**SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549**

**FORM 10-Q**

**[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 Incorporation or Organization) | (I.R.S. Employer Identification Number)

**532 Race StreetSan Jose, California   95126**(Address of principal executive offices)

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

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

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, $.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 Z80,
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 © ZiLOG, Inc. 1999.







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



|**PART I.   FINANCIAL INFORMATION**                                                                                                                                                                  | **Page No.**
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------
|                                                                                                                                                                                                     |             
|Item 1.   Interim Condensed Consolidated Financial Statements
                  (unaudited):                                                                                                         |             
|                                                                                                                                                                                                     |             
|Unaudited Condensed Consolidated Statements of Operations for the
          
    three months ended September 30, 2002 and September 30, 2001                                                        | **          
|                                                                                                                                                                                                     |             
|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 | **          
|                                                                                                                                                                                                     |             
|Unaudited Condensed Consolidated Balance Sheets at September 30, 2002,
   May 1, 2002, April 30, 2002 and December 31, 2001                                                                          | **          
|                                                                                                                                                                                                     |             
|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 | **          
|                                                                                                                                                                                                     |             
|Notes to Unaudited Condensed Consolidated Financial Statements                                                                                                                                       | **          
|                                                                                                                                                                                                     |             
|Item 2.   Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                                                                                | **          
|                                                                                                                                                                                                     |             
|Item 3.   Quantitative and Qualitative Disclosures About Market Risk                                                                                                                                 | **          
|                                                                                                                                                                                                     |             
|Item 4.   Disclosure Controls procedures                                                                                                                                                             | **          
|                                                                                                                                                                                                     |             
|**PART II.  OTHER INFORMATION**                                                                                                                                                                      |             
|                                                                                                                                                                                                     |             
|Item 1.   Legal Proceedings                                                                                                                                                                          | **          
|                                                                                                                                                                                                     |             
|Item 6.   Exhibits and Reports on Form 8-K                                                                                                                                                           | **          
|                                                                                                                                                                                                     |             
|**Signature**                                                                                                                                                                                        | **          

---

**PART I -- FINANCIAL INFORMATION**

**Item 1.  Financial Statements**

---

**ZILOG, INC.

           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                      (in millions except per share data)**

`Sucessor    Predecessor
                                                           Company       Company
                                                         ------------  ------------
                                                         Three Months  Three Months
                                                            Ended         Ended
                                                          Sep. 30,       Sep. 30,
                                                             2002          2001
                                                         ------------  ------------
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 *.......                   7.7           9.6
  Special charges and reorganization items....                   0.8           4.5
  Stock-based compensation *..................                   0.5           --
  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
                                                         ============
* Amortization of stock-based compensation not
  included in expense line-items:
Research and development......................                  $0.0           $ --
Selling, general and administrative...........                  $0.5           $ --
                                                         ------------  ------------
                                                                $0.5           $ --
                                                         ============  ============`

See accompanying notes to condensed consolidated financial statements.

---

**ZILOG, INC.

           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                      (in millions except per share data)**

`Sucessor
                                                           Company        Predecessor Company
                                                         ------------  -------------------------
                                                         Five Months   Four Months   Nine Months
                                                            Ended         Ended         Ended
                                                           Sep. 30,     April 30,      Sep. 30,
                                                             2002          2002          2001
                                                         ------------  ------------ ------------
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 *..................                   7.2           6.8         22.1
  Selling, general and administrative *.......                  13.0          10.8         36.1
  Special charges and reorganization items....                   1.2           6.8         12.6
  Stock-based compensation *..................                   2.5           --           --
  Amortization of intangible assets...........                   4.9           --           --
  In-process research and development.........                  18.7           --           --
                                                         ------------  ------------ ------------
     Total operating expenses.................                  47.5          24.4         70.8
                                                         ------------  ------------ ------------
Operating loss................................                 (22.6)         (4.5)       (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)        280.1        (64.6)
Reorganization items..........................                   --            4.0          --
Provision for income taxes....................                   0.7           0.1          0.2
                                                         ------------  ------------ ------------
Income (loss) before equity method
  investment..................................                 (23.1)        276.0        (64.8)
Loss from equity method investment............                   --            --          (1.1)
                                                         ------------  ------------ ------------
Net income (loss).............................                ($23.1)       $276.0       ($65.9)
                                                         ============  ============ ============
Preferred stock dividends accrued.............                   --            1.9          3.8
                                                         ------------  ------------ ------------
Net income (loss) attributable to common
   stockholders...............................                ($23.1)       $274.1       ($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
                                                         ============
* Amortization of stock-based compensation not
  included in expense line-items:
Research and development......................                  $0.1           $ --         $ --
Selling, general and administrative...........                  $2.4           $ --         $ --
                                                         ------------  ------------ ------------
                                                                $2.5           $ --         $ --
                                                         ============  ============ ============
--------------------------------------------------------
    (1) Excludes contractual interest of $4.2 million in the four months ended April 30, 2002
        not recorded during reorganization.`

See accompanying notes to condensed consolidated financial statements.

