             --
                                                                    ------------------  |  ---------------    -------------
     Net cash provided (used) by operating activities.............           8.6        |        (7.5)           (23.0)
                                                                                        |
CASH FLOWS FROM INVESTING ACTIVITIES:                                                   |
   Capital expenditures...........................................          (0.8)       |        (1.0)            (3.9)
                                                                    ------------------  |  ---------------    -------------
     Cash used by investing activities............................          (0.8)       |        (1.0)            (3.9)
                                                                                        |
CASH FLOWS FROM FINANCING ACTIVITIES:                                                   |
   Proceeds from (repayments of) short-term debt..................          (2.5)       |        (3.4)            12.8
   Proceeds from issuance of common stock.........................           0.3        |         --               0.1
   Payments for stock redemptions.................................          (0.2)       |         --               --
                                                                    ------------------  |  ---------------    -------------
       Cash provided (used) by financing activities...............          (2.4)       |        (3.4)            12.9
                                                                    ------------------  |  ---------------    -------------
Increase (decrease) in cash and cash equivalents..................           5.4        |       (11.9)           (14.0)
                                                                                        |
Cash and cash equivalents at beginning of period..................          18.8        |        30.7             40.7
                                                                    ------------------  |  ---------------    -------------
Cash and cash equivalents at end of period........................    $     24.2        |  $     18.8         $   26.7
                                                                    ==================  |  ===============    =============

                      See accompanying notes to condensed consolidated financial statements.
</TABLE>

<PAGE>

                                  ZiLOG, INC.

        NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.       BASIS OF PRESENTATION

The accompanying interim financial information is unaudited. In the opinion of
ZiLOG, Inc.'s ("ZiLOG" or the "Company") management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of interim results have been included. The results for interim
periods are not necessarily indicative of results to be expected for the
entire year. These condensed consolidated financial statements and notes
should be read in conjunction with the Company's annual consolidated financial
statements and notes thereto contained in the Company's 2001 Annual Report
filed on Form 10-K Commission File Number 001-13748 for the fiscal year ended
December 31, 2001, filed on April 12, 2002. The Company's independent
auditors' report pertaining to ZiLOG's consolidated financial statements as of
and for the year ended December 31, 2001 indicated that there were
circumstances that existed that raised substantial doubt about ZiLOG's ability
to continue as a going concern and that no adjustments have been made to the
condensed consolidated financial statements to reflect the outcome of these
uncertainties.

ZiLOG's interim results are based on fiscal quarters of thirteen weeks in
duration ending on the last Sunday of each calendar quarter. The first and
second fiscal month of each quarter is four weeks in duration and the third
month is five weeks. Each of ZiLOG's interim periods end on Sunday, except the
last fiscal period of each year which always ends on December 31. However, for
financial reporting purposes, interim fiscal periods are labeled as ending on
calendar month-end. The operating results for any interim period are not
necessarily indicative of results for any subsequent period or the full fiscal
year.

The Company received confirmation from the United States Bankruptcy Court for
the Northern District of California of its and ZiLOG-MOD III, Inc.'s ("MOD
III, Inc.") joint reorganization plan (the "Reorganization Plan") filed
pursuant to Chapter 11 of the United States Bankruptcy Code. The
Reorganization Plan became effective on May 13, 2002. (See Note 2).

The condensed consolidated balance sheet at December 31, 2001 has been derived
from audited financial statements at that date, but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.

As a result of the courts confirmation of ZiLOG's Reorganization Plan, the
Company has been required to adjust its financial statements as prescribed by
the American Institute of Certified Public Accountants Statement of Position
90-7, "Financial Reporting By Entities in Reorganization Under the Bankruptcy
Code" (SOP 90-7). The reporting requirements of SOP 90-7 are referred to as
"fresh-start" reporting, which resulted in material changes to ZiLOG's
Consolidated Balance Sheet. This approach requires the recording of assets and
liabilities at fair values, the valuation of equity based on the
reorganization value of the ongoing business and the recording of intangible
assets including goodwill. (See Note 3).

NOTE 2.       FINANCIAL RESTRUCTURING AND REORGANIZATION

The Company has suffered recurring losses from operations, had a net
stockholders' deficiency at December 31, 2001 and its business and financial
growth have been negatively affected by a difficult business climate. These
conditions led to the need to file for Chapter 11 bankruptcy protection in
order to restructure the Company's 9.5% Senior Secured Notes due 2005 (the
"Notes").

ZiLOG filed the Reorganization Plan with the United States Bankruptcy Court
for the Northern District of California on February 28, 2002 and the
bankruptcy court confirmed the Reorganization Plan as described herein on
April 30, 2002. The Reorganization Plan became effective on May 13, 2002.

The Company operated its business under Chapter 11 in the ordinary course and
had obtained the necessary approvals from the bankruptcy court to pay
employees, trade, and certain other creditors in full and on time regardless
of whether their claims arose before or after the Chapter 11 filing. The
claims of employees, general unsecured creditors (including trade creditors,
licensors, and lessors) and secured creditors, other than holders of the Notes
and preferred stock, have not been compromised under the Reorganization Plan.

Under the Reorganization Plan, the Notes were cancelled. Each noteholder
received, in exchange for their Notes, their pro rata share of:

     o   28,000,000 shares of ZiLOG's newly issued common stock. As of
         September 30, 2002, this represented approximately 86% of the
         outstanding equity on a fully diluted basis.

     o   100% of the newly issued series A preferred stock issued by ZiLOG's
         non-operating subsidiary, ZiLOG-MOD III, Inc., which is called MOD
         III, Inc. Holders of MOD III, Inc. series A preferred stock are
         entitled to receive an aggregate liquidation preference of $30
         million plus any accrued but unpaid dividends on the MOD III, Inc.
         series A preferred stock from the net proceeds from the sale of the
         Company's MOD III 8" wafer fabrication plant located in Nampa, Idaho.
         This plant was transferred to MOD III, Inc. upon effectiveness of the
         Reorganization Plan. Dividends accrue on the MOD III, Inc. series A
         preferred stock at 9.5% per annum. Liquidation of the MOD III assets
         for an amount less than $30 million will not generate any further
         recourse to ZiLOG Inc.

     o   50% of MOD III, Inc.'s newly issued series B preferred stock. ZiLOG
         retains the remaining 50% of the new MOD III, Inc. series B preferred
         stock as well as 100% of the common stock. Holders of the new MOD
         III, Inc. series B preferred stock are entitled to receive the net
         sale proceeds from any sale of MOD III, Inc.'s assets in excess of
         the series A preferred stock liquidation preference.

The Reorganization Plan also provided for the cancellation of all of ZiLOG's
currently outstanding preferred and common stock and all options and warrants
related thereto. All accumulated dividends and any other obligations with
respect to the Company's outstanding preferred and common shares were also
extinguished. Each former holder of common stock received a pro rata share of
$50,000. Each holder of preferred stock received a pro rata share of $150,000.

The Reorganization Plan also provided for the payment in full, with interest
if appropriate, or reinstatement, as appropriate, of all employee and trade
claims. In order for the Reorganization Plan to have become effective, the
Company was required to, among other things, revise its charter and bylaws,
enter into a new secured financing agreement, and designate a new board of
directors. All these requirements were met to the satisfaction of the Court.

Chapter 11 reorganization-related costs of $0.3 million and $4.0 million
included in the unaudited condensed consolidated statements of operations for
the one and four months ended April 30, 2002, respectively, relate primarily
to legal and other professional service fees incurred by both the Company and
the former informal committee of bondholders.

Liabilities included in the unaudited condensed consolidated
debtor-in-possession balance sheet at April 30, 2002, which were subject to
compromise under the terms of the Reorganization Plan, are summarized as
follows (in millions):

       Senior secured notes payable.........................      $   280.0
       Accrued interest on senior secured notes.............           27.2
       Dividends payable on preferred stock.................           18.5
                                                                  ---------
       Total liabilities subject to compromise..............      $   325.7
                                                                  =========

NOTE 3.       FRESH-START REPORTING

On February 28, 2002, ZiLOG and its subsidiary, MOD III, Inc., filed the
Reorganization Plan with the United States Bankruptcy Court for the Northern
District of California under Chapter 11 of the U.S. Bankruptcy Code. The
bankruptcy court subsequently confirmed the Reorganization Plan by its order
entered on April 30, 2002. The Reorganization Plan became effective on May 13,
2002. The Company prior to emergence from bankruptcy is referred to as the
"Predecessor Company" and the reorganized company is referred to as the
"Successor Company."

Pursuant to the Reorganization Plan, ZiLOG extinguished $325.7 million of
liabilities, which included $280.0 million principal amount of the Notes,
$27.2 million in accrued interest due on the Notes and $18.5 million of
dividends payable on the Company's previously outstanding series A preferred
stock. The former noteholders received substantially all of the Company's new
common stock and a liquidation preference in the net proceeds on the sale of
the assets held by MOD III, Inc. The former equity holders received an
aggregate $200,000 in cash. All debt and equity securities of the Predecessor
Company were cancelled. As a consequence of these events, the Predecessor
Company recorded a $205.7 million net gain on the extinguishment of these
liabilities..

On May 1, 2002, ZiLOG adopted "fresh-start" accounting principles proscribed
by the American Institute of Certified Public Accountant's Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code," or SOP 90-7. Fresh-start accounting was appropriate because
the Company's former noteholders received substantially all of the Company's
new common stock and the reorganization value of the assets of the Successor
Company were less than the total pre-petition liabilities plus post-petition
liabilities.

SOP 90-7 requires the Company to establish a reorganization value upon the
adoption of fresh-start reporting. ZiLOG's reorganization value was estimated
by Lazard Freres & Co., LLC, its independent financial advisor, using
discounted projected cash flows, precedent transactions and public company
comparisons. These valuations indicated a range of reorganization values
between approximately $80 million and $100 million. In agreement with the
informal committee of noteholders and with the approval of the bankruptcy
court, the Company established a reorganization equity value of $90.0 million
as of May 1, 2002 for purposes of applying fresh-start reporting. This
estimate of equity value was derived from a weighted average of three
valuations based on comparable public company, precedent transaction and
discounted cash flow analyses. These valuations were based on the underlying
assumptions and limitations set forth in Exhibit 3 to our Offering Memorandum
and Disclosure Statement, which was attached as Exhibit 99.2 to the Company's
Form 8-K filed with the Securities and Exchange Commission on January 30,
2002. These assumptions include: the successful reorganization of the
Company's business and finances in a timely manner; the implementation of the
Company's business plan as a reorganized entity; the accuracy of information
supplied by management about its business and prospects; achievement of
forecasted projections; market conditions as of December 31, 2001 continuing
through an assumed effective date of March 31, 2002; and the plan of
reorganization becoming effective in accordance with the estimates and
assumptions upon which the valuation was based. The value of an operating
business such as the Company's, however, is subject to numerous uncertainties
and contingencies which are difficult to predict, and will fluctuate with
changing factors affecting its financial condition and prospects.

Fresh-start reporting requires that the Company also record its assets at fair
value upon adoption. Consequently, the Company engaged Key Assets as
independent appraisers to assist management in the valuation of its tangible
and conducted a valuation of its intangible assets. These appraisals resulted
in a $13.1 million increase in property, plant and equipment related to its
five inch wafer fabrication facility and an adjacent undeveloped parcel of
land. This increase is primarily driven by the different assumptions used by
Key Assets compared to those supporting the impairment in 2000. The previous
value was based on the bid received for its sale. This appraisal also resulted
in a $3.9 million increase in finished good inventories held by the Company
and its distributors to reflect fair values at May 1, 2002. The appraisers
also identified several separable intangible assets that were valued and
recorded as part of fresh-start reporting as follows (in millions):

                                Asset                           Value
             ------------------------------------------     -------------
             Existing technology.......................     $    17.0
             In-process research and development.......          18.7
             Brandname.................................          9.2
                                                            -------------
                                                            $    44.9
                                                            ==============


The Company recorded a gain of $83.7 million in the Predecessor Company's
financial statements in connection with the fresh-start adjustments referred
to above. These increases in carrying value of the Company's intangible assets
were based on three valuation approaches, depending on the specific intangible
asset to be valued: the income approach, the cost approach and the market
approach. These increases in carrying value of the Company's capital assets
were based on physical inspections and written appraisals that included market
data and cost approaches.
Goodwill of $26.7 million was also recorded as part of fresh-start reporting.

The Company's results of operations after April 30, 2002 and the consolidated
balance sheet at September 30, 2002 are not comparable to the results of
operations prior to April 30, 2002 and the historical balance sheet at
December 31, 2001 due to its adoption of "fresh-start" reporting upon the
Company's emergence from bankruptcy.

The table below provides a reconciliation of the Predecessor Company's
consolidated balance sheet as of April 30, 2002 to that of the Successor
Company which presents the adjustments that give effect to the reorganization
and fresh-start reporting (in millions):

<TABLE>

                                              Predecessor                      Fresh-Start                         Successor
                                              Company at      Reorganization   Adjustments     Reclassifications   Company at
                                             April 30, 2002         (1)            (2)               (3)           May 1, 2002
                                             --------------   --------------   -----------     -----------------   -----------

ASSETS
<S>                                           <C>             <C>              <C>               <C>               <C>
Current assets                                $   51.6        $      --        $    2.7          $     --          $  54.3
MOD III, Inc. assets held for sale                30.0               --              --                --             30.0
Net property, plant and equipment                 11.9               --            13.1                --             25.0
Other assets                                       1.0               --              --                --              1.0
Fresh-start goodwill and intangibles               --                --            71.6                --             71.6
                                             --------------   --------------   -----------     -----------------   -----------
                                              $   94.5        $      --        $   87.4          $     --          $ 181.9
                                             ==============   ==============   ===========     =================   ===========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities                           $   44.1        $      --        $   (2.3)         $     --          $  41.8
Other non-current liabilities                     14.1               --             6.0                --             20.1
Liabilities subject to compromise                325.7            (325.7)            --                --              --

Minority interest in MOD III, Inc. assets          --               30.0             --                --             30.0

Stockholders' equity (deficiency):                                                                                     --
     Preferred stock                              25.0               --              --              (25.0)            --
     Common stock                                  0.4               0.3             --               (0.4)            0.3
     Deferred stock compensation                  (0.5)              --              --                0.5             --
     Additional paid-in capital                   13.2              89.7             --              (13.2)           89.7
     Accumulated deficit                        (327.5)            205.7           83.7               38.1             --
                                             --------------   --------------   -----------     -----------------   -----------
Total stockholders' equity (deficiency)         (289.4)            295.7           83.7                --             90.0
                                             --------------   --------------   -----------     -----------------   -----------
Total liabilities and stockholders' equity    $   94.5         $     --        $   87.4          $     --          $ 181.9
                                             ==============   ==============   ===========     =================   ===========

___________________________

(1)  Reorganization adjustments reflect consummation of the Reorganization
     Plan, including the elimination of liabilities subject to compromise and
     the reorganization of the Successor Company.
(2)  Fresh-start adjustments reflect the adoption of fresh-start reporting,
     including adjustments to record goodwill, identifiable tangible and
     intangible assets and liabilities at their estimated fair values.
     Management estimated the fair value of its assets using independent
     appraisals.
(3)  Reclassification reflects the elimination of Predecessor Company's
     stockholder's deficiency.

