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



                                 Form 10-Q



(Mark One)

X                 Quarterly Report Pursuant to Section 13 or 15(d) of the
                  Securities Exchange Act of 1934. For the quarterly period
                  ended June 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: 001-13748


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


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


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

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

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

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


   As of July 28, 2002, there were 29,953,045 shares of the Company's
   Common Stock, $0.01 par value outstanding.

         This Report on Form 10-Q and other oral and written statements we
make contain and incorporate forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended, 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 utilization of our
manufacturing facilities; our ability to sell or lease our MOD III
facility; the effects of our chapter 11 reorganization; 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, and our distributors and
customers significantly reducing their existing inventories before ordering
new products, and those factors discussed in the sections entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and "Risk Factors," as well as those discussed elsewhere in this Report and
in other reports filed with the Securities and Exchange Commission. These
factors are not intended to represent a complete list of the general or
specific factors that affect us. Other factors, including general economic
factors and business strategies, may be significant, presently or in the
future, and the factors set forth in this report may affect us to a greater
extent than indicated. We caution the reader not to place undue reliance on
the forward-looking statements contained herein, which reflect our position
as of the date of this report. We undertake no obligation to publicly
release updates or revisions to these statements.

         Based in San Jose, California, we were incorporated in California
in October 1981 and reincorporated in Delaware in April 1997. In this
report, "ZiLOG," "the Company," "our," "us," "we," and similar expressions
refer to ZiLOG, Inc. and its subsidiaries. However, when these expressions
are used throughout this report in connection with ZiLOG, Inc.'s
reorganization under Chapter 11 of the U.S. bankruptcy code, they are
referring only to the parent company, ZiLOG, Inc., and not to any of its
subsidiaries. ZiLOG and Z80 are registered trademarks of ZiLOG, Inc.


Extreme Connectivity(C)ZiLOG, Inc. 1999.


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


PART I. FINANCIAL INFORMATION                                             Page

Item 1.  Financial Statements (unaudited)..............................     1

         Unaudited Condensed Consolidated Statements of Operations
           for the two months ended June 30, 2002, one month ended
           April 30, 2002 and three months ended June 30, 2001.........     2

         Unaudited Condensed Consolidated Statements of Operations
           for the two months ended June 30, 2002, four months ended
           April 30, 2002 and six months ended June 30, 2001...........     3

         Unaudited Condensed Consolidated Balance Sheets at
           June 30, 2002, May 1, 2002, April 30, 2002
           and December 31, 2001.......................................     4

         Unaudited Condensed Consolidated Statements of Cash
           Flows for the two months ended June 30, 2002, four
           months ended April 30, 2002 and six months ended
           June 30, 2001...............................................     5

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

Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations.........................    14

Item 3.  Quantitative and Qualitative Disclosures About Market Risk....    30


PART II. OTHER INFORMATION

Item 1.  Legal Proceedings.............................................    30

Item 2.  Changes in Securities and Use of Proceeds.....................    30

Item 3.  Defaults Upon Senior Securities...............................    31

Item 6.  Exhibits and Reports on Form 8-K..............................    31



<PAGE>


                                   PART I
                           FINANCIAL INFORMATION

Item 1.  Financial Statements

<TABLE>
<CAPTION>

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


                                                                          Successor Company              Predecessor Company
                                                                         ------------------      --------------------------------
                                                                                                   One Month        Three Months
                                                                              Two Months         Ended April 30,    Ended June 30,
                                                                         Ended June 30, 2002        2002                2001
                                                                         -------------------     --------------     -------------