---

**ZILOG, INC.

                UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

                                 (in millions)**

`Sucessor Company     Predecessor Company
                                                           -------------------  ---------------------
                                                           Sep. 30,   May 1,    April 30,   Dec. 31,
                                                             2002      2002        2002       2001
                                                           --------- ---------  ---------- ----------
                                  ASSETS
Current assets:
  Cash and cash equivalents..............................     $24.2     $18.8       $18.8      $30.7
  Accounts receivable, less allowance for doubtful
    accounts of $0.7 at September 30, 2002, May 1, 2002
    and April 30, 2002 and $0.9 at December 31, 2001 ....      16.0      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 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 non-current liabilities............................      14.7      14.1        14.1       14.3
Liabilities subject to compromise........................       --        --          326        --
                                                           --------- ---------  ---------- ----------
          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 based 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.

---

**ZiLOG, INC.

           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  (in millions)**

`Sucessor
                                                           Company        Predecessor Company
                                                         ------------  -------------------------
                                                         Five Months   Four Months   Nine Months
                                                            Ended         Ended         Ended
                                                           Sep. 30,     April 30,      Sep. 30,
                                                             2002          2002          2001
                                                         ------------  ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................      ($23.1)       $276.0       ($65.9)
   Adjustments to reconcile net income (loss) to cash
     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 from 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           --           1.8
     Loss from disposition of equipment.................         --            --           0.7
   Changes in assets and liabilities:
     Accounts receivable................................        (1.5)          2.1          8.1
     Inventories........................................         2.9           2.9         10.1
     Prepaid expenses and other current and
       noncurrent assets................................        (1.6)          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  liabilities.........................        (2.8)         (0.2)         2.9
                                                         ------------  ------------ ------------
        Net cash provided (used) by operations
           before repoganization 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 redemption........................        (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.

---

**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 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:

- 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.

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.

- 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 $4.1 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):

`Notes payable.................        $280.0
     Accrued interest on Notes.....          27.2
     Preferred dividends payable...          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 $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
                                       -----------
   Total.........................           $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):

`Predecessor                                         Sucessor
                                        Company at    Reorgan-   Fresh-Start   Reclass-   Company at
                                        April 30,     ization    Adjustments  ifications    May 1,
                                           2002         (1)          (2)         (3)         2002
                                       ------------ ------------ ------------ ---------- ------------
                ASSETS
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 noncurrent 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 Sucessor 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) Reclassifications reflect the elimination of Predecessor Company's stockholders' deficiency.`

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
                                       -----------
                                            $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):

`Amortization
                                           Year        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 of  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 transaction 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 the 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):

`Sucessor Company      Predecessor Company
                                       ----------------------- ----------------------
                                        Sep. 30,     May 1,     April 30,   Dec. 31,
                                          2002       2002 *       2002        2001
                                       ----------- ----------- ----------- ----------
     Raw materials...............            $0.5        $0.7        $0.7       $1.0
     Work-in-process.............             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.`

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.  Restructuring of operations 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):

`Sucessor   Predecessor
                                         Company     Company
                                       ----------- -----------
                                       Three MonthsThree Months
                                          Ended       Ended
                                        Sep. 30,    Sep. 30,
                                          2002        2001
                                       ----------- -----------
Restructuring of operations:
   Employee severance and
     termination benefits..........         $ --         $2.7
   MOD III closure costs...........           0.3         0.5
Professional fees for debt
   restructuring...................           0.5         1.3
                                       ----------- -----------
                                             $0.8        $4.5
                                       =========== ===========

                                        Sucessor
                                         Company     Predecessor Company
                                       ----------- -----------------------
                                       Five Months Four Months Nine Months
                                          Ended       Ended       Ended
                                        Sep. 30,    April 30,   Sep. 30,
                                          2002        2002        2001
                                       ----------- ----------- -----------
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
                                       =========== =========== ===========`