</TABLE>

The Company's net gain upon extinguishment of liabilities and fresh-start
adjustments were comprised of the following elements (in millions):

     Extinguishment of debt                                     $  280.0
     Extinguishment of accrued interest                             27.2
     Extinguishment of dividends payable on preferred stock         18.5
     Minority interest in MOD III, Inc. assets                     (30.0)
     Reorganization equity value                                   (90.0)
                                                             ------------------
         Net gain on discharge of debt                          $  205.7
                                                             ==================

     Effect of fresh-start adjustments                         $    66.7
     Revaluation of fixed and tangible assets to fair value         17.0
                                                             ------------------
         Total fresh-start adjustments                         $    83.7
                                                             ==================

NOTE 4.       SIGNIFICANT ACCOUNTING POLICIES

Goodwill and Intangible Assets. Effective January 1, 2002, ZiLOG adopted the
provisions of FASB Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("FAS 142"). Under FAS 142, goodwill
and intangible assets with indefinite lives are not amortized, but are
reviewed annually (or more frequently if impairment indicators arise) for
impairment. Separable intangible assets that are deemed to have defined lives
will continue to be amortized over their useful lives (but with no maximum
life). Intangible assets acquired prior to July 1, 2001 were being amortized
on a straight-line basis over lives ranging from three to five years. In
connection with the Company's fresh-start reporting, separable intangible
assets that are deemed to have defined lives (primarily existing of technology
and brand name) are being amortized utilizing the pattern-of-use method over
estimated useful lives ranging from 5 to 10 years.

The anticipated amortization schedule for these assets is as follows (in
millions):

                       Year                 Amortization Amount
                   -----------              -------------------
                       2002                     $  8.9
                       2003                        6.8
                       2004                        4.2
                       2005                        1.4
                    Thereafter                     4.9
                  -----------              -------------------
                      Total                     $ 26.2
                                           ===================

Research and Development Expenses. ZiLOG's policy is to record all research
and development expenditures with no future alternative use as period expenses
when incurred. In-process research and development charges relate to partially
developed semiconductor product designs that had not reached technological
feasibility and have no alternative future use on the date they were acquired
or valued for fresh-start reporting.

As of May 1, 2002, there were four projects that satisfied the criteria listed
above. These in-process research and development projects relate to
next-generation products in the Company's Z80 microprocessor and Z8
microcontroller product families, as well as a new infrared remote control
device for and a new IRDA transceiver targeted at the cellular telephone
market. The value of the projects identified to be in progress was determined
by estimating the future cash flows from the projects once commercially
feasible, discounting the net cash flows back to their present value and then
applying a percentage of completion to the calculated value. The gross margins
from sales of these new products are expected to be in the range of 45% to
50%, which is generally consistent with ZiLOG's current product offerings.

The percentage of completion for each project was determined based on research
and development expenses incurred as of May 1, 2002 for each project as a
percentage of total research and development expenses to bring the project to
technological feasibility. The discount rate used was 35%. The Company expects
to complete these projects between the fourth quarter of 2002 and the third
quarter of 2003. The nature of efforts required to develop the in-process
technology into commercially viable products primarily relates to completion
of design, prototyping and testing to ensure the products can be produced cost
effectively and meet customer design specifications, including functions,
features and performance requirements.

Recent Accounting Pronouncements. In July 2002, FASB issued Statement of
Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities." SFAS No. 146 revises the accounting for
specified employee and contract terminations that are part of restructuring
activities. Under SFAS No. 146 companies will record a liability for a cost
associated with an exit or disposal activity only when the liability is
incurred and can be measured at fair value. Commitment to an exit plan or a
plan of disposal expresses only management's intended future actions and
therefore, does not meet the requirement for recognizing a liability and
related expense. This statement only applies to termination benefits offered
for a specific termination event or a specified period. It will not affect
accounting for the costs to terminate a capital lease. The Company adopted
this statement for exit or disposal activities initiated starting May 1, 2002.

NOTE 5.        RELATED PARTY TRANSACTIONS

Prior to the Company's Plan of Reorganization, Texas Pacific Group (TPG) owned
a majority of the Company's stock. As of the effective date of the
Reorganization Plan, Texas Pacific Group and its affiliates are no longer
significant stockholders of ZiLOG. The transactions identified below can be
identified as pre and post May 2002 recapitalization items as follows:

Pre-May, 2002 Recapitalization

In January 1999, ZiLOG entered into an agreement with P.T. Astra Microtronics
Technology, now known as Advanced Interconnect Technologies, or AIT, pursuant
to which AIT provides the Company with semiconductor assembly and test
services through January 2003. AIT is owned by Newbridge Asia, an affiliate of
Texas Pacific Group, which in turn is an affiliate of the Company's former
principal stockholder. ZiLOG purchased services from AIT totaling
approximately $1.1 million and $3.4 million during the four-month periods
ended April 30, 2002, and April 29, 2001, respectively. The Company had
payments due to AIT of approximately $0.4 million at April 30, 2002, and
approximately $0.5 million at December 31, 2001. The Company's payment terms
with AIT are net 30 days.

The Company sells products to GlobeSpan, Inc., of which Texas Pacific Group is
a significant stockholder, which in turn is an affiliate of ZiLOG's former
principal stockholder. The Company's net sales to GlobeSpan, Inc. totaled
approximately $0.8 million and $3.7 million during the four-month periods
ended April 30, 2002 and April 29, 2001, respectively. The Company had
accounts receivable from GlobeSpan, Inc. of approximately $0.7 million and
$0.3 million at April 30, 2002 and December 31, 2001, respectively.

During 2001, the Company's present Chairman and Chief Executive Officer, James
M. Thorburn, was functioning as its Acting Chief Executive Officer pursuant to
a consulting agreement with Texas Pacific Group. Under the agreement, Mr.
Thorburn was paid $3,000 per day, plus out-of-pocket expenses. In 2001, the
Company paid Mr. Thorburn consulting fees of $574,000 pursuant to this
agreement.

In connection with the Reorganization Plan, ZiLOG entered into three
agreements with TPG Partners II, L.P., a Texas Pacific Group affiliate, each
of which was dated January 28, 2002. First, ZiLOG entered into a mutual
release agreement pursuant to which the Company and MOD III, Inc. released TPG
and its affiliates, and TPG and its affiliates released ZiLOG and MOD III,
Inc., from any respective claims that one may have against the other which
arose prior to the effective date of the plan of reorganization and which
relate to their relationship. Second, ZiLOG and TPG Partners II entered into a
non-solicitation and non-hire agreement with respect to James M. Thorburn,
ZiLOG's Chairman and Chief Executive Officer. Third, the Company entered into
a tax agreement in which TPG Partners II made acknowledgments and covenants
that preclude it from taking actions that could result in their recognizing
certain tax losses until 2002, such as selling their stock.

Post Recapitalization

In May, 2002 the Company entered into employment agreements with each of its
named executive officers.

On May 17, 2002, the Company sold 90,580 shares of its common stock to
Federico Faggin, a member of its board of directors, for $2.76 per share for
an aggregate amount of $250,000. The Company established the fair value of the
common stock that it sold to Mr. Faggin at $3.21 per share. This valuation was
based on the $90.0 million reorganization value of the Company established by
Lazard divided by the 28,000,000 shares issued in the reorganization.
Accordingly, the Company recorded $0.45 per share ($3.21 - $2.76) of
compensation expense. Although the Over-the-Counter Bulletin Board quoted a
closing sale at $6.25 per share on May 17, 2002, the Company did not believe
that this price represented fair value of the common stock. This belief is
supported by the fact that there were only two other trades between the date
the stock began trading and the date of the sale of the stock to Mr. Faggin.

NOTE 6.       INVENTORIES

Inventories are stated at the lower of cost, first-in-first-out basis, or
market and consisted of the following elements (in millions):

<TABLE>
                                        Successor Company          |            Predecessor Company
                                ---------------------------------  |    -------------------------------------
                                Sep. 30, 2002       May 1, 2002 *  |    April 30, 2002      December 31, 2001
                                -------------       -------------  |    --------------      -----------------
<S>                              <C>                <C>                   <C>                <C>
  Raw materials...............   $      0.5         $       0.7    |      $      0.7         $       1.0
  Work-in-progress............          7.3                 9.3    |             9.3                10.3
  Finished goods..............          3.8                 7.2    |             4.5                 6.0
                                -------------       -------------  |    --------------      -----------------
                                 $     11.6         $      17.2    |      $     14.5         $      17.3
                                =============       =============  |    ==============      =================

     *   The inventory elements have been recorded as of May 1, 2002 as follows. Finished goods at
         the estimated selling prices less the sum of the costs of disposal and a reasonable profit
         allowance for the selling effort. Work-in-process at the selling prices of finished goods
         less the sum of a) costs to complete, b) costs of disposal, and c) a reasonable profit
         allowance for completing and selling effort of the company. Raw materials have been
         recorded at their estimated current replacement costs.

</TABLE>


NOTE 7.       SPECIAL CHARGES AND REORGANIZATION ITEMS

During the three months ended September 30, 2002, ZiLOG incurred special
charges of $0.8 million for restructuring of operations. Approximately $0.3
million of special charges relate to activities associated with the closure of
the MOD III eight-inch wafer fabrication facility in Idaho, referred to as the
"MOD III facility." These charges relate to post-closure maintenance costs
related to utilities, taxes, insurance and other maintenance costs required to
maintain the facility in a condition required for the sale of the property.
Approximately $0.5 million of special charges relate to third-party
professional service fees for legal and financial advisors who were assisting
with the Company's debt and equity restructuring activities.

During the five months ended September 30, 2002, ZiLOG incurred special
charges and reorganization items of $1.2 million for restructuring of
operations. Approximately $0.6 million of special charges relate to the MOD
III closure and $0.6 million represent third party professional service fees
for debt and equity restructuring activities.

During the four months ended April 30, 2002, ZiLOG incurred special charges of
$10.8 million: $2.7 million for asset impairments; and, $8.1 million for
restructuring of operations. Asset impairments included the closure of the
Company's Austin, Texas design center, and furniture, fixtures and equipment,
with a book value of approximately $1.7 million were abandoned. Approximately
$0.8 million of computer aided design software was impaired as a result of the
Company's decision to cancel development of the Cartezian family of 32-bit
RISC microprocessors. Additionally, $0.2 million of unamortized goodwill
relating to the Company's acquisition of PLC Corporation was deemed to be
impaired and was written-off.

Restructuring of operations included severance and termination benefits of
$1.2 million for the closure of the Austin, Texas design center and the
streamlining of ZiLOG's sales force. The Company also recorded $2.2 million of
special charges relating to the MOD III closure. Lease termination costs of
$0.7 million are related to the closure and relocation of certain sales
offices. Professional fees of $4.0 million for debt restructuring were
recorded as reorganization items during the Chapter 11 proceedings.

During the third quarter of 2001, ZiLOG incurred special charges of $4.5
million for restructuring of operations comprised of severance-related
expenses of $2.7 million; MOD III closure costs of $0.5 million and $1.3
million of professional fees for debt restructuring.

During the second quarter of 2001, ZiLOG incurred special charges of $8.1
million: $5.1 million for restructuring of operations and $3.0 million for
asset impairments. The restructuring of operations charges included
severance-related expenses of $4.0 million, including $1.7 million of non-cash
stock-option related expense. In connection with this action, the Company
eliminated approximately 200 positions worldwide during the second quarter of
2001. Professional fees for debt restructuring of $0.8 million relating to
consultants who assisted with the Company's restructuring plans. Additionally,
$0.3 million was incurred for the closure of MOD III. Asset impairments of
$3.0 million consist of $1.6 million write-off of planning software and $1.4
million of test and probe equipment written off.