<S>                                                                              <C>                <C>                <C>
Net sales ..................................................................     $ 28.1             $ 10.0             $ 44.0
Cost of sales ..............................................................       15.4                5.8               35.5
Cost of sales - fresh-start inventory adjustment ...........................        3.9                 --                 --
                                                                                 -------            -------            -------
Gross margin ...............................................................        8.8                4.2                8.5
Operating expenses:
   Research and development ................................................        3.1                1.5                7.2
   Selling, general and administrative .....................................        5.3                2.7               12.9
   Special charges and reorganization items ................................        0.3                1.2                8.1
   Stock-based compensation ................................................        2.1                 --                 --
   Amortization of intangible assets .......................................        2.0                 --                 --
   In-process research and development .....................................       18.7                 --                 --
                                                                                 -------            -------            -------
       Total operating expenses ............................................       31.5                5.4               28.2
                                                                                 -------            -------            -------
Operating loss .............................................................      (22.7)              (1.2)             (19.7)
                                                                                 -------            -------            -------
Other income (expense):
   Fresh-start adjustments .................................................         --               83.7                 --
   Net gain on discharge of debt ...........................................         --              205.7                 --
   Interest income .........................................................         --                 --                0.3
   Interest expense (1) ....................................................       (0.2)              (0.1)              (7.3)
   Other, net ..............................................................        0.1                 --                 --
                                                                                 -------            -------            -------
Income (loss) before reorganization items,
   income taxes and loss from equity investment
   method ..................................................................      (22.8)             288.1              (26.7)
Reorganization items .......................................................         --                0.3                 --
Provision for income taxes .................................................        0.6                 --                0.1
                                                                                 -------            -------            -------
Net income (loss) before equity method
investment .................................................................     $(23.4)            $287.8             $(26.8)
Loss from equity method investment .........................................         --                 --               (0.3)
                                                                                 -------            -------            -------
Net income (loss) ..........................................................     $(23.4)            $287.8             $(27.1)
                                                                                 =======            =======            =======
Preferred stock dividends accrued ..........................................         --                0.5                1.3
                                                                                 -------            -------            -------
Net loss (income) attributable to common stockholders.......................     $(23.4)            $287.3             $(28.4)
                                                                                 =======            =======            =======
Basic and diluted net loss per share .......................................     $(0.82)
                                                                                 =======
Weighted-average shares used in computing basic
   and diluted net loss per share ..........................................       28.5
                                                                                 ========
Amortization of stock-based compensation not
   included in expense line-item:
     Cost of sales .........................................................     $  0.1             $ --               $ --
     Research and development ..............................................     $  0.1             $ --               $ --
     Selling, general and administration ...................................     $  1.9             $ --               $ --
                                                                                 -------            ------             -------
                                                                                 $  2.1             $ --               $ --
                                                                                 =======            ======             =======

----------------
(1)  Excludes contractual interest of $2.1 in the one month ended April 30,
     2002 not recorded during reorganization.


               See accompanying notes to condensed consolidated financial statements.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

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


                                                                       Successor Company         Predecessor Company
                                                                       -----------------         -------------------
                                                                          Two Months           Four Months     Six Months
                                                                            Ended            Ended April 30,      Ended
                                                                        June 30, 2002          2002            June 30, 2001
                                                                        -------------        ---------------   -------------