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

`Severance and                Lease      MOD III
                                       Termination      Debt     Termination   Closure
                                         Benefits   Restructuring   Costs       Costs       Total
                                       ------------ ------------ ------------ ---------- ------------
    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
                                       ============ ============ ============ ========== ============`

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:

`Products                                                         Sample Uses
----------                                                       ------------
Embedded control products include:
  Core 8-bit Microcontrollers and                                Security system, battery chargers,
    Microprocessors                                              Universal Infra-red remote controls,
                                                                 industrial controllers, POS terminal,
                                                                 motor control, communications products
Standared products include:
  Serial Communications Controllers                              Telephone switch/PBX
  Modems                                                         Satellite TV, POS card validation
  IrDA transceivers                                              PDA's, cell phones
  Televesion and PC peripheral products                          TV, keyboard, pointing devices
  Foundry product services                                       Broadband access products`

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):

`Sucessor   Predecessor    Sucessor
                                         Company      Company      Company      Predecessor Company
                                       ------------ ------------ ------------ -----------------------
                                       Three Months Three Months Five Months  Four MonthsNine Months
                                          Ended        Ended        Ended       Ended       Ended
                                        Sep. 30,     Sep. 30,     Sep. 30,    April 30,   Sep. 30,
                                           2002         2001         2002        2002        2001
                                       ------------ ------------ ------------ ---------- ------------
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
Distributor..........................         14.7         16.0         27.2       20.2         48.6
                                       ------------ ------------ ------------ ---------- ------------
   Total.............................        $36.0        $42.6        $64.1      $46.0       $130.9
                                       ============ ============ ============ ========== ============

Net sales by busines 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%     N/A          N/A         N/A         N/A
                                       ============ ============ ============ ========== ============

Net sales to Sanmina-SCI Systems,
   Inc as a percentage of total
   net sales.........................      N/A             16.8%     N/A         N/A         N/A
                                       ============ ============ ============ ========== ============`



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, 2004.  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 "EBITDA"  as defined, reported for the
immediately preceding 12 months as follows:  (1) one-third if the Company
reports EBITDA for the previous 12 months in excess of $17.2 million; (2) two-
thirds if the Company reports EBITDA for the previous 12 months in excess of
$25.7 million; and (3) 100% if the Company reports EBITDA for the previous 12
months in excess of $30.0 million.

For the twelve-month period ended September 30, 2002, the
Company's 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 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 $2.3
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):

`Sucessor Company
                                       -----------------------
                                         Three        Five
                                         Months      Months
                                          Ended       Ended
                                        Sep. 30,    Sep. 30,
                                          2002        2002
                                       ----------- -----------
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
                                       =========== ===========`

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 Frères & 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 Frères & 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
   Brandname.....................             9.2
                                       -----------
   Total.........................           $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:

- fresh-start reporting;
- estimating sales returns and allowances;
- estimating allowance for doubtful accounts;
- estimating write-downs of excess and obsolete inventories; and
- 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 Frères & 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:

- significant changes in the manner of our use of the acquired assets;
- significant changes in the strategy for our overall business; and
- 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

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 $14.0 million in the first nine months of 2002, reflecting a 36.7%
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 $23.8 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 $4.5 million in 2002 operating costs versus 2001.

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

`Three Months Ended        Nine Months Ended
                                       ------------------------- -----------------------
                                         Sep. 30,     Sep. 30,     Sep. 30,    Sep. 30,
                                           2002         2001         2002        2001
                                       ------------ ------------ ------------ ----------
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...........          --           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 Sucess
      Figures for the nine months ended September 30, 2002 reflect combined results of th
      Company and the Sucessor Company. Figures for the September 30, 2001 periods reflec
      Predecessor Company.`

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. 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):

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

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.  Consequently, commencing
January 1, 2003, 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.

EBITDA.  The EBITDA measure presented below and throughout this
quarterly report may not be comparable to EBITDA as presented by other
companies.  EBITDA, as we calculate it, excludes interest on debt, income taxes,
effects of changes in accounting principles and equity adjustments and non-cash
charges such as depreciation, amortization 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, lease termination costs and legal
settlements.  We believe the disclosure of such information provides the reader
with additional meaningful information to better evaluate the results of our
ongoing operations and the associated vesting of our EBITDA-based options.