The components of special charges are as follows (in millions):

<TABLE>

                                                         Successor    |  Predecessor
                                                          Company     |    Company
                                                       -------------  |  -------------
                                                       Three Months   |  Three Month
                                                           Ended      |     Ended
                                                       Sep. 30, 2002  |  Sep. 30, 2001
                                                       -------------  |  -------------
<S>                                                   <C>                 <C>
    Asset impairments:                                                |
        Austin, Texas assets                          $      --       |   $    --
        Internal use software                                --       |        --
        Goodwill write-offs                                  --       |
        Test and probe equipment written-off                 --       |        --
    Restructuring of operations:                                      |
        Employee severance and termination benefits          --       |        2.7
        MOD III closure costs                                0.3      |        0.5
        Lease termination costs                              --       |        --
        Stock-based compensation                             --       |        --
    Professional fees for debt restructuring                0.5       |        1.3
                                                       -------------  |  -------------
                                                        $    0.8      |   $    4.5
                                                       =============  |  =============
</TABLE>

<TABLE>

                                                            Successor   |
                                                             Company    |        Predecessor Company
                                                         ---------------|  --------------------------------
                                                           Five Months  |   Four Months      Nine Months
                                                             Ended      |       Ended           Ended
                                                          Sep. 30, 2002 | April 30, 2002    Sep. 30, 2001
                                                          ------------- | --------------    ---------------
<S>                                                        <C>               <C>             <C>
       Asset impairments:                                               |
           Austin, Texas assets                            $    --      |    $   1.7         $   --
           Internal use software                                --      |        0.8             1.6
           Goodwill write-offs                                  --      |        0.2             --
           Test and probe equipment written-off                 --      |        --              1.4
       Restructuring of operations:                                     |
           Employee severance and termination benefits          --      |        1.2             5.0
           MOD III closure costs                                0.6     |        2.2             0.8
           Lease termination costs                              --      |        0.7             --
           Stock-based compensation                             --      |        --              1.7
       Professional fees for debt restructuring                 0.6     |        4.0             2.1
                                                          ------------- | --------------    -------------
                                                           $    1.2     |    $  10.8         $  12.6
                                                          ============= | ==============    =============
</TABLE>

<TABLE>

The following table summarizes activity in accrued special charges (in  millions):

                                            Severance and                        Lease
                                             Termination         Debt         Termination       MOD III
                                               Benefits      Restructuring       Costs       Closure Costs      Total
                                            -------------    -------------    -----------    -------------   ---------
<S>                                         <C>              <C>              <C>            <C>             <C>
Balance at December 31, 2001.............   $    5.6         $     1.1        $   2.8        $    0.2        $   9.7
Charges to expense.......................        1.2               4.6            0.7             2.8            9.3
Cash Payments............................       (6.5)             (5.5)          (3.3)           (3.0)       $ (18.3)
                                            -------------    -------------    -----------    -------------   ---------
Balance at September 30, 2002............   $    0.3         $     0.2        $   0.2        $   --          $   0.7
                                            =============    =============    ===========    =============   =========

</TABLE>


NOTE 8.       GEOGRAPHIC AND SEGMENT INFORMATION

The Company operates in one operating segment and engages primarily in the
design, development, manufacture and marketing of semiconductor products. The
Company sells its products to distributors and original equipment
manufacturers (OEMs) in a broad range of market segments, performs on-going
credit evaluations of its customers and generally requires no collateral. The
Company's operations outside the United States consists of a final test
facility in the Philippines, sales and support centers and design centers in
certain foreign countries. Domestic operations are responsible for the design,
development and wafer fabrication of all products, as well as the coordination
of production planning and shipping to meet worldwide customer commitments.
The Philippine test facility is reimbursed in relation to 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.

Prior to the consummation of the Company's reorganization, there were two
reportable business segments called communications and embedded control. The
prior reporting structure was based on a previous operating and reporting
organization that was focused largely on development of new products targeted
on the communications and networking sectors. ZiLOG is now organized and
focused on its core business, which is based on 8-bit micrologic product
solutions. The Company operates in one reporting segment and engages primarily
in the design, development, manufacture and marketing of semiconductor
products. ZiLOG has two broad business lines called embedded control and
standard products.

The Company's two broad business lines are based on product technologies and
can be summarized as follows:

<TABLE>
   Products                                                     Sample Uses
   --------                                                     -----------
<S>                                                             <C>
   Embedded control products include:
                                                                Security systems, battery
                                                                chargers,Universal Infra-red remote
                                                                controls, industrial controllers. POS
                                                                terminal, motor control, communications
   Core 8-bit Microcontrollers and Microprocessors              products

 Standard products include:

     Serial Communications Controllers                          Telephone switches/PBX
                                                                Satellite TV set-top box, POS card

     Modems                                                     validation

     IrDA transceivers                                          PDA's, cell phones

     Television and PC peripheral products                      TV, keyboard, pointing device

     Foundry product services                                   Broadband access products
</TABLE>


The following table summarizes ZiLOG's net sales by region, by channel, and by
business line in millions of dollars, and ZiLOG's net sales to Pioneer
Standard, formerly one of the Company's distributors, as well as to Globespan
Virata and Sanmina-SCI Systems, Inc., two of the Company's OEM customers, as a
percentage of the Company's total net sales are summarized as follows (in
millions):

<TABLE>

                              Successor    |  Predecessor     Successor     |
                               Company     |    Company        Company      |       Predecessor Company
                           --------------- | --------------  -------------  | -------------------------------
                                Three      |  Three Months    Five Months   |  Four Months      Nine Months
                             Months Ended  |     Ended           Ended      |     Ended            Ended
                            Sep. 30, 2002  | Sep. 30, 2001   Sep. 30, 2002  | April 30, 2002   Sep. 30, 2001
                            -------------  | -------------   -------------  | --------------   -------------
<S>                             <C>              <C>             <C>              <C>             <C>
Net sales by region:                       |                                |
Americas                        $ 21.8     |     $ 25.0          $  38.7    |     $ 25.2          $   78.1
Asia                              10.4     |       13.4             18.4    |       13.8              36.7
Europe                             3.8     |        4.2              7.0    |        7.0              16.1
                            -------------  | -------------   -------------  | --------------   -------------
    Total                       $ 36.0     |     $ 42.6          $  64.1    |     $ 46.0          $  130.9
                            =============  | =============   =============  | ==============   =============
                                           |                                |
Net sales by channel:                      |                                |
OEM                             $ 21.3     |     $ 26.6          $  36.9    |     $ 25.8          $   82.3
Distribution                      14.7     |       16.0             27.2    |       20.2              48.6
                            -------------  | -------------   -------------  | --------------   -------------
    Total                       $ 36.0     |     $ 42.6          $  64.1    |     $ 46.0          $  130.9
                            =============  | =============   =============  | ==============   =============
                                           |                                |
Net sales by business line:                |                                |
Embedded Control                $ 22.5     |     $ 21.9          $  41.5    |     $ 29.1          $   73.9
Standard Products                 13.5     |       20.7             22.6    |       16.9              57.0
                            -------------  | -------------   -------------  | --------------   -------------
    Total                       $ 36.0     |     $ 42.6          $  64.1    |     $ 46.0          $  130.9
                            =============  | =============   =============  | ==============   =============
                                           |                                |
Net sales to                               |                                |
Pioneer-Standard as a                      |                                |
percentage of total net                    |                                |
sales:                          14.4%      |     12.8%           16.0%      |     10.5%           12.5%
                            =============  | =============   =============  | ==============   =============
Net sales to Globespan                     |                                |
Virata as a percentage of                  |                                |
total net sales:                 11.6      |       NA             N/A       |      N/A              N/A
                            =============  | =============   =============  | ==============   =============
                                           |                                |
Net sales to Sanmina-SCI                   |                                |
Systems, Inc. as a                         |                                |
percentage of total                        |                                |
of net sales:                 N/A          | 16.8%            N/A           |  N/A              N/A
                            =============  |=============   =============   |==============   =============
</TABLE>


NOTE 9.    SHORT-TERM DEBT

Upon consummation of the Reorganization Plan, ZiLOG entered into a senior
secured financing facility (the "Facility") with a commercial lender, dated
May 13, 2002, for a new three-year $15.0 million senior secured revolving
credit facility. Borrowings on the Facility bear interest at a rate per annum
equal, at ZiLOG's option, to the commercial lender's stated prime rate or
LIBOR, plus 2.5%. At September 30, 2002, the Company had borrowings
outstanding of $6.9 million at a LIBOR-based rate of 4.4% and $1.0 million of
additional borrowing capacity available under the Facility. The Facility is
scheduled to mature on May 13, 2005. As of September 30, 2002, the Company had
$0.8 million of standby letters of credit issued to vendors under the
Facility.

The Company is subject to certain financial covenants under this Facility
including tangible asset and fixed charge coverage ratio if the total of the
Company's cash, cash equivalents and availability on the revolver are less
than $7.5 million at any month end.

NOTE 10.      CONTINGENCIES

On July 29, 1996, ZiLOG filed an action in the Superior Court of the State of
California in and for Santa Clara against Pacific Indemnity Company, Federal
Insurance Company and Chubb & Son Inc. In that action, the Company sought a
declaration that its former insurers, Pacific and Federal, had an
unconditional duty to defend and indemnify it in connection with two lawsuits
brought in 1994: (1) in Santana v. ZiLOG and, (2) in Ko v. ZiLOG. ZiLOG's
complaint in the Santa Clara County action also alleged that Chubb, which
handled the defense of Santana and Ko on behalf of Pacific and Federal, was
negligent. Pacific cross-complained against the Company, seeking reimbursement
of defense costs for both underlying lawsuits and a payment it contributed to
the settlement of Ko. According to its cross-complaint, Pacific sought a total
of approximately $6,300,000, plus interest and costs of suit. On February 26,
2002, ZiLOG agreed to make a payment of $300,000 to fully settle these
lawsuits. The Company paid $225,000 of this amount as of September 30, 2002.
The balance is to be paid in February 2003. The outstanding balance accrues
interest at 6% per annum.

On August 5, 2002, ZiLOG reached a settlement agreement, mutual release of
claims and indemnity agreement with one of its vendors relating to a 1997
purchase of wafer fabrication equipment that ZiLOG believed was defective. The
Company had recorded accounts payable of $1.1 million as of May 1, 2002
reflecting this disputed liability. Under the terms of the agreement, ZiLOG
received $200,000 in cash and was released from all claims by the vendor. The
May 1, 2002 financial statements have been adjusted to reflect the elimination
of this liability and the corresponding reduction of fresh-start goodwill.

The Company is participating in other litigation and responding to claims
arising in the ordinary course of business. ZiLOG 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 its financial statements, although there can be no assurance in this
regard.

NOTE 11.      PREFERRED STOCK DIVIDENDS

As described in Note 9 to the Consolidated Financial Statements of the
Company's 2001 Annual Report on Form 10-K, before ZiLOG's Series A Cumulative
Preferred Stock ("Series A Stock") was cancelled pursuant to the
Reorganization Plan, these shares accumulated dividends at a rate of 13.5% per
annum, with dividends payable quarterly at the election of the Board of
Directors. Unpaid dividends are recognized as a charge to accumulated deficit
and as an increase in the liquidation preference of the Series A Stock. As of
April 30, 2002, the Company had not paid any dividends on the Series A Stock
and the corresponding accrued dividends are approximately $18.5 million were
included, in liabilities subject to compromise. During the four-month period
ended April 30, 2002, $1.9 million of dividends on Series A Stock were accrued
and charged to accumulated deficit. As of the effective date of the
Reorganization Plan, all accumulated dividends were extinguished in accordance
with the plan.

NOTE 12.      INCOME TAXES

As of December 31, 2001, the Company had federal and California net operating
loss carryforwards of approximately $213.0 million and $63.0 million,
respectively, which will expire beginning in years 2004 through 2021, if not
utilized. Since December 31, 2001, the Company's net operating losses have
increased reflecting operating losses for the period commencing January 1,
2002 and ending with and including April 30, 2002. The debt discharge resulted
in a taxable gain which will require the Company to utilize a significant
portion of its net operating loss carryforwards and adjust the tax attributes
of certain of its assets. For the period subsequent to April 30, 2002, through
year-end, the Company anticipates that it will use certain net operating loss
carryforwards to offset its taxable income, thereby reducing or eliminating
the federal income tax liability of the Company for such period.

Commencing January 1, 2003, and as a result of the debt discharge that the
Company realized in the reorganization, the Company will be required, for
federal income tax purposes, to reduce a significant portion, or all, of its
net operating loss carryforwards and may be required to reduce the tax basis
in its assets as well. In addition, the utilization by the Company of its
remaining net operating loss carryforwards, if any, will be substantially
limited under the federal income tax section 382 ownership change rules.
Consequently, commencing January 1, 2003, the Company expects that it will be
taxable for federal income tax purposes.

ZiLOG's provision for income taxes in the first nine months of 2002 reflects
foreign income taxes for the jurisdictions in which the Company was profitable
as well as foreign withholding taxes and state minimum taxes. Based on
available evidence, including our cumulative losses to date, the Company was
provided a full valuation allowance against its net deferred tax assets.

NOTE 13.      STOCKHOLDERS' EQUITY

2002 Omnibus Stock Incentive Plan:

Common Stock. In May 2002, the 2002 Omnibus Stock Incentive Plan (the "Omnibus
Plan") was adopted by the Board. Subject to adjustment pursuant to the terms
of the Omnibus Plan, the committee may grant options to purchase up to an
aggregate of 2,116,279 shares of common stock under the Omnibus Plan. Stock
options granted under the Omnibus Plan may be: (1) incentive stock options or
non-qualified stock options; (2) EBITDA-linked options and or non-EBITDA
linked options. The term of an option is determined by the 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, but will vest based on the "adjusted EBITDA," as defined, reported for
the immediately preceding 12 months 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.

For the twelve-month period ended September 30, 2002, the Company's adjusted
EBITDA, as defined, totaled $23.6 million. Accordingly, one-third of the
EBITDA-Linked options were vested, which represent options to purchase 538,352
shares of common stock out of a total of 1,615,057 EBITDA-Linked options
granted, net of cancellations. In no event will any EBITDA-linked options vest
later than May 15, 2008, even if these adjusted EBITDA thresholds have not
been satisfied. The per share exercise price of shares purchasable under an
EBITDA-linked option is $2.76 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 other terms and
conditions (including the vesting schedule, period of exercisability and
expiration date) as the 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.

When an optionee exercises an option before the option is vested, then the
optionee will receive shares of restricted stock equal to the number of shares
exercised. If the optionee terminates employment or service before the
restrictions on the restricted stock have lapsed, then the Company has the
right to repurchase these shares as described below.

Restricted Stock. The Company may grant up to 2,441,861 restricted shares of
common stock under the Omnibus Plan. The restricted shares generally contain
restrictions that lapse as to 25% of the shares on the date of grant and that
lapse as to an additional 25% on each of the first, second and third
anniversaries of such grant date. These restricted shares generally may be
repurchased by the Company, until the restrictions have lapsed, at $0.01 per
share if the grantee ceases to be employed by the Company; and also may be
repurchased by the Company at fair market value even after the restrictions
lapse under certain circumstances. With respect to restricted shares acquired
upon exercise of an unvested option, however, the Company may repurchase the
unvested shares at the exercise price and the vested shares at the fair market
value of the shares on the repurchase date.