<S>                                                                         <C>                <C>                <C>
Net sales .............................................................     $ 28.1             $ 46.0             $ 88.2
Cost of sales .........................................................       15.4               26.1               73.6
Cost of sales - fresh-start inventory
  adjustment ..........................................................        3.9                 --                 --
                                                                            ------             ------             ------
Gross margin ..........................................................        8.8               19.9               14.6
Operating expenses:
   Research and development ...........................................        3.1                6.8               16.3
   Selling, general and administrative ................................        5.3               10.8               26.5
   Special charges and reorganization items ...........................        0.3                6.8                8.1
   Stock-based compensation ...........................................        2.1                 --                 --
   Amortization of intangible assets ..................................        2.0                 --                 --
   In-process research and development ................................       18.7                 --                 --
                                                                            ------             ------             ------
       Total operating expenses .......................................       31.5               24.4               50.9
                                                                            ------             ------             ------
Operating loss ........................................................      (22.7)              (4.5)             (36.3)
                                                                            ------             ------             ------
Other income (expense):
   Fresh-start adjustments ............................................         --               83.7                 --
   Net gain on discharge of debt ......................................         --              205.7                 --
   Interest income ....................................................         --                0.1                0.8
   Interest expense (1) ...............................................       (0.2)              (5.0)             (14.6)
   Other, net .........................................................        0.1                0.1               (0.2)
                                                                            ------             ------             ------
Income (loss) before reorganization items,
   income taxes and loss from equity method
   investment .........................................................      (22.8)             280.1              (50.3)
Reorganization items ..................................................         --                4.0                 --
Provision for income taxes ............................................        0.6                0.1                0.2
                                                                            ------             ------             ------
Net income (loss) before equity method investment .....................      (23.4)             276.0              (50.5)
Loss from equity method investment ....................................         --                 --                0.7
                                                                            ------             ------             ------
Net (loss) income .....................................................     $(23.4)            $276.0             $(51.2)
                                                                            ======             ======             ======
Preferred stock dividends accrued .....................................         --                1.9                2.5
                                                                            ------             ------             ------
Net loss (income) attributable to common
   stockholders .......................................................     $(23.4)            $274.1             $(53.7)
                                                                            ======             ======             ======
Basic and diluted net loss per share
                                                                            $(0.82)
                                                                            ======
   Weighted-average shares used in computing basic
     and diluted net loss per share ...................................       28.5
                                                                            ======
Amortization of stock-based compensation not
   included in expense line-items:
     Cost of sales ....................................................     $  0.1             $   --             $   --
     Research and development .........................................     $  0.1             $   --             $   --
     Selling, general and administration ..............................     $  1.9             $   --             $   --
                                                                            ------             ------             ------
                                                                            $  2.1             $   --             $   --
                                                                            ======             ======             ======

----------------------------------
(1)  Excludes contractual interest of $4.2 in the four months ended April 30, 2002 not
     recorded during reorganization.


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

<PAGE>

<TABLE>
<CAPTION>

                                                   ZiLOG, INC.
                                  UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (dollars in millions, except per share data)


                                                                                Successor Company       Predecessor Company
                                                                              June 30,       May 1,    April 30,    Dec. 31,
                                                                                2002          2002       2002         2001
ASSETS
Current assets
<S>                                                                           <C>           <C>          <C>           <C>
    Cash and cash equivalents ..............................................  $ 18.1        $ 18.8       $ 18.8        $ 30.7
    Accounts receivable, less allowance for doubtful accounts
      of $0.7 at June 30, 2002, April 30 and May 1, 2002 and
      $0.9 at December 31, 2001 ............................................    16.5          14.5         14.5          16.7
    Inventories ............................................................    13.2          17.2         14.5          17.3
    Prepaid expenses and other current assets ..............................     3.2           3.8          3.8           3.9
                                                                              ------        ------       ------        ------
        Total current assets ...............................................    51.0          54.3         51.6          68.6
                                                                              ------        ------       ------        ------
MOD III, Inc. assets held for sale .........................................    30.0          30.0         30.0            --
Net property, plant and equipment ..........................................    24.1          25.0         11.9          45.8
Goodwill ...................................................................    26.7          26.7           --            --
Intangible assets, net .....................................................    24.1          26.2           --            --
In-process research and development ........................................      --          18.7           --            --
Other assets ...............................................................     3.1           1.0          1.0           1.3
                                                                              ------        ------       ------        ------
                                                                              $159.0        $181.9       $ 94.5        $115.7
                                                                              ======        ======       ======        ======

LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
  Short-term debt ..........................................................  $  9.1        $  9.4       $  9.4        $ 12.8
  Notes payable ............................................................      --            --           --         280.0
  Interest payable on notes ................................................      --            --           --          22.5
  Accounts payable .........................................................    13.1          12.1         13.2          13.4
  Accrued compensation and employee benefits ...............................     6.8           7.2          7.2           9.0
  Other accrued liabilities ................................................     3.0           4.1          4.1           4.9
  Accrued special charges ..................................................     1.4           4.1          4.1           9.7
  Dividends payable on preferred stock .....................................      --            --           --          16.6
  Deferred income on shipments to distributors .............................     6.2           4.9          6.1           6.6
                                                                              ------        ------       ------        ------
     Total current liabilities .............................................    39.6          41.8         44.1         375.5
                                                                              ------        ------       ------        ------
  Deferred income taxes ....................................................     6.0           6.0           --            --
Other non-current liabilities ..............................................    14.6          14.1         14.1          14.3
Liabilities subject to compromise ..........................................      --            --        325.7            --
                                                                              ------        ------       ------        ------
     Total liabilities .....................................................    60.2          61.9        383.9         389.8
                                                                              ------        ------       ------        ------

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

Stockholders' equity (deficiency):
  Preferred Stock ..........................................................      --            --         25.0          25.0
  Common Stock .............................................................     0.3           0.3          0.4           0.4
  Deferred stock compensation ..............................................    (5.9)           --         (0.5)         (0.6)
Additional paid-in capital .................................................    97.8          89.7         13.2          13.2
Accumulated deficit ........................................................   (23.4)           --       (327.5)       (312.1)
                                                                              ------        ------       ------        ------
     Total stockholders' equity (deficiency) ...............................    68.8          90.0       (289.4)       (274.1)
                                                                              ------        ------       ------        ------
Total liabilities and stockholders' equity .................................  $159.0        $181.9       $ 94.5        $115.7
                                                                              ======        ======       ======        ======


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


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


                                                                         Successor Company           Predecessor Company
                                                                         -----------------     -------------------------------
                                                                           Two Months          Four Months       Six Months
                                                                              Ended               Ended             Ended
                                                                          June 30, 2002        April 30, 2002    June 30, 2001
                                                                          -------------        --------------    -------------
 CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                           <C>                <C>              <C>
Net income (loss) .......................................................     $(23.4)            $276.0           $(51.2)
Adjustments to reconcile net income (loss) to net 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 in equity method investment .....................................         --                 --              0.7
   Depreciation and amortization ........................................        3.1                2.5             19.7
   Impairment of long lived assets ......................................         --                2.7              2.9
   Stock-based compensation .............................................        2.1                 --              1.8
   Loss from disposition of equipment ...................................         --                 --              0.7
Changes in operating assets and liabilities:
   Accounts receivable ..................................................       (2.0)               2.1              9.6
   Inventories ..........................................................        1.3                2.9              8.5
   Prepaid expenses and other current and noncurrent assets .............       (1.5)               0.1              6.2
   Accounts payable .....................................................        1.0               (0.1)            (2.8)
   Accrued compensation and employee benefits ...........................       (0.4)              (1.8)           (17.8)
   Other accrued liabilities ............................................       (3.1)              (0.2)            (5.7)
                                                                              ------             ------           ------
     Net cash used by operations before reorganization items ............       (0.3)              (5.2)           (27.4)
Reorganization items - professional fees paid ...........................         --               (2.3)              --
                                                                              ------             ------           ------
     Net cash used by operating activities ..............................       (0.3)              (7.5)           (27.4)

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures .................................................       (0.1)              (1.0)            (3.7)
                                                                              ------             ------           ------
     Cash used by investing activities ..................................       (0.1)              (1.0)            (3.7)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from (repayments of) short-term debt ........................       (0.3)              (3.4)            13.0
   Proceeds from issuance of common stock ...............................        0.2                 --              0.1
   Payments for stock redemptions .......................................       (0.2)                --               --
                                                                              ------             ------           ------
       Cash provided (used) by financing activities .....................       (0.3)              (3.4)            13.1
                                                                              ------             ------           ------
Decrease in cash and cash equivalents ...................................       (0.7)             (11.9)           (18.0)
Cash and cash equivalents at beginning of period ........................       18.8               30.7             40.7
                                                                              ------             ------           ------
Cash and cash equivalents at end of period ..............................     $ 18.1             $ 18.8           $ 22.7
                                                                              ======             ======           ======


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

<PAGE>
                                ZiLOG, INC.

       NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  BASIS OF PRESENTATION

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

Our 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 final
month is five weeks. Each of our interim periods end on Sunday, except the
last fiscal period of each year which ends on December 31. 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.

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 is 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 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 1/2% Senior Secured Notes due 2005 (the "Notes").

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

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

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

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

     o         100% of the newly-issued series A preferred stock issued by
               ZiLOG's 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 one of the Company's wafer fabrication
               plants 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 1/2% per annum.

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

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

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

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

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
           Dividends payable on preferred stock..............         18.5
                                                                 ---------
           Total liabilities subject to compromise...........    $   325.7
                                                                 =========

NOTE 3.  FRESH-START REPORTING

On February 28, 2002, ZiLOG and its subsidiary, MOD III, Inc., filed the
Reorganization Plan with the United States Bankruptcy Court for the Northern
District of California for reorganization 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 plan of
reorganization became effective of 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 on 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, 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 an 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, management 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 the Company also record its assets and
liabilities at fair value upon adoption. Consequently, the Company engaged
independent appraisers to value its tangible and intangible assets. These
appraisals resulted in a $13.1 million increase in property, plant and
equipment and a $3.9 million increase in inventories held by the Company and
its distriburots 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. 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 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 the Company's emergence from bankruptcy.

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

<TABLE>
<CAPTION>

                                                               Predecessor    Reorgani-  Fresh-Start    Reclass-    Successor
                                                               Company at     zation    Adjustments   ifications   Company at
                                                             April 30, 2002    (1)         (2)           (3)       May 1, 2002
                                                             --------------   --------  -----------   ----------   ------------

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

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

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

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

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

</TABLE>

The Company's net gain upon discharge of debt and fresh-start adjustments
was comprised of the following elements (in millions):

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

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

NOTE 4.  SIGNIFICANT ACCOUNTING POLICIES

Goodwill and Intangible Assets. Effective January 1, 2002, ZiLOG adopted
the provisions of FASB Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("FAS 142"). Under FAS 142, goodwill
and intangible assets with indefinite lives are not amortized, but are
reviewed annually (or more frequently if impairment indicators arise) for
impairment. Separable intangible assets that are not deemed to have
indefinite 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 not deemed to have indefinite lives
(primarily existing technology and brandname) are being amortized utilizing
the pattern-of-use method over estimated useful lives ranging from 5 to 10
years.

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. 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 meet customer design
specifications, including functions, features and performance requirements.
Factors we consider in valuing in-process research and development include
the stage of development of each project, target markets and associated
risks of achieving technological feasibility and market acceptance of the
products. The value of the in-process technology is determined by
estimating the projected net cash flows arising from commercialization of
the products. The resulting cash flows are then discounted to their net
present value.

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. 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 are
required to adopt this statement for exit or disposal activities initiated
starting May 1, 2002.

NOTE 5.  RELATED PARTY TRANSACTIONS

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
our 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. As of the effective
date of the Reorganization Plan, Texas Pacific Group and its affiliates
are no longer significant stockholders of ZiLOG.

The Company sells products and engineering services 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. As of the effective date of the Reorganization
Plan, Texas Pacific Group and its affiliates are no longer significant
shareholders of ZiLOG.

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 its 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 certain tax
losses until 2002.

In addition to these agreements with Texas Pacific Group affiliates, the
Company has entered into employment agreements with each of its named
executive officers.

In May, 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,
or an aggregate $250,000.