Our EBITDA as defined, reconciled to our net income for each period
indicated, is as follows (in millions):

`Three Months Ended        Nine Months Ended
                                                    ------------------------- -----------------------
                                                      Sep. 30,     Sep. 30,    Sep. 30,    Sep. 30,
                                                        2002         2001        2002        2001
                                                    ------------ ------------ ---------- ------------
Reconciliation of net income (loss) to EBITDA,
   as defined:
   Net income (loss)............................           $0.2       ($14.7)    $252.8       ($65.9)
   Cost of sales: amortization of fresh-start
      inventory adjustment......................            --           --         3.9          --
   In-process research and development..........            --           --        18.7          --
   Fresh-start adjustments......................            --           --       (83.7)         --
   Reorganization items.........................            --           --         4.0          --
   Special charges..............................            0.8          4.5        8.0         12.6
   Stock-based compensation.....................            0.6          0.1        2.6          0.1
   Depreciation and amortization................            4.7          9.2       10.3         29.0
   Equity investment loss.......................            --           0.4        --           1.1
   Interest expense, net........................            --           7.1        5.1         20.9
   Income tax expense...........................            0.2          --         0.8          0.2
   Net gain on discharge of debt................            --           --      (205.7)         --
   Other........................................            --           --         0.2          --
                                                    ------------ ------------ ---------- ------------
EBITDA, as defined..............................           $6.5         $6.6      $17.0        ($2.0)
                                                    ============ ============ ========== ============
------------------------
Note: Figures for the three months ended September 30, 2002 reflect results of the Sucessor Company.
      Figures for the nine months ended September 30, 2002 reflect combined results of the Predecessor
      Company and the Sucessor Company. Figures for the September 30, 2001 periods reflect only the
      Predecessor Company.`

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 $7.7 million in the third quarter of
2002, reflecting a 19.8% 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 $2.6 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.

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.

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, 2004, 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.

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:

- our ability to introduce and sell new products and technologies on a timely
basis, such as our eZ80 and Z8 product families;
- any shortage of wafer or assembly manufacturing capacity at our third-party
vendors;
- changes in the prices of our products;
- technological change and product obsolescence;
- changes in product mix or fluctuations in manufacturing yields;
- variability of our customers' product life cycles;
- the level of orders that we receive and can ship in a quarter, customer
order patterns and seasonality;
- increases in the cost or availability of raw materials; and
- 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:

- 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;
- refocusing of strategic priorities;
- reallocating personnel and responsibilities to better utilize human
resources;
- reducing research and development and capital expenditure spending;
- reducing our workforce; and
- 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:

- development of support tools and collateral literature that make complex
products easy for engineers to understand and use;
- proper new product selection;
- timely completion and introduction of new product designs;
- support from foundry services;
- complexity of the new products to be designed and manufactured; and
- 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:

- our ability to design and manufacture new products that implement new
technologies, including our eZ80 and Z8 product families;
- our ability to protect our products by effectively utilizing intellectual
property laws;
- our product quality, reliability, ease of use and price;
- the diversity of product line and our efficiency of production;
- the pace at which customers incorporate our devices into their products;
and
- 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:

- equipment not performing as expected;
- process technology changes not operating as expected;  and
- 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:

- reduced control over the cost of our products, delivery schedules and
product quality;
- the warranties on wafers or products supplied to us are limited;
- increased exposure to potential misappropriation of our intellectual
property; and
- 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:

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

In addition, our activities outside the United States are subject to risks
associated with fluctuating currency values and 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:

- pay substantial damages;
- cease using key aspects of our technologies or processes that incorporate
the challenged intellectual property;
- cease the manufacture, use, sale, offer for sale and importation of
infringing products;
- alter our designs around a third party's patent;
- obtain licenses to use the technology that is the subject of the litigation
from a third party;
- expend significant resources to develop or obtain non-infringing
technology;
- create new brands for our services and establish recognition of these new
brands; or
- 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:

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

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 Nothern 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       Confirmation 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.





---

**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)



| |     |                   
| | --- | ------------------
| | By: | /s/ Perry J. Grace

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



| |     |                      
| | --- | ---------------------
| | By: | /s/ James M. Thorburn

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

Date: November 13, 2002

---

CERTIFICATIONS

I, James M. Thorburn, certify that:

1. 	I have reviewed this quarterly report on Form 10-Q 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:      November 13,2002

/s/James M. Thorburn

James  M. Thorburn

Chairman and Chief Executive Officer



CERTIFICATIONS

I, Perry Grace, certify that:

1. 	I have reviewed this quarterly report on Form 10-Q 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:      November 13, 2002

/s/ Perry J. Grace

Perry J. Grace

Vice President and Chief Financial Officer