The Omnibus Plan authorizes the 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
subject to the award. As of September 30, 2002, the Company had loaned an
aggregate of $2.2 million to employees that were the recipients of the
restricted stock grants. While the committee may award restricted stock in the
future, as a result of the Sarbanes-Oxley Act of 2002, the Company no longer
will offer loans to employees. At September 30, 2002 employee loans
outstanding aggregated $2.2 million.

As of September 30, 2002 there were 585,882 shares of common stock subject to
repurchase at fair value and 1,276,583 shares subject to repurchase at the
greater of the outstanding loan amount or $0.01 per share. The number of
shares of common stock indicated as outstanding also excludes 529,395 shares
of common stock to be granted to James M. Thorburn, the Company's Chairman and
Chief Executive Officer, pursuant to his employment agreement, of which
176,465 shares are to be granted on each of May 13, 2003, May 13, 2004 and May
13, 2005.

NOTE 14.      MINORITY INTEREST

As of September 30, 2002, minority interests of approximately $30.0 million
are recorded on the condensed consolidated balance sheet in order to reflect
the share of the net assets of MOD III, Inc. held by minority investors. The
minority interest share represents their entitlement to receive an aggregate
liquidation preference of the first $30.0 million plus any accrued but unpaid
dividends on the MOD III, Inc. series A preferred stock from the net proceeds
from the sale of the MOD III, Inc. assets currently held for sale. Liquidation
of the MOD III assets for an amount less than $30.0 million will not generate
any further recourse to the Company. Additionally, the Company will be
entitled to recoup from the net proceeds of any sale all costs it has or will
incur to sell the facility or to maintain the facility in saleable condition
subsequent to its closure and prior to transfer of title.

NOTE 15.      NET INCOME (LOSS) PER SHARE

The following table presents the calculation of basic and diluted net income
(loss) per share of common stock (in millions, except per share data):

<TABLE>

                                                                          Successor Company
                                                                    --------------------------------
                                                                    Three Months        Five Months
                                                                        Ended              Ended
                                                                    Sep. 30, 2002      Sep. 30, 2002
                                                                    -------------      -------------

<S>                                                                   <C>              <C>
    Net income (loss)...........................................      $   0.2          $ (23.1)
                                                                    =============      =============
    Weighted-average shares outstanding.........................         29.9             29.7
    Less: Weighted-average shares subject to repurchase.........          1.2              1.1
                                                                    -------------      -------------
    Weighted-average shares used in computing basic and
     diluted net income (loss) per share........................         28.7             28.6
                                                                    =============      =============
    Basic and diluted net income (loss) per share...............      $  0.01          $  (0.81)
                                                                    =============      =============
</TABLE>


At September 30, 2002, options to purchase approximately 1.9 million shares of
common stock are excluded from the determination of diluted net income (loss)
per share, as the effect of such shares is anti-dilutive.

NOTE 16.  SUBSEQUENT EVENTS

In September 2002 the Company terminated its distribution agreement with
Pioneer-Standard and in October 2002, Future Electronics became ZiLOG's
exclusive, full-service distributor in North America. While the Company will
continue to retain its other distributors outside of North America, Future
Electronics will be the only distributor franchised to distribute the
Company's products on a global basis.

In October 2002, Gerald Corvino, the Company's Executive Vice President and
Chief Information Officer announced his resignation from ZiLOG that became
effective on November 1, 2002 and in November 2002, the Company hired Bruce
Diamond as its Executive Vice President and Chief Operating Officer.



Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations

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
document.

         We are a worldwide supplier of semiconductor products. We design,
develop, manufacture and market various families of products in support of
this semiconductor market segment. Using proprietary technology that we have
developed over our 27-year operating history, we continue to provide
semiconductor integrated circuit devices that our customers design into their
end products. Our devices, which often include related application software,
typically combine a microprocessor and/or digital signal processor, memory,
and input and output functions on a single device. Our embedded control
devices 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 such functions
as the speed of a motor, an infrared remote control and the charging cycle of
a battery charger. Similarly, our standard products have a wide variety of
uses including the processing and transmission of information for data
communications, telecommunications and consumer electronics companies. These
devices include serial communication controllers, modems, IrDA transceivers,
television display controllers and personal computer peripheral devices.
Standard products also include wafer fabrication foundry services for
third-party integrated circuit designs.

Overview

         The information presented below should be read in conjunction with
the interim condensed consolidated financial statements included elsewhere
herein. Our interim results are based on fiscal quarters of thirteen weeks in
duration ending on the last Sunday of each calendar quarter. However, for
financial reporting purposes, we have labeled our interim fiscal periods as
ending on calendar month-end. The operating results for any interim period are
not necessarily indicative of results for any subsequent period or the full
fiscal year, which ends on December 31 of each year.

         We have prepared the accompanying unaudited interim condensed
consolidated financial statements pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with GAAP have been condensed or omitted in our unaudited interim financial
statements pursuant to such rules and regulations. Although our management
believes that the disclosures are adequate to make the information presented
not misleading, it is suggested that these interim condensed consolidated
financial statements be read in conjunction with our most recent audited
consolidated financial statements and related notes. In the opinion of
management, all adjustments necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods
presented have been made.

2002 Financial Restructuring and Reorganization

         In 1998, we issued $280 million in principal amount of our previously
outstanding 9.5% senior secured notes due 2005 in connection with our
going-private transaction. Since 2000, our business and financial growth had
been negatively affected by the extremely difficult business climate in which
we have been operating. We explored a number of strategic alternatives with
the assistance of our financial advisor, Lazard Freres & Co., LLC, and an
informal group of holders of senior notes who collectively held or managed
approximately $165.0 million in principal amount of our senior notes.

         During the course of discussions, we concluded that the best vehicle
to achieve a restructuring of our senior notes was through consummation of a
voluntary pre-packaged plan of reorganization under Chapter 11 of the United
States Bankruptcy Code. On January 28, 2002, we commenced solicitation of
acceptances of a joint plan of reorganization which set forth a plan to
reorganize our company and our subsidiary, MOD III, Inc.

         We solicited acceptances of this joint plan from the holders of our
senior notes and preferred stock. As permitted by bankruptcy court rules, we
did not solicit votes from holders of our old common stock. In connection with
this solicitation, we entered into lock-up agreements with members of the
informal group. Under the lock-up agreements, the members of the informal
group agreed, among other things and subject to certain conditions, to vote to
accept the plan of reorganization.

         The voting period for the solicitation ended on February 26, 2002.
Holders of approximately $221.0 million of our senior notes accepted the plan
of reorganization. None of the holders rejected the plan. All of the holders
of preferred stock who voted also accepted the plan of reorganization.

         On February 28, 2002, we and our subsidiary, ZiLOG-MOD III, Inc.,
which we call MOD III, Inc., filed voluntary petitions with the United States
Bankruptcy Court for the Northern District of California for reorganization
under Chapter 11. The bankruptcy court subsequently confirmed MOD III, Inc.'s
and our joint reorganization plan by its order entered on April 30, 2002. The
joint plan of reorganization became effective on May 13, 2002. We refer to the
company prior to emergence from bankruptcy as the "Predecessor Company" and to
the reorganized company as the "Successor Company."

         Pursuant to the joint reorganization plan, we extinguished $325.7
million of liabilities, which included $280.0 million principal amount of our
9.5% Senior Secured Notes due 2005, $27.2 million in accrued interest due on
the notes and $18.5 million of dividends payable on our former series A
preferred stock. The former noteholders received substantially all of our new
common stock and a liquidation preference in the net proceeds on the sale of
the assets held by MOD III, Inc. The former equity holders received an
aggregate $200,000 in cash. All debt and equity securities of the Predecessor
Company were cancelled. As a consequence of these events, the Predecessor
Company recorded a $205.7 million net gain on discharge of debt.

         On May 1, 2002, we adopted "fresh-start" reporting proscribed by the
American Institute of Certified Public Accountant's Statement of Position
90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code," or SOP 90-7. Fresh-start reporting was appropriate because our former
noteholders received substantially all of our new common stock and the
reorganization value of the assets of the Successor Company were less than the
total pre-petition liabilities plus post-petition liabilities.

         SOP 90-7 required us to establish a reorganization value upon our
adoption of fresh-start reporting. With the assistance of our independent
financial advisor, Lazard Freres & Co., LLC, we estimated our reorganization
value using discounted projected cash flows, precedent transactions and public
company comparisons. These valuations indicated a range of reorganization
values between $80 million and $100 million, based on the underlying
assumptions and limitations set forth in Exhibit 3 to our Offering Memorandum
and Disclosure Statement, which was attached as Exhibit 99.2 to our Form 8-K
filed with the Securities and Exchange Commission on January 30, 2002. These
assumptions include: the successful reorganization of our business and
finances in a timely manner; the implementation of our business plan as a
reorganized entity; the accuracy of information supplied by management about
our business and our prospects; achievement of forecasted projections; market
conditions as of December 31, 2001 continuing through an assumed effective
date of March 31, 2002; and the plan of reorganization becoming effective in
accordance with the estimates and assumptions upon which the valuation was
based. We adopted the mid-point of this range and established a reorganization
equity value of $90.0 million as of May 1, 2002 for purposes of applying
fresh-start reporting.

         Fresh-start reporting requires that we also record our assets at fair
value upon adoption. Consequently, we engaged Key Assets as independent
appraisers to assist management in valuation of our tangible assets and we
performed a valuation of our intangible assets. These appraisals resulted in a
$13.1 million increase in property, plant and equipment related to our
five-inch wafer fabrication facility. This increase resulted from a
reclassification of the facility from an asset held for sale in a depressed
market, based on a bid received, to an asset held for use, based on
replacement cost. This appraisal also resulted in a $3.9 million increase in
inventories held by us and our distributors to reflect fair value at May 1,
2002. We also identified several separable intangible assets that were valued
and recorded as part of our fresh-start reporting as follows (in millions):

                       Asset                           Value
    ------------------------------------------     -------------
    Existing technology.......................     $    17.0
    In-process research and development.......          18.7
    Brand name................................           9.2
                                                   -------------
    Total separable intangible assets.........     $    44.9
                                                   =============


         We recorded a gain of $83.7 million in the Predecessor Company's
financial statements in connection with the fresh-start adjustments referred
to above. Additionally, we recorded goodwill, with an indefinite life, in the
aggregate amount of $26.7 million.

         The in-process research and development was expensed on May 1, 2002.
The inventory was amortized over two months consistent with the turnover of
our inventory. The brand name and existing technology was amortized using the
pattern-of-use method consistent with underlying discounted cash flows
supporting the assets. The goodwill will not be amortized but will be subject
to ongoing impairment reviews consistent with Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets." See the
section entitled "Recent Accounting Pronouncements" below for more information
on SFAS No. 142.

1998 Recapitalization Merger

         Prior to February 1998, our common stock had been publicly traded on
the New York Stock Exchange under the symbol "ZLG." On February 27, 1998, we
consummated a merger with an affiliate of Texas Pacific Group, and in
connection with that transaction, we issued $280.0 million of registered
senior secured notes and we ceased having publicly traded equity. Since the
transaction was structured as a recapitalization with a continuing minority
stockholder group, the historical basis of accounting carried through the
merger.

Critical Accounting Policies

         We believe our critical accounting policies are as follows:

         o    fresh-start reporting;

         o    estimating sales returns and allowances;

         o    estimating allowance for doubtful accounts;

         o    estimating write-downs of excess and obsolete inventories; and

         o    asset impairments.

         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.

Fresh-start reporting. Upon emerging from Chapter 11 proceedings, we adopted
fresh-start reporting in accordance with SOP 90-7. Accordingly, for financial
reporting purposes, we valued our assets and liabilities at fair value. With
the assistance of our independent financial advisor, Lazard Freres & Co., LLC,
and in reliance upon various valuation methods, including discounted projected
cash flow analysis and other applicable ratios and economic industry
information relevant to our industry and through negotiations with various
creditor parties in interest, we estimated our equity value to be $90.0
million. This estimate of equity value was derived from a weighted average of
three valuations results based on comparable public company, precedent
transaction and discounted cash flow analyses. These valuations were based on
the underlying assumptions and limitations set forth in Exhibit 3 to our
Offering Memorandum and Disclosure Statement, which was attached as Exhibit
99.2 to our Form 8-K filed with the Securities and Exchange Commission on
January 30, 2002. These assumptions include: the successful reorganization of
our business and finances in a timely manner; the implementation of our
business plan as a reorganized entity; the accuracy of information supplied by
management about our business and our prospects; achievement of forecasted
projections; market conditions as of December 31, 2001 continuing through an
assumed effective date of March 31, 2002; and the plan of reorganization
becoming effective in accordance with the estimates and assumptions upon which
the valuation was based. The value of an operating business such as ours,
however, is subject to numerous uncertainties and contingencies which are
difficult to predict, and may fluctuate with changing factors affecting our
financial condition and prospects.

         We recorded increases in the carrying value of our assets of $83.7
million on a basis which is substantially consistent with the purchase method
of accounting. These increases in the carrying value of our intangible assets
were based on three valuation approaches, depending on the specific intangible
asset to be valued: the income approach, the cost approach and the market
approach. These increases in carrying value of our capital assets were based
on physical inspections and written appraisals that included market data and
cost approaches. Results would have varied under different assumptions or
conditions.

         Estimating sales returns and allowances. Our net sales from OEM
customers consists of gross product sales reduced by expected future sales
returns and allowances. To estimate sales returns and price allowances, we
analyze historical returns and allowance activity to establish a baseline
reserve level. Then we 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
allowances is based on our judgments and estimates, our reserves may not be
adequate to cover actual sales returns and other allowances. If our reserves
are not adequate, our net revenues and accounts receivable could be adversely
affected.