NOTE 6.  INVENTORIES

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

<TABLE>
<CAPTION>

                                                    Successor Company                     Predecessor Company
                                           ---------------  ---------------      ---------------   -------------------
                                           June 30, 2002      May 1, 2002*       April 30, 2002      December 31, 2001
                                           ---------------  ---------------      ---------------    ------------------
<S>                                         <C>                 <C>                 <C>                 <C>
Raw materials ............................  $   0.7             $   0.7             $   0.7             $   1.0
Work-in-progress .........................      8.5                 9.3                 9.3                10.3
Finished goods ...........................      4.0                 7.2                 4.5                 6.0
                                            -------             -------             -------             -------
                                            $  13.2             $  17.2             $  14.5             $  17.3
                                            =======             =======             =======             =======

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


NOTE 7.  SPECIAL CHARGES AND REORGANIZATION ITEMS

During the one-month ended April 30, 2002, ZiLOG classified $1.5 million of
costs as special charges and reorganization items. Approximately $0.3
million of special charges taken both in the two-month period ended June
30, 2002 and the one-month period ended April 30, 2002 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. Lease termination costs
of $0.7 million are related to the closure and relocation of certain sales
offices. Professional fees for debt restructuring of $0.3 million represent
third-party professional service fees for legal and financial advisors who
were assisting with the Company's debt and equity restructuring activities.
During the Chapter 11 filing of the Reorganization Plan, such costs were
classified as "Reorganization Items." Additionally, $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 the first quarter of 2002, the Company cancelled development of the
CarteZian family of 32-bit RISC microprocessors, which resulted in the
closure of the Company's Austin, Texas design center. Consequently,
furniture, fixtures and equipment with a book value of approximately $1.7
million were abandoned, $0.8 million of computer aided design software was
impaired and severance and termination benefits of approximately $1.2
million were paid in connection with the streamlining of ZiLOG's sales
force. Additionally, in the first quarter of 2002 in connection with the
relocation of production activities to alternative manufacturing sites and
the closure of the MOD III facility, the Company incurred $1.9 million of
special charges.

During the second quarter of 2001, ZiLOG incurred special charges of $8.1
million for restructuring of operations comprised of severance-related
expenses of $4.0 million, including $1.7 million of non-cash stock-option
related expenses; fixed-asset related write-offs of $3.3 million, including
planning software and surplus test equipment; and $0.8 million relating to
consultants who assisted with the Company's restructuring plans. In
connection with this action, the Company eliminated approximately 200
positions worldwide during the second quarter of 2001. As of June 30, 2001,
approximately $1.1 million was reserved for future payments in connection
with these special charges.

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

<TABLE>
<CAPTION>

                                                        Successor
                                                         Company           Predecessor Company
                                                      -------------    ----------------------------
                                                       Two Months       One Month      Three Months
                                                          Ended           Ended            Ended
                                                      June 30, 2002   April 30, 2002   June 30, 2001
                                                      -------------   ---------------  -------------

Asset impairments:
<S>                                                      <C>             <C>             <C>
    Austin, Texas assets                                 $  --           $  --           $  --
    Internal use software                                   --              --             1.6
    Goodwill write-offs                                     --             0.2              --
    Test and probe equipment written-off                    --              --             1.4
Restructuring of operations:
    Employee severance and termination benefits             --              --             2.3
    MOD III closure costs                                  0.3             0.3             0.3
    Lease termination costs                                 --             0.7              --
    Stock-based compensation                                --              --             1.7
Professional fees for debt restructuring                    --             0.3             0.8
                                                         ------          ------          ------
                                                         $ 0.3           $ 1.5           $ 8.1
                                                         ======          =======         ======
</TABLE>

<TABLE>
<CAPTION>

                                                     Successor
                                                      Company             Predecessor Company
                                                   ------------         -------------------------
                                                    Two Months          Four Months     Six Months
                                                       Ended               Ended           Ended
                                                   June 30, 2002        April 30, 2002  June 30, 2001
                                                   -------------        --------------  -------------
Asset impairments:
<S>                                                      <C>             <C>             <C>
    Austin, Texas assets                                 $  --           $ 1.7           $  --
    Internal use software                                   --             0.8             1.6
    Goodwill write-offs                                     --             0.2              --
    Test and probe equipment written-off                    --              --             1.4
Restructuring of operations:
    Employee severance and termination benefits             --             1.2             2.3
    MOD III closure costs                                  0.3             2.2             0.3
    Lease termination costs                                 --             0.7              --
    Stock-based compensation                                --              --             1.7
Professional fees for debt restructuring                    --             4.0             0.8
                                                         ------          ------          ------
                                                         $ 0.3           $10.8           $ 8.1
                                                         ======          ======          ======
</TABLE>