         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 general and administrative expenses. In establishing this allowance, and
then evaluating the adequacy of the allowance for doubtful accounts, we
consider 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 deteriorated, resulting in their inability to make
payments, or if we otherwise underestimate the losses we incur as a result of
our customers' inability to pay us, we could be required to increase our
allowance for doubtful accounts which could adversely affect our operating
results.

         Estimating write-downs of excess and obsolete inventories. Each
inventory component is assessed for excess or obsolescence by using an
algorithm that we established. This algorithm is based on historical trends,
demand forecasts and inventory age. We review the result of this algorithm and
generally write-off all work-in-process inventory more than one year old and
finished goods inventory quantities in excess of our current backlog.
Write-offs of 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. If actual market conditions are less favorable than
our assumptions, we may be required to take further write-downs of our
inventory value, which could adversely impact our cost of sales and operating
results.

         Asset impairments. Beginning in 2002, we apply the provisions of
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets." We
assess the impairment of long-lived assets 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:

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

         o    significant changes in the strategy for our overall business;
              and

         o    significant negative industry or economic trends.

         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 future
discounted 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 consist of existing technology,
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 discounted cash flows from such assets. The goodwill is
not subject to amortization.

         We evaluate the existing technology and brand name at each reporting
period to determine whether events and circumstances continue to support the
current carrying value as well as the remaining useful life. 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.

         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.

Reporting Segments

         Beginning in May 2002, we have consolidated our business segments
into one segment to reflect the manner in which our new chief operating
decision maker allocates resources and assesses the performance of our
business.

Period Comparisons

         Our results of operations after April 30, 2002 and our consolidated
balance sheets at September 30, 2002, May 1, 2002 and June 30, 2002 are not
comparable to the results of operations prior to April 30, 2002 and the
historical balance sheet at December 31, 2001 due to our adoption of
"fresh-start" reporting upon our emergence from bankruptcy. However, such
differences in our results of operations relate solely to depreciation of
property, plant and equipment, amortization of intangible assets, interest
expense and restructuring and reorganization expenses. Additionally, these
differences in our balance sheets relate solely to in-process research and
development, property, plant and equipment, intangible assets, conversion of
senior notes to common stock, and minority interest. Certain figures, such as
net sales and certain expenses were not affected by our adoption of
fresh-start accounting and, accordingly, we believe them to be comparable. To
provide a more meaningful analysis, in the following discussion we have
compared the three and nine-month periods ended September 30, 2002 and to the
similar periods in 2001.

Results of Operations

         During the past two years, we have implemented a series of business
restructuring programs aimed at refocusing our operations on our core 8-bit
micrologic product portfolio. In connection with these actions, we have
eliminated a significant amount of fixed costs from our business operations.
Additionally, pursuant to our plan of reorganization, which became effective
on May 13, 2002, we extinguished $280.0 in million principal amount of our 9
1/2% Senior Secured Notes due 2005, which required $13.3 million in interest
payments each March 15 and September 15. Based in part on these
restructurings, our cash provided by operations during the nine months ended
September 30, 2002 improved to $1.1million, compared to $23.0 million of cash
used by operations in the nine months ended September 30, 2001.
Nine-Month Periods Ended September 30, 2002 and September 30, 2001

         Net Sales. Overall, similar to the semiconductor industry as a whole,
we have been experiencing weakness in demand for many of our products that has
persisted through the first nine months of 2002. Our net sales of $110.1
million in the first nine months of 2002 represents a decrease of 15.9% from
net sales of $130.9 million in the first nine months of 2001. This decrease in
net sales was attributable primarily to lower unit shipments of standard
products. In the first nine months of 2002, net sales in our standard products
decreased 30.5% to $39.6 million, compared to $57.0 million in the same period
in 2001. This decrease reflects weak overall market conditions in the
telecommunications and consumer sectors that resulted in lower unit shipments
of modem, serial communication, TV, wireless connectivity and peripherals
products. We expect continuing sales declines in our standard products group
reflecting weak market conditions as well as further reductions in sales of
our de-emphasized television and peripheral products. In addition, our largest
customer for modem products began reducing its purchases of our products in
the third quarter of 2002 and we expect this trend to continue as this
customer migrates to another supplier. Net sales of our embedded control
products declined 4.5% to $70.6 million in the first nine months of 2002
compared to $73.9 million in the same period of 2001. This decline was
primarily the result of lower unit shipments of Z80 microprocessors relating
to the overall decline in demand in semiconductor components in 2002.

         Gross Margin. Our cost of sales primarily represents the cost of our
wafer fabrication, assembly and test operations. Cost of sales fluctuates,
depending on materials and services prices from our vendors, manufacturing
productivity, product mix, equipment utilization and depreciation. Gross
margin as a percent of net sales increased to 40.7% in the first nine months
of 2002, up from 21.2% in the same period of 2001. During the nine-month
period ended September 30, 2002, our gross margin was adversely impacted by
the amortization of a fresh-start reporting inventory adjustment of $3.9
million. Exclusive of this one-time charge, our gross margin, as adjusted was
44.3% of sales for the nine months ended September 30, 2002. The improvement
in our gross margin during 2002 is primarily the result of rationalizing our
manufacturing cost structure. A key element of this strategy was the closure
of our underutilized MOD III wafer fabrication facility in January 2002. The
savings in MOD III spending were partially offset by higher spending in our
five-inch manufacturing facility and from purchases of manufactured wafers
from outside foundries. However, our five-inch wafer manufacturing factory
utilization improved to approximately 73% of capacity in the first nine months
of 2002, compared to 22% in the same period of 2001, which also helped to
improve gross margin. Additionally, during 2001 we implemented a multi-source
assembly program with a number of Asian semiconductor assembly service
providers, we moved our wafer probe operations from Idaho to the Philippines
and we streamlined our final test operations. These actions also contributed
to our improved gross margin in the first nine months of 2002.

         Research and Development Expenses. Research and development expenses
were $14.1 million in the first nine months of 2002, reflecting a 36.2%
decrease from the $22.1 million of research and development expenses reported
in the first nine months of 2001. The decrease in research and development
expense primarily reflects lower payroll-related costs as a result of
headcount reductions. During the first nine months 2002, research and
development expense also declined as a result of closing our Austin, Texas
design center and the related termination of all product development
activities in connection with our CarteZian line of 32-bit microprocessors.
Additionally, in the first nine months of 2002, we renegotiated certain
software license agreements and we wrote-off other surplus tools so that our
design software suite is now more closely aligned with the forecast needs of
our product development projects. We expect further reductions in research and
development spending during 2002 as a consequence of the closure of our
Austin, Texas design center.

         Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $26.2 million in the first nine months of
2002 from $36.1 million in the first nine months of 2001. The decrease in our
selling, general and administrative spending in the first nine months of 2002
reflects lower payroll-related costs as a result of lower headcount,
elimination of certain outside sales representative commissions and reduced
incentive compensation and commissions commensurate with lower sales levels.
Also in January 2002, we relocated our corporate headquarters to a smaller,
lower-cost facility. Excluding the cost of terminating our old lease and
relocation expenditures, we expect that this move will result in savings of
approximately $4.0 million in 2002 operating costs versus 2001.

         Special Charges.  Special charges for each period indicated were as
follows (in millions):

<TABLE>
                                                              Three Months Ended        Nine Months Ended
                                                                 September 30,             September 30,
                                                              -------------------     ----------------------
                                                                2002        2001        2002         2001
                                                              --------    --------    ---------     --------
Asset impairments:
<S>                                                            <C>        <C>         <C>           <C>
    Austin, Texas assets....................................   $  --      $    --     $     1.7     $   --
    Internal use software...................................      --           --           0.8        1.6
    Goodwill write-offs.....................................      --           --           0.2         --
    Test and probe equipment written-off....................      --           --            --        1.4
Restructuring of operations:
    Employee severance and termination benefits.............      --         2.7            1.2        5.0
    MOD III closure costs ..................................      0.3        0.5            2.8        0.8
    Lease termination costs.................................      --           --           0.7         --
    Stock-based compensation................................      --                         --        1.7
Professional fees for debt restructuring....................      0.5        1.3            4.6        2.1
                                                              --------    --------    ---------     --------
                                                                $ 0.8     $  4.5      $    12.0     $  12.6
                                                              ========    ========    =========     ========

Note:     Figures for the three months ended September 30, 2002 reflect results of the Successor
          Company. Figures for the nine months ended September 30, 2002 reflect combined results of
          the Predecessor Company and the Successor Company. Figures for the September 30, 2001
          periods reflect only the Predecessor Company.

</TABLE>

         In connection with the closure of our Austin, Texas design center in
the first nine months of 2002, we abandoned furniture, fixtures and equipment
with a book value of approximately $1.7 million. Also in connection with this
action and the streamlining of our sales force, we paid severance and
termination benefits of approximately $1.2 million in the first nine months of
2002. Approximately $0.8 million of computer aided design software was
impaired in the first nine months of 2002 as a result of our decision to
cancel development of the CarteZian family of 32-bit RISC microprocessors.
Additionally, we incurred $2.8 million of special charges during the first
nine months of 2002 in connection with the closure of our MOD III eight-inch
wafer fabrication facility in Idaho as well as $0.7 million of lease
termination costs related to the closure and relocation of certain sales
offices. These costs include relocation of production to alternative
manufacturing sites and the cost of closing of the facility. Chapter 11
reorganization-related costs of $4.0 million for the nine months ended
September 30, 2002 relate primarily to legal and other professional service
fees. Finally, $0.2 million of unamortized goodwill relating to our 2000
acquisition of PLC Corporation was deemed to be of no future value and was
written off in 2002.

         During the nine months ended September 30, 2001, we incurred special
charges of $12.6 million for restructuring of operations comprised of
severance-related expenses of $6.7million, including $1.7 million of non-cash
stock-option related expenses; fixed-asset related write-offs of $3.0 million,
including planning software and surplus test equipment; $2.1 million relating
to financial advisors who were assisting with our reorganization and
restructuring plans; and $0.8 million of costs associated with the closure of
MOD III. In connection with the wafer fab consolidation efforts in our
facilities in Nampa, Idaho, we eliminated approximately 200 positions during
the third quarter of 2001.

         Stock-Based Compensation. We record stock-based compensation within
various categories of operating expenses. During the first nine months of
2002, we recognized $2.6 million of stock-based compensation primarily in
connection with the award of restricted stock to certain employees, executives
and consultants at exercise prices below their deemed fair market value for
accounting purposes at the date of grant. Our right to repurchase these shares
for $0.01 per share generally lapses 25% on the award date and 25% on each of
the first three anniversaries following the award date. Compensation expense
for employee stock awards was measured on the award date and will be
recognized over each of the next three years as these restrictions lapse.
Charges for stock awards to consultants will be measured as the awards vest
and will be recognized over the periods that the restrictions lapse. Based on
the employee stock and option awards we made during May 2002, we anticipate
that we will recognize stock compensation charges of $3.1 million, $1.9
million and $1.7 million for the years ending December 31, 2002 through 2004,
respectively.

         In-Process Research and Development. During the first nine months of
2002, we recorded an $18.7 million charge for in-process research and
development relating to our fair value allocation computed by an independent
appraiser. Our in-process research and development charge during the second
quarter of 2002 relates to partially developed semiconductor product designs
that had not reached technological feasibility and have no alternative future
use on the date they were valued for fresh-start reporting.

         As of May 1, 2002, there were four projects that satisfied the
criteria listed above. These in-process research and development projects
relate to next-generation products in our Z80 microprocessor and Z8
microcontroller product families, as well as a new infrared remote control
device for and a new IRDA transceiver targeted at the cellular telephone
market. The value of the projects identified to be in progress was determined
by estimating the future cash flows from the projects once commercially
feasible, discounting the net cash flows back to their present value and then
applying a percentage of completion to the calculated value. The gross margins
from sales of these new products are expected to be in the range of 45% to
50%, which is generally consistent with our current product offerings.

         The percentage of completion for each project was determined based on
research and development expenses incurred as of May 1, 2002 for each project
as a percentage of total research and development expenses to bring the
project to technological feasibility. The discount rate used was 35% for each
of the projects. We expect to complete these projects between the fourth
quarter of 2002 and the third quarter of 2003. The nature of efforts required
to develop the in-process technology into commercially viable products
primarily relates to completion of design, prototyping and testing to ensure
the products can be produced to cost effectively and meet customer design
specifications, including functions, features and performance requirements. We
anticipate that the cost to complete the Z80 and Z8 projects will approximate
$1.5 million to $1.7 million each, whereas the remote control device and IRDA
transceiver projects are each expected to cost approximately $0.5 million to
complete. There can be no assurance that these products will ever achieve
commercial viability.

         Amortization of Intangible Assets. In connection with fresh-start
reporting, we recorded identifiable intangible assets aggregating $26.2
million (excluding goodwill of $26.7 million and in-process research and
development of $18.7 million) consisting of existing technology of $17.0
million and brand name of $9.2 million. We evaluate these assets for
impairment at each reporting period. We are amortizing these assets based on
the pattern-of-use method. The anticipated amortization schedule for these
assets is as follows (in millions):

          Year          Amortization Amount    Current Technology    Brand Name
          ----------    -------------------    ------------------    ----------
          2002             $    7.9             $       6.8          $      1.1
          2003                  6.8                     5.5                 1.3
          2004                  4.2                     2.9                 1.3
          2005                  2.2                     1.1                 1.1
          2006                  1.4                     0.4                 1.0
          Thereafter            3.7                     0.3                 3.4
                           ----------------------------------------------------
          Total            $   26.2              $     17.0           $     9.2
                           ====================================================

         Interest Expense. Our net interest expense decreased to $5.2 million
for the first nine months of 2002 compared to $20.9 million in the same period
of 2001. Interest expense in both years relates primarily to interest on our
former senior notes. The decrease in our interest expense in the first nine
months of 2002 compared to the first nine months of 2001 primarily reflects
cessation of further interest accruals on our notes payable subsequent to our
filing of Chapter 11 bankruptcy on February 28, 2002 and the cancellation of
the notes upon the effectiveness of our plan of reorganization. We expect
continued significant decreases in interest expense from prior comparable
periods as the Company's debt service levels are significantly less than last
year and interest rates have declined on borrowings under our revolving line
of credit.

         Income Taxes. As of December 31, 2001, we had federal and California
net operating loss carryforwards of approximately $213.0 million and $63.0
million, respectively, which will expire beginning in years 2004 through 2021,
if not utilized. Since December 31, 2001, our net operating losses have
increased reflecting operating losses for the period commencing January 1,
2002 and ending with and including April 30, 2002. The debt discharge resulted
in a taxable gain which will require us to utilize a significant portion of
our net operating loss carryforwards and adjust the tax attributes of certain
of our assets. For the period subsequent to April 30, 2002, through year-end,
we anticipate that we will use certain net operating losses to offset our
taxable income, thereby reducing or eliminating our federal income tax
liability for such period. We have recorded book tax expense for the period
subsequent to April 30, 2002, at an effective tax rate of approximately 38%
pre-tax income before certain non-deductible fresh-start adjustments. Any tax
benefits realized from pre-confirmation net operating losses will be recorded
as a reduction in goodwill rather than an income tax benefit under fresh-start
reporting.

         Commencing January 1, 2003, and as a result of the debt forgiveness
that we realized in the reorganization, we will be required, for federal
income tax purposes, to reduce a significant portion, or all, of our net
operating loss carryforwards and may be required to reduce the tax basis in
certain assets as well. In addition, our utilization of our remaining net
operating loss carryforwards, if any, will be substantially limited under the
federal income tax section 382 ownership change rules. The practical
implication of our U.S. income tax situation is that we expect that we will be
taxable for federal income tax purposes.

         Based on available evidence, including our cumulative losses to date,
we have provided a full valuation allowance against our net deferred tax
assets.


Three-Month Periods Ended September 30, 2002 and September 30, 2001

         Net Sales. Overall, our net sales during the three months ended
September 30, 2002 were $36.0 million, which represents a 15.5% decline from
our $42.6 million of net sales in the same period of 2001. This decline
reflects lower unit shipments in our standard products group, particularly in
modems, TV and peripheral products. These decreases were partially offset by a
$3.1 million increase in our foundry sales during the third quarter of 2002,
compared to the same period in 2001. We expect continuing sales declines in
our standard products group reflecting reductions of our de-emphasized
television and peripheral products. In addition, our largest customer for
modem products began reducing its purchases of our products during the quarter
ended September 30, 2002 and we expect this trend to continue as this customer
has migrated its product needs to an alternative technology using an
internally developed soft-modem approach. Net sales of embedded control
products during the three months ended September 30, 2002 increased 1.0%
compared to the same period in 2001, reflecting slightly higher unit shipments
of Z8 microcontrollers.

         Gross Margin. Our cost of sales represents the cost of our wafer
fabrication, assembly and test operations. Our gross margin as a percentage of
net sales increased to 44.7% in third quarter of 2002 as compared to 31.0% in
the same period of 2001. The improvement in our gross margin during the three
months ended September 30, 2002 as compared to the same period in 2001
reflects substantial reduction in manufacturing spending and a marked
improvement in factory utilization as a result of the closure of our MOD III
wafer production facility during the first quarter of 2002. We also
experienced reductions in unit sales in our lower-margin television,
peripherals and foundry businesses in the third quarter of 2002, compared to
the same period in 2001.

         Research and Development Expenses. Research and development expenses
were $4.1 million in the third quarter of 2002, reflecting a 29.3% decrease
from the $5.8 million of research and development expense we incurred in the
same period of 2001. This decrease in research and development expense was
primarily due to the closure of our Austin, Texas design center and the
related cancellation of our CarteZian product development activities during
the first quarter of 2002.

         Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $8.2 million in the third quarter of
2002, reflecting a 14.6% decrease from the $9.6 million in the third quarter
of 2001. This reduction in our sales, general and administrative expenses
primarily reflects reduced payroll and commission costs associated with
reduced headcount in our sales and marketing groups and due to a reduction in
variable costs due to lower sales levels in the third quarter of 2002,
compared to the same period in 2001.

         Special Charges. During the three-month ended September 30, 2002,
ZiLOG classified $0.8 million of costs as special charges and reorganization
items. Approximately $0.3 million of these charges relate to post-closure
maintenance costs related to utilities, taxes, insurance and other maintenance
costs required to maintain the idle MOD III facility in a condition required
for the sale of the property. In addition, we incurred approximately $0.5
million during the third quarter of 2002 for professional fees in connection
with our filing of a registration statement on Form S-1 as required under the
terms of our reorganization plan.

         During the third quarter of 2001, we incurred special charges of $4.5
million for restructuring of operations, including accrued termination
benefits of $2.7 million, wafer fab transfer costs of $0.5 million; and $1.3
million relating to fees for professional services associated with our
Company's financial restructuring initiative. Stock-Based Compensation,
In-Process Research and Development, and Amortization of Intangible Assets for
the three-month period ended September 30, 2002 related to our fresh-start
accounting and the nature of these charges are described in the previous
section entitled "Nine-Month Periods Ended September 30, 2002 and September
30, 2001." We did not have any such charges in the three months ended
September 30, 2001.

         Other Income/(Expense), Net. During the three months ended September
30, 2001, our other income and expense, net was primarily comprised of $7.3
million of interest expense that was almost entirely related to our 9.5%
senior secured notes payable that were outstanding at the time.

         Income Taxes. As of December 31, 2001, we had federal and California
net operating loss carryforwards of approximately $213.0 million and $63.0
million, respectively, which will expire beginning in years 2004 through 2021,
if not utilized. Since December 31, 2001, our net operating losses have
increased reflecting operating losses for the period commencing January 1,
2002 and ending with and including April 30, 2002. The debt discharge resulted
in a taxable gain which will require us to utilize a significant portion of
our net operating loss carryforwards and adjust the tax attributes of certain
of our assets. For the period subsequent to April 30, 2002, through year-end,
we anticipate that we will use certain net operating losses to offset our
taxable income, thereby reducing or eliminating our federal income tax
liability for such period. We expect to record book tax expense for the period
subsequent to April 30, 2002, through year-end at an effective tax rate of
approximately 38% because benefits realized from pre-confirmation net
operating losses will be recorded as a reduction in goodwill rather than an
income tax benefit under fresh-start reporting.

Liquidity and Capital Resources

         As a result of the economic downturn and decline in our results of
operations that began in 2000, we became unable to continue servicing the
interest on our debt. As noted previously, on February 28, 2002, we filed a
voluntary prepackaged plan of reorganization pursuant to Chapter 11 of the
United States Bankruptcy Code. The bankruptcy court confirmed our
reorganization plan on April 30, 2002. The plan of reorganization became
effective on May 13, 2002 and resulted in the extinguishment of $325.7 million
of liabilities.

         As of September 30, 2002, we had cash and cash equivalents of $24.2
million, compared to $30.7 million at December 31, 2001.

         Upon emergence from bankruptcy, we entered into a new credit facility
with the same commercial lender as our previous credit facility. The new
facility is a three-year $15.0 million senior secured revolving credit
facility. The new facility is on substantially similar terms as our previous
revolving credit facility, except that borrowings will bear interest at a rate
per annum equal, at our option, to the commercial lender's stated prime rate
or LIBOR, plus 2.5%. We have elected the LIBOR interest rate option which as
of September 30, 2002 bore interest at 4.4%. The previous revolving credit
facility and capital expenditure line was cancelled. As of September 30, 2002,
we had outstanding borrowings of $6.9 million and there was approximately $1.0
million of additional borrowing capacity available under the facility or
approximately $5.2 million if we decide to qualify foreign receivables in our
borrowing base. Our ability to borrow under the facility is based on a monthly
borrowing base calculation that is determined as a percentage of eligible
accounts receivable. For the nine months ended September 30, 2002, we have
made repayments on our revolving credit facility totaling $5.9 million. We are
subject to certain financial covenants under this facility, including tangible
asset and fixed charge coverage ratios if the total of our cash, cash
equivalents and availability on the revolving credit facility are less than
$7.5 million at any month end.

         Cash provided by operating activities was $1.1 million for the nine
months ended September 30, 2002, compared to $23.0 million of cash used by
operating activities in the nine months ended September 30, 2001. Cash
provided by operating activities in the first nine months of 2002 primarily
reflects our adjusted net loss of $36.5 million (excluding the non-cash gain
on discharge of debt of $205.7 million and fresh-start adjustments of $83.7
million), adjusted for the following non-cash items: depreciation and
amortization of $10.3 million; in-process research and development of $18.7
million; fresh-start inventory charge of $3.9 million; impairment of
long-lived assets of $2.7 million; and $2.7 million of stock-based
compensation. During the nine-month period ended September 30, 2002, our
significant use of operating cash included cash payments for special charges
of $16.7 million.

         Our $23.0 million use of cash by operating activities in the first
nine months of 2001 primarily reflects our net loss of $65.9 million, adjusted
by the following non-cash items: depreciation and amortization of $29.0
million; a loss on equity investment of $1.1; loss on disposal and impairment
of long-lived assets of $3.6 million; and stock-based compensation of $1.8
million. Sources and uses of cash from fluctuations in operating assets and
liabilities included a decrease in accrued compensation and employee benefits
of $18.8 million, offset by decreases in accounts receivable, inventories, and
prepaid expenses and other assets of $8.1 million, $10.1 million, and $6.9
million, respectively. Included in the change in other accrued liabilities for
the first nine months of 2001 was $13.3 million for a payment of interest on
the notes. Additionally, we paid $10.3 million to our former Chief Executive
Officer in the first nine months of 2001, pursuant to a previously accrued
contractual obligation.

         Cash used by investing activities was $1.8 million for the nine
months ended September 30, 2002 and was $3.9 million for the same period in
2001. Cash used for investing activities in both periods reflects capital
expenditures. In the first nine months of 2002, capital expenditures related
primarily to furniture and fixtures for our new San Jose headquarters and
replacements of manufacturing equipment. Capital expenditures in the first
nine months of 2001 primarily related to equipment in our MOD III wafer
manufacturing facility. Cash used for financing activities in the first nine
months of 2002 was $5.8 million, primarily representing repayments on our
revolving line of credit. In the first nine months of 2001, $12.9 million of
cash was provided by financing activities primarily from borrowings under our
revolving line of credit.

         The EBITDA figures presented below reflect a non-GAAP measure of our
liquidity. These figures reflect our net income adjustment for non-cash items,
interest and income taxes. Our management uses separate "adjusted EBITDA"
calculations for purposes of determining certain employees' incentive
compensation and, subject to meeting specified adjusted EBITDA amounts, for
accelerating the vesting of EBITDA-linked stock options. This measure of
adjusted EBITDA was approved as part of our plan of reorganization. Adjusted
EBITDA, as we define it, 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 reorganization items and special charges, which represent
operational restructuring charges, including asset write-offs, employee
termination costs, and lease termination costs. The differences between the
EBITDA figures below and our adjusted EBITDA relate to the following
cash-settled reorganization and special items that are added-back in our
adjusted EBITDA computations:

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

Our EBITDA, reconciled to cash provided (used) by operations (the most
directly comparable measure of liquidity under generally accepted accounting
principles) for each period presented, is as follows (in millions):

<TABLE>
                                                                     Three Months Ended       Nine Months Ended
                                                                       September 30,             September 30,
                                                                    -------------------      -------------------
                                                                     2002         2001         2002         2001
                                                                    ------      -------      -------       -------
<S>                                                                 <C>          <C>          <C>          <C>
Reconciliation of cash provided (used) by operations to EBITDA:
     Cash flow from operations................................       $8.9       $  4.4        $ 1.1        $(23.0)
     Interest paid............................................        0.1          0.3          0.8          13.9
     Income taxes paid........................................        0.1          0.1          0.3           0.4
     Change in operating assets
           and liabilities....................................       (3.4)        (2.7)         5.4          (1.2)
                                                                    ------      -------      -------       -------
EBITDA........................................................      $  5.7       $ 2.1        $  7.6       $ (9.9)
                                                                    ======      =======      =======       =======
______________________

Note:     Figures for the three months ended September 30, 2002 reflect results of the Successor
          Company. Figures for the nine months ended September 30, 2002 reflect combined results of
          the Predecessor Company and the Successor Company. Figures for the September 30, 2001
          periods reflect only the Predecessor Company.

</TABLE>

         Our cash needs for the balance of 2002 include working capital,
professional fees incurred in connection with the preparation of our
registration statement on Form S-1 and capital expenditures. Our restructuring
of operations and reorganization activities are substantially complete and,
based on our current plans, except for costs that we will incur in connection
with completing the filing of a registration statement on Form S-1 pursuant to
the terms of our plan of reorganization, we do not expect to incur significant
expenditures for these items in the foreseeable future. The 2002 and 2003
business climate is expected to continue to be difficult. However, we
currently anticipate that available cash and cash provided by operating
activities will be adequate to satisfy our cash requirements for at least the
next twelve months.

         We expect fiscal 2002 capital expenditures will total approximately
$2.4 million, primarily for manufacturing equipment, building improvements and
internal use software. Decisions related to how much cash is used for
investing are influenced by the expected amount of cash to be provided by
operations.

Effects of Inflation and Changing Prices

         We believe that inflation and/or deflation had a minimal impact on
our overall operations during the nine months ended September 30, 2002.

Seasonality

         Sales typically peak in the third quarter caused by increased holiday
demand from our customers in the home entertainment and consumer products
markets. Our revenues are generally lower in the first and second quarters
compared to the rest of the year. We believe that this historical seasonal
trend could be impacted by general economic conditions and reduction in sales
of our previously emphasized products.

Recent Accounting Pronouncements

         In accordance with the early adoption provisions of SOP 90-7, on May
1, 2002, we adopted the following Statements of Financial Accounting
Standards: SFAS No. 143, "Accounting for Asset Retirement Obligations;" SFAS
No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections Business Combinations; and SFAS
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities."
We adopted SFAS No. 142, "Goodwill and Other Intangible Assets," on January 1,
2002. The adoption of these statements had no impact on our consolidated
financial statements.