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

<TABLE>
<CAPTION>

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

<S>                                           <C>             <C>             <C>             <C>             <C>
Balance at December 31, 2001 ...............  $ 5.6           $ 1.1           $ 2.8           $ 0.2           $ 9.7

Charges to expense .........................    1.2             4.0             0.7             2.5             8.4

Cash Payments ..............................   (6.4)           (4.5)           (3.2)           (2.6)          $(16.7)
                                              -----           -----           -----           -----           -----
Balance at June 30, 2002 ...................  $ 0.4           $ 0.6           $ 0.3           $ 0.1           $ 1.4
                                              =====           =====           =====           =====           =====
</TABLE>


NOTE 8.  GEOGRAPHIC AND SEGMENT INFORMATION

The Company operates in one operating segment and engages primarily in the
design, development, manufacture and marketing of semiconductor products.
The Company sells its products to distributors and original equipment
manufacturers (OEMs) in a broad range of market segments, performs on-going
credit evaluations of its customers and generally requires no collateral.
The Company's operations outside the United States consists of a final test
facility in the Philippines, sales and support centers and design centers
in certain foreign countries. Domestic operations are responsible for the
design, development and wafer fabrication of all products, as well as the
coordination of production planning and shipping to meet worldwide customer
commitments. The Philippine test facility is reimbursed in relation to
value added with respect to test operations and other functions performed,
and certain foreign sales offices receive a commission on export sales
within their territory. Accordingly, for financial statement purposes, it
is not meaningful to segregate sales or operating profits for the test and
foreign sales office operations.

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

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

<TABLE>
<CAPTION>

        Products                                                 Sample Uses

        Embedded control products include:

<S>                                                             <C>
          Microcontrollers - based on our proprietary Z8         Security system, battery charger
          architecture

          Microprocessors - based on our proprietary Z80         POS terminal, motor control
          architecture

        Standard products include:

          Serial Communications Controllers                      Telephone switch/PBX

          Modems                                                 Satellite TV, POS card validation

          IrDA transceivers                                      PDA's, cell phones

          Television and PC peripheral products                  TV, keyboard, pointing device
</TABLE>

The following table summarizes ZiLOG's net sales by region, by channel and
by business line in millions of dollars, and ZiLog's net sales to
Pioneer-Standard, one of the Company's distributors, as a percentage of the
Company's total net sales:

<TABLE>
<CAPTION>
                              Successor                                           Successor
                               Company            Predecessor Company              Company            Predecessor Company
                            ------------   ------------------------------        ------------    -----------------------------
                              Two Months      One Month      Three Months         Two Months      Four Months      Six Months
                                Ended           Ended            Ended               Ended           Ended           Ended
                            June 30, 2002   April 30, 2002   June 30, 2001       June 30, 2002   April 30, 2002  June 30, 2001
                            -------------   --------------   -------------       -------------   --------------  -------------
<S>                              <C>              <C>              <C>              <C>              <C>            <C>
Net sales by region:
Americas                         $16.9            $ 5.4            $25.7            $16.9            $25.2          $53.1
Asia                               8.0              2.9             12.4              8.0             13.8           23.3
Europe                             3.2              1.7              5.9              3.2              7.0           11.8
                                 -----            -----            -----            -----            -----          -----
                     Total       $28.1            $10.0            $44.0            $28.1            $46.0          $88.2
                                 =====            =====            =====            =====            =====          =====

Net sales by channel:
OEM                              $15.6            $ 5.9            $27.4            $15.6            $25.8          $55.6
Distribution                      12.5              4.1             16.6             12.5             20.2           32.6
                                 -----            -----            -----            -----            -----          -----
                     Total       $28.1            $10.0            $44.0            $28.1            $46.0          $88.2
                                 =====            =====            =====            =====            =====          =====