         The principal provisions of SFAS No. 142 require that goodwill and
other intangible assets deemed to have an indefinite useful life not be
amortized but rather tested annually for impairment. Under SFAS No. 142,
intangible assets that have finite useful lives will continue to be amortized
over their useful lives. SFAS No. 142 requires companies to test intangible
assets that will not be amortized for impairment at least annually by
comparing the fair value of those assets to their recorded amounts.

         The principal provisions of SFAS No. 143 address financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and for the associated asset retirement costs. SFAS No. 143
requires an enterprise to record the fair value of an asset retirement
obligation as a liability in the period in which it incurs a legal obligation
associated with the retirement of tangible long-lived assets that result from
the acquisition, construction, development and or normal use of the assets.
The enterprise also is to record a corresponding increase to the carrying
amount of the related long-lived asset (i.e., the associated asset retirement
costs) and to depreciate that cost over the life of the asset. The liability
is changed at the end of each period to reflect the passage of time (i.e.,
accretion expense) and changes in the estimated future cash flows underlying
the initial fair value measurement. Because of the extensive use of estimates,
most enterprises will record a gain or loss when they settle the obligation.

         SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." SFAS No.
145 also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers," and amends SFAS No. 13, "Accounting for Leases," to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. SFAS No. 145 also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions.

         SFAS No. 146 revises the accounting for specified employee and
contract terminations that are part of restructuring activities. Companies
will be able to record a liability for a cost associated with an exit or
disposal activity only when the liability is incurred and can be measured at
fair value. Commitment to an exit plan or a plan of disposal expresses only
management's intended future actions and therefore, does not meet the
requirement for recognizing a liability and related expense. This statement
only applies to termination benefits offered for a specific termination event
or a specified period. It will not affect accounting for the costs to
terminate a capital lease. We were required to adopt this statement for exit
or disposal activities initiated starting May 1, 2002.

<PAGE>
                                 RISK FACTORS

                      Risks Related to the Restructuring

We recently effectuated a reorganization pursuant to a prepackaged plan under
Chapter 11 of the United States Bankruptcy Code, which does not assure our
continued success.

         On February 28, 2002, we filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. The
United States Bankruptcy Court for the Northern District of California
confirmed our prepackaged plan of reorganization on April 30, 2002 and we
emerged from bankruptcy on May 13, 2002. Pursuant to the financial
restructuring, our formerly publicly traded 9.5% Senior Secured Notes due
2005, accrued interest related to such notes, and all of our previously
existing equity securities were canceled. Our completion of bankruptcy
proceedings does not assure our continued success.

Our new revolving credit facility restricts our ability to take certain
actions that we may determine to be in our best interests.

         In connection with our reorganization, we replaced our previous
credit facility with a three-year $15.0 million senior secured revolving
credit facility. Borrowings under this credit facility are secured by
substantially all of our assets. This facility places various restrictions on
us, including, but not limited to, restrictions on our ability to incur
indebtedness and engage in certain corporate transactions, and requires us to
maintain financial ratios. As of September 30, 2002, we had additional
borrowing capacity of approximately $1.0 million under this facility. This
credit facility is scheduled to mature on May 13, 2005, at which time we may
be required to renew, refinance, or modify the credit facility with our lender
or locate alternative financing. These restrictions and provisions could have
an adverse impact on our future liquidity and ability to implement our
business plan.

Our reorganization may have negatively affected some of our relationships with
our customers, suppliers and employees.

         The effect, if any, of our Chapter 11 case and plan of reorganization
may have had, and may continue to have, upon our continued operations cannot
be predicted or quantified. Some entities may be uncomfortable doing business
with a company that has recently emerged from bankruptcy. Our Chapter 11 case
could adversely affect our relationships with our customers, suppliers and
employees.

As a result of the adoption of "fresh-start" accounting, you will not be able
to compare our historical financial statements with the financial results
disclosed in this quarterly report.

         As a result of the consummation of our plan of reorganization and the
transactions contemplated thereby, we are operating our business under a new
capital structure. In addition, we adopted fresh-start reporting in accordance
with the American Institute of Certified Public Accountants Statement of
Position 90-7 upon emerging from bankruptcy. Because SOP 90-7 requires us to
reset our assets and liabilities to current fair values, our financial
condition and results of operations disclosed in future filings will not be
comparable to the financial condition or results of operations reflected in
our historical financial statements contained in this quarterly report.
<PAGE>

                   Risk Related to Our Business and Industry

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. Our future operating results will
depend on a variety of factors and they may fail to meet expectations. Any
failure to meet expectations could cause the price of our securities to
fluctuate or decline significantly. In addition, high proportions of our costs
are fixed, due in part to our significant sales, research and development and
manufacturing costs. Therefore, small declines in revenue could
disproportionately affect our operating results in a quarter. A variety of
factors could cause our quarterly operating results to fluctuate, including:

         o    our ability to introduce and sell new products and technologies
              on a timely basis, such as our eZ80 and Z8 product families;

         o    any shortage of wafer or assembly manufacturing capacity at our
              third-party vendors;

         o    changes in the prices of our products;

         o    technological change and product obsolescence;

         o    changes in product mix or fluctuations in manufacturing yields;

         o    variability of our customers' product life cycles;

         o    the level of orders that we receive and can ship in a quarter,
              customer order patterns and seasonality;

         o    increases in the cost or availability of raw materials; and

         o    gain or loss of significant customers.

We are currently experiencing a downturn in the business cycle and our
revenues, cash generation and profitability are being adversely affected.

         The semiconductor industry is highly cyclical and has experienced
significant economic downturns at various times in the last three decades,
characterized by diminished product demand, erosion of average selling prices
and production over-capacity. In the fourth quarter of 2000, another downturn
in our business cycle began and continues today. The terrorist acts of
September 2001 in New York City, Washington, D.C. and Pennsylvania, and the
United States' military response, have exacerbated the downturn and created an
uncertain economic environment. We cannot predict the impact of these events,
any subsequent terrorist acts or of any related military action, on our
customers or business. We believe that, in light of these events, some of our
customers have curtailed and may in the future delay or further curtail
spending on technology, which could also negatively affect our quarterly
results or financial condition in the future.

         We are experiencing a decline in revenues, as our customers are not
ordering product from us in the quantities that they previously ordered in
2000 and 2001. This decline in revenue has been accentuated by our decision in
2000 to de-emphasize certain product offerings in the television and PC
peripheral markets. We are uncertain how long this decline will last.
Additionally, we may be required to reduce selling prices in response to
competition, which could lower our gross margin. Such a decline in selling
prices would have a negative impact on our financial condition. As a result of
our under-utilization of our manufacturing capacity, in January 2002 we closed
one of our two wafer fabrication facilities. We are currently, and will likely
in the future experience substantial period-to-period fluctuations in future
operating results that are attributable to general industry conditions or
events occurring in the general economy. Any economic downturn could pressure
us to reduce our prices and decrease our revenues, cash generation and
profitability.

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

         Although profitable for the 3 months ending September 30, 2002, we
have a history of losses for each of our last four years ended December 2001,
2000, 1999 and 1998, and for the nine months ended September 30, 2002,
excluding the accounting effects of our reorganization. If our new business
plan is not successful, we may not be profitable in the future.

We have implemented significant cost cutting measures, and we may be required
to implement additional cost cutting measures depending upon our future
revenues and operating results.

         Similar to other semiconductor companies, we have implemented
significant cost cutting measures in the past. These cost cutting efforts have
included:

         o    restructuring our manufacturing operations, which included
              consolidating our wafer fabrication facilities, outsourcing
              significant wafer and assembly operations and consolidating
              probe and final test operations at our Philippines site;

         o    refocusing of strategic priorities;

         o    reallocating personnel and responsibilities to better utilize
              human resources;

         o    reducing research and development and capital expenditure
              spending;

         o    reducing our workforce; and

         o    instituting temporary office and facility shutdowns.

         Cost cutting measures may not increase our efficiency or future
profitability and our reduction in 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.

If we are unable to implement our business strategy, our revenues and future
profitability may be harmed materially.

         Our future financial performance and success are largely dependent on
our ability to implement our business strategy. In third quarter of 2001 we
revised our business strategy to refocus on our core 8-bit micrologic business
and to increase our use of external wafer fabrication facilities. We may be
unable to implement this new business strategy, including planning for and
responding to lack of external wafer fabrication capacity and dealing with
unforeseen quality issues, and, even if we do implement our strategy
successfully, our results of operations may fail to improve.

         In addition, although the semiconductor micrologic market has grown
in prior years, it is currently in a significant downturn. Our revenues and
future profitability could be harmed seriously. It is uncertain for how long
this slowdown will last.

We may not be able to introduce and sell new products, and our inability to do
so may harm our business materially.

         Our operating results depend on our ability to introduce and sell new
products. 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 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 new products successfully depends on several
factors, including:

         o    development of support tools and collateral literature that make
              complex products easy for engineers to understand and use;

         o    proper new product selection;

         o    timely completion and introduction of new product designs;

         o    support from foundry services;

         o    complexity of the new products to be designed and manufactured;
              and

         o    market acceptance of our products and our customers' products.

         We cannot assure you that the design and introduction schedules for
any new products or any additions or modifications to our existing products
will be met, that these products will achieve market acceptance or that we
will be able to sell these products at prices that are favorable to us.

Acts of war or terrorism could harm our business.

         The September 11, 2001 terrorist attacks on the United States created
immediate significant economic and political uncertainty. The long-term
effects of such attacks on the world economy and our business are unknown, but
could be material to our business. Further terrorists acts or acts of war,
whether in the United States or abroad, also could cause damage or disruption
to our business, our suppliers, or customers, or our customers, or could
create political or economic instability, any of which could have a material
adverse effect on our business. Escalated tensions between India and Pakistan
particularly pose an increased risk to our design operations in India, which
could be disrupted in the event of the outbreak of war between the two
countries.

Our industry is highly competitive and we cannot assure you that we will 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 Advanced Micro Devices, ARM, Atmel,
Conexant, Intel, Lucent Technologies, Microchip, Motorola, NEC, Philips,
Sharp, ST Microelectronics, Texas Instruments and Toshiba, 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:

         o    our ability to design and manufacture new products that
              implement new technologies, including our eZ80 and Z8 product
              families;

         o    our ability to protect our products by effectively utilizing
              intellectual property laws;

         o    our product quality, reliability, ease of use and price;

         o    the diversity of product line and our efficiency of production;

         o    the pace at which customers incorporate our devices into their
              products; and

         o    the success of our competitors' products and general economic
              conditions.

         To the extent that our products achieve market acceptance,
competitors typically seek to offer competitive products or embark on pricing
strategies, which, if successful, could harm our results of operations and
financial condition materially.

Unless we maintain manufacturing efficiency and avoid manufacturing
difficulties, our future profitability could be harmed.

         Our semiconductors are highly complex to manufacture and our
production yields are sensitive. Our production yields may be inadequate in
the future to meet our customers' demands. Production yields are sensitive to
a wide variety of factors, including the level of contaminants in the
manufacturing environment, impurities in the materials used and the
performance of personnel and equipment. From time to time, we have experienced
difficulties in effecting transitions to new manufacturing processes and have
suffered delays in product deliveries or reduced yields. We may experience
similar difficulties or suffer similar delays in the future, and our operating
results could be harmed as a result.

         For example, we may experience problems that make it difficult to
manufacture the quantities of our products that we anticipate producing in our
wafer fabrication facility. These difficulties may include:

         o    equipment not performing as expected;

         o    process technology changes not operating as expected; and

         o    production personnel not operating equipment as expected.

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

         We rely on independent third-party foundry manufacturers to fabricate
an increasing percentage of our products. Industry-wide shortages in foundry
capacity could harm our financial results. For example, a significant amount
of our sales are of products which cannot be manufactured at our Nampa, Idaho
wafer fabrication facility. Should we be unable to obtain the requisite
foundry capacity to manufacture our complex new products, or should we have to
pay high prices to foundries in periods of tight capacity, our ability to
increase our revenues might be impaired. Any delay in initiating production at
third-party facilities, any inability to have new products manufactured at
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
manufacturers include:

         o    reduced control over the cost of our products, delivery
              schedules and product quality;

         o    the warranties on wafers or products supplied to us are limited;

         o    increased exposure to potential misappropriation of our
              intellectual property; and

         o    the cost and consumption of time associated with switching
              foundries.

We depend on third-party assemblers 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 for packaging our products. If we
are unable to obtain additional assembly capacity on sufficiently favorable
terms, our ability to achieve continued revenue growth might be impaired.
Shortages in contract assembly capacity could cause shortages in our products
and could also result in the loss of customers. Because we rely on these third
parties, we also have less control over our costs, delivery schedules and
quality of our products and our intellectual property is at greater risk of
misappropriation.

Our international operations subject us to risks inherent in doing business in
foreign countries that could impair our results of operations.

         Approximately 58% of our net sales for the nine months ended
September 30, 2002 and 55% of our net sales for the year ended December 31,
2001 were to foreign customers and we expect that international sales 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 and India. We cannot assure you 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:

         o    economic and political instability;

         o    changes in regulatory requirements, tariffs, customs, duties and
              other trade barriers;

         o    transportation delays;

         o    power supply shortages and shutdowns;

         o    difficulties in staffing and managing foreign operations and
              other labor problems;

         o    existence of language barriers and cultural distinctions;

         o    acts of God, including floods, typhoons and earthquakes;

         o    taxation of our earnings and the earnings of our personnel; and

o             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 exchange 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.

         The risks inherent in our international operations have been
increased by the terrorist attacks of September 2001. These attacks, coupled
with the international military response, have created an uncertain economic
environment and we cannot predict the impact of these events, any subsequent
terrorist acts or of any related military action, on our customers or our
business.

The lease of the facility housing our Philippines operations expires in March
2004; if we are unable to negotiate an extension of this lease or relocate
these operations on commercially reasonable terms, our results of operations
could be harmed.

         The majority of our final product testing, inventory warehousing and
logistics operations reside in a 54,000 square foot facility located in the
Philippines. We have occupied this site with inexpensive rental payments since
1979 and the lease is presently due to expire on March 31, 2004. Accordingly,
if we are unable to negotiate an extension of the lease or effectively
relocate these operations to another site on commercially reasonable terms,
our results of operations could be harmed.

We have changed our North American distributors, and we may lose some of our
customers as a result.

         In September 2002, we announced our intention to terminate our
existing relationship with our Pioneer Standard, our full-service distributor
in North America. We expect to complete the termination of our relationship
with Pioneer Standard in the fourth quarter of 2002. In the nine months ended
September 30, 2002, Pioneer Standard purchased $15 million of our products. In
their place, we have franchised Future Electronics as our sole exclusive
full-service distributor in North America. We expect that Future Electronics
will take over the majority of the business that we previously conducted with
Pioneer Standard, but this transition may not occur smoothly. . Pioneer
Standard may try to direct their customers to purchase competing products
instead of ours. Other customers may not wish to transfer their business to
Future Electronics. As a result, we may lose some of the business that we used
to sell through our prior distributor, which could harm our operating results
materially. Future Electronics also distributes products of our competitors
that may directly compete with our product offerings. If Future electronics
chooses to promote those products over our products, our operating results
could be harmed significantly. In addition, if Future Electronics were to
terminate our distribution agreement, we could experience a period of
significant interruption of our business while we obtained other distribution
channels.

A significant amount of our revenues comes from relatively few of our
customers and 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 customers and 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 accounted for
approximately 40% of our sales in 1999, 40% of our sales in 2000 and 39% of
our sales in 2001, and 43% of our net sales for the nine months ended
September 30, 2002. Our distributors may not continue to effectively market,
sell or support our products. Our ten largest customers, including our
distributors, accounted for approximately 48% of our net sales in 1999,
approximately 49% of our net sales in 2000 and 55% of our net sales in 2001
and 55% for the nine months ended September 30, 2002. Arrow Electronics
accounted for approximately 13% of our net sales in 1999 and Pioneer-Standard
accounted for approximately 12% of our net sales in 2000, 13% of our net sales
in 2001 and 14% of our net sales for the nine months ended September 30, 2002.
Concentration of revenue 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. 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 harm
our business materially.

         We have very few long-term contracts with our customers and, like us,
our customers typically compete in cyclical industries. In the future, these
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,
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 upon 30 days notice for
standard products and 60 days notice for custom products. Customers may still
cancel or reschedule within these time periods, however they routinely incur a
cancellation or rescheduling charge. This risk is increased because our
customers can purchase some similar products from our competitors.

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
design our product out of some devices. Any resulting decreased sales could
reduce our profitability. For example, in 1999 and 2000, a number of our
customers changed the designs of computer mouse pointing devices that they
manufacture, and as a result, these devices no longer contain our products.
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. For example, net sales of our computer mouse pointing
devices and other computer peripheral products decreased substantially from
approximately $28.2 million in 1999 to approximately $15.4 million in 2000, to
approximately $4.9 million in 2001, and to approximately $1.8 million for the
nine months ended September 30, 2002. These reduced sales due to design
changes have harmed us in the past and additional design changes could harm
our operating results 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 affect our business
negatively.

         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, merchandising, marketing and customer service personnel
could harm our business and our ability to obtain new customers and develop
new products. In addition, our current financial condition could have a
negative impact on our ability to recruit and retain employees.

         In January 2002, we entered into an employment agreement with James
M. Thorburn, our Chairman and Chief Executive Officer, pursuant to which we
will make grants of restricted stock on each of May 13, 2003, May 13, 2004 and
May 13, 2005. We intended to loan Mr. Thorburn the funds to pay the income
taxes due with respect to these grants, as we have done with other employees
that received grants of restricted stock. In July 2002, however, Congress
enacted the Sarbanes-Oaxley Act of 2002, which prohibits these loans. As a
result of this development, we may need to revisit the terms of our employment
arrangement with Mr. Thorburn, and we may not be able to reach an agreement
acceptable to both parties.

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 measures we take to protect our intellectual property rights may
be inadequate to protect our proprietary technologies and processes from
misappropriation, and these measures may not prevent independent third party
development of competitive products. We may not be able to detect the
unauthorized use of, or take appropriate steps to enforce our intellectual
property rights. Despite our efforts to protect our proprietary rights in both
the United States and in foreign countries, existing intellectual property
laws in the United States provide only limited protection and, in some cases,
the laws of foreign countries provide even less protection.

         Litigation may be necessary in the future 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 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.

We could be subject to claims of infringement of third-party intellectual
property rights, which could be time-consuming and expensive for us to defend.

         The semiconductor industry is characterized by frequent claims and
related litigation regarding patent and other intellectual property rights.
Third parties may assert claims or initiate litigation against us, our
licensors, our foundries, our service providers, or our customers with respect
to existing or future products. Any intellectual property litigation initiated
against us could subject us to significant liability for damages and
attorneys' fees, invalidation of our proprietary rights, injunctions or other
court orders that could prevent us from using specific technologies or
engaging in specific business activities. These lawsuits, regardless of their
success, would likely be time-consuming and expensive to resolve and would
divert management's time and attention from our business. Any potential
intellectual property litigation could also force us to do one or more of the
following:

         o    pay substantial damages;

         o    cease using key aspects of our technologies or processes that
              incorporate the challenged intellectual property;

         o    cease the manufacture, use, sale, offer for sale and importation
              of infringing products;

         o    alter our designs around a third party's patent;

         o    obtain licenses to use the technology that is the subject of the
              litigation from a third party;

         o    expend significant resources to develop or obtain non-infringing
              technology;

         o    create new brands for our services and establish recognition of
              these new brands; or

         o    make significant changes to the structure and the operation of
              our business.

         Implementation of any of these alternatives could be costly and
time-consuming and might not be possible at all. An adverse determination in
any litigation to which we were a party could harm our business, our results
of operations and financial condition. In addition, we may not be able to
develop or acquire the technologies we need, and licenses to such
technologies, if available, may not be obtainable on commercially reasonable
terms. Any necessary development or acquisition could require us to expend
substantial time and other resources.

         If an infringement against us is successful and we are unable to
license the infringed technology, our business and operating results would be
harmed significantly.

We may engage in acquisitions that could adversely affect our operating
results, dilute our stockholders' equity, or cause us to incur additional debt
or assume contingent liabilities.

         To grow our business and maintain our competitive position, we have
made acquisitions in the past and may do so in the future. For example, in
April 1999, we acquired substantially all of the assets and assumed the
operating liabilities of Seattle Silicon Corporation and in July 2000, we
acquired Calibre, Inc.

         Acquisitions involve a number of risks that could harm our business
and result in the acquired business not performing as expected, including:

         o    insufficient experience with technologies and markets in which
              the acquired business is involved that may be necessary to
              successfully operate and integrate the business;

         o    problems integrating the acquired operations, personnel,
              technologies or products with the existing business and
              products;

         o    diversion of management time and attention from our core
              business and to the acquired business;

         o    potential failure to retain key technical, management, sales and
              other personnel of the acquired business;

         o    difficulties in retaining relationships with suppliers and
              customers of the acquired business; and

         o    acquired assets, including intangible assets, may subsequently
              become impaired.

         In addition, acquisitions 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.

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

         We prepare our financial statements in conformity with accounting
principles generally accepted in the 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. For example, while current accounting rules allow us to exclude the
expense of stock options from our financial statements, influential business
policy groups have suggested that the rules be changed to require these
options to be expensed. Technology companies generally, and our company,
specifically, rely heavily on stock options as a major component of our
employee compensation packages. If we are required to expense options, we may
be less likely to achieve profitability or we may have to decrease or
eliminate options grants. Decreasing or eliminating option grants may
negatively impact our ability to attract and retain qualified employees.

We are subject to a variety of environmental laws and regulations and our
failure to comply with present or future laws and regulations could harm our
business materially.

         Our manufacturing processes require us to use various hazardous
substances and, as a result, we are subject to a variety of governmental laws
and regulations related to the storage, use, emission, discharge and disposal
of such substances. Specifically, the existing process of manufacturing
silicon wafers is based on use of large amounts of corrosive chemicals and
huge quantities of distilled, de-ionized water. Our failure to comply with
present or future laws and regulations or the loss of any permit required to
conduct our business could result in fines being imposed on us, the limitation
or suspension of production or cessation of our operations. Compliance with
any future environmental laws and regulations could require us to acquire
additional equipment or to incur substantial other expenses. Any failure by us
to control the use of, or adequately restrict the discharge of, hazardous
materials could subject us to future liabilities that could materially harm
our business. In addition, we may be required to incur significant expense in
connection with governmental investigations and/or environmental employee
health and safety matters.


Item 3.  Quantitative and Qualitative Disclosure About Market Risk

Interest Rate Risk

         Our exposure to market risk for changes in interest rates relates
primarily to our short-term investment portfolio and borrowings under our
revolving credit facility. 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 September 30, 2002, our cash equivalents were invested in
bank time deposits and money market funds. We have no significant cash flow
exposure due to rate changes for our cash equivalents as these instruments are
short-term.

         The table below presents principal amounts and related average rates
by year of maturity for our cash equivalents and debt obligations as of
September 30, 2002 (dollars in millions):

                                           Carrying Value         Fair Value
                                           --------------         ----------
           Cash Equivalents:

               Fixed rate                   $    23.0             $  23.0

               Average interest rate              1.19%                --

           Short-Term Debt:

               Variable-rate debt           $     6.9             $   6.9

               Interest rate                      4.4%                 --


Item 4. Disclosure Controls and Procedures

Evaluation of Controls and Procedures

         We maintain disclosure controls and procedures, which we have
designed to ensure that material information related to the Company, including
our consolidated subsidiaries, is made known to the persons preparing our
periodic reports on a regular basis. In response to recent legislation and
proposed regulations, we reviewed our internal control structure and our
disclosure controls and procedures. Although we believe our preexisting
disclosure controls and procedures were adequate to enable us to comply with
our disclosure obligations, as a result of such review, we implemented minor
changes, primarily to formalize and document the procedures already in place.

         Within 90 days before the filing of this report, the Company's
management carried out an evaluation, under the supervision and with the
participation of the Company's Chief Executive Officer, James Thorburn, and
the Company's Chief Financial Officer, Perry Grace, of the effectiveness of
the design and operation of the Company's disclosure controls and procedures.
Based upon that evaluation, Mr. Thorburn and Mr. Grace concluded that the
Company's disclosure controls and procedures are effective in causing material
information to be collected, communicated and analyzed by management of the
Company on a timely basis and to ensure that the quality and timeliness of the
Company's public disclosures complies with its SEC disclosure obligations.

Changes in Controls and Procedures

         There were no significant changes in the Company's internal controls
or in other factors that could significantly affect these internal controls
after the date of our most recent evaluation.

<PAGE>

                                    PART II

                               OTHER INFORMATION

Item 1.  Legal Proceedings

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


Item 6.  Exhibits and Reports on Form 8-K

a) Exhibits are filed or incorporated herein by reference as indicated below:

 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 (b)      Amended and Restated Certificate of Incorporation of ZiLOG, Inc.

  3.2 (b)      Amended and Restated Bylaws of ZiLOG, Inc.

  4.1 (c)      Form of Restricted Stock Purchase Agreement.

  4.2 (c)      Form of Non-Qualified EBITDA-Linked Option Grant Agreement.

  4.3 (c)      Form of Non-Qualified Non-EBITDA-Linked Option Grant Agreement.

  99.1         Certification pursuant to Section 906 of the Sarbanes-Oxley Act.


_____________________________

(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 for the
     Quarter ended June 30, 2002.


b) Reports on Form 8-K:

On August 16, 2002 the Company filed a Form 8-K reporting that its Chief
Financial Officer and Chief Executive Officer had filed the certification
required by Section 906 of the Sarbanes Oxley Act..

<PAGE>

                                  ZiLOG, Inc.

                                  SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                  ZiLOG, Inc.
                                 (Registrant)


                                 /s/ Perry J. Grace
                                 ------------------------------
                                 Vice President and Chief Financial Officer
                                 (Duly Authorized Officer)

                                 /s/ James M. Thorburn
                                 ------------------------------
                                 Chairman, Chief Executive Officer and Director
                                (Duly Authorized Officer)


Date:  April 14, 2003

<PAGE>

                                CERTIFICATIONS

I, James M. Thorburn, certify that:

1.  I have reviewed this quarterly report on Form 10-Q/A of ZiLOG, Inc.:

2.  Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3.  Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.  The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

         b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and

         c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5.  The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

         a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal controls; and

         b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6.  The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:     April 14, 2003

          /s/ James M. Thorburn
         -----------------------------
         James  M. Thorburn
         Chairman and Chief Executive Officer

<PAGE>

                                CERTIFICATIONS

I, Perry J. Grace, certify that:

1.  I have reviewed this quarterly report on Form 10-Q/A of ZiLOG, Inc.;

2.  Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3.  Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.  The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

         b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and

         c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5.  The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

         a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal controls; and

         b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6.  The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:   April 14, 2003


         /s/ Perry J. Grace
         ---------------------------
         Perry J. Grace
         Vice President and Chief Financial Officer

<PAGE>



                                                                  Exhibit 99.1


                   Certification of CEO and CFO Pursuant to
                            18 U.S.C. Section 1350,
                            as Adopted Pursuant to
                 Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of ZiLOG, Inc. (the
"Company") for the quarterly period ended September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), James M.
Thorburn, as Chief Executive Officer of the Company, and Perry Grace, as Chief
Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, to the best of his and her knowledge, respectively, that:

         (1) The Report fully complies with the requirements of Section 13(a)
of the Securities Exchange Act of 1934; and

         (2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

/s/ James M. Thorburn
--------------------------
Name:   James M. Thorburn
Title:  Chairman and Chief Executive Officer
Date:   April 14, 2003

/s/ Perry J. Grace
--------------------------
Name:   Perry J. Grace
Title:  Vice President and Chief Financial Officer
Date:   April 14, 2003



This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.