Net sales by business line:
Embedded Control                 $19.0            $ 6.0            $24.2            $19.0            $29.1          $52.0
Standard Products                  9.1              4.0             19.8              9.1             16.9           36.2
                                 -----            -----            -----            -----            -----          -----
                     Total       $28.1            $10.0            $44.0            $28.1            $46.0          $88.2
                                 =====            =====            =====            =====            =====          =====

Net sales to
Pioneer-Standard
as a percentage
of total net sales:               18.0%            11.6%            10.4%            18.0%            10.5%          12.4%
                                  ====             ====             ====             ====             ====           ====
</TABLE>


NOTE 9.  SHORT-TERM DEBT

Upon consummation of the Reorganization Plan, ZiLOG entered into a senior
secured financing facility (the "Facility") with a commercial lender, dated
May 13, 2002, for a new three-year $15.0 million senior secured revolving
credit facility. Borrowings on the Facility bear interest at a rate per
annum equal, at ZiLOG's option, to the commercial lender's stated prime
rate or LIBOR, plus 2.5%. At June 30, 2002, the Company had borrowings
outstanding of $9.1 million at a LIBOR rate of 4.4% and no additional
borrowing capacity under the Facility. The Facility is scheduled to
mature on May 13, 2004. As of June 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
$150,000 of this amount as of June 30, 2002. The balance is to be paid in 2
equal installments by February 26, 2003. The outstanding balance accrues
interest at 6% per annum.

ZiLOG has been notified by several parties that it may be infringing
certain patents. In addition, four of the Company's customers have notified
it that they have been approached by patent holders who claim that they are
infringing certain patents. The customers have asked the Company for
indemnification. The Company has had no further communications about any of
the claims from our customers for at least 13 months. In the event that the
Company determines, however, that any such notice may involve meritorious
claims, it may seek a license. Based on industry practice, the Company
believes that in most cases any necessary licenses or other rights could be
obtained on commercially reasonable terms. However, no assurance can be
given that licenses could be obtained on acceptable terms or that
litigation will not occur. The failure to obtain necessary licenses or
other rights or the advent of litigation arising out of such claims could
have a material adverse effect on the Company's financial condition. See
"Risk Factors - 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 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. The Company does, however, 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.

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 six months of 2001 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 the Company's 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 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, and will vest no later than May 15, 2008. The vesting provisions are
subject to acceleration based on the Company meeting certain "EBITDA"
targets based on the Company reports for the immediately preceding 12
months. As of June 30, 2002, one-third of the EBITDA-Linked options were
vested, which represent options to purchase 555,689 shares of common stock
out of a total of 1,668,736 EBITDA-Linked options granted.

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.

Restricted Stock. The Company may grant up 2,441,861 restricted shares of
common stock under the Omnibus Plan. The restricted shares 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.

The Omnibus Plan authorizes the committee to make loans available to
participants (other than executive officers and directors) 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 June 30,
2002, we had loaned an aggregate of $2.2 million to recipients of restricted
stock grants, which included loans to executive officers and directors. In the
future, loans with respect to restricted stock will be made only to
non-executive officer and non-director participants. While the committee will
award restricted stock upon a participant's early exercise of an option,
recipients of these shares of restricted stock are not eligible to receive the
loans.

As of June 30, 2002 there were 571,475 shares of common stock subject to
repurchase at fair value and 1,290,990 shares subject to repurchase at the
greater of the outstanding loan amount or $0.01 per share.

NOTE 14. MINORITY INTEREST

As of June 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.

NOTE 15. NET LOSS PER SHARE

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

<TABLE>
<CAPTION>
                                                                         Successor Company
                                                                         -----------------
                                                                         Two Months Ended
                                                                           June 30, 2002
                                                                         -----------------
<S>                                                                        <C>
       Net loss.......................................................     $   23.4
                                                                         =================
       Weighted-average shares outstanding............................         29.5
       Less: Weighted-average shares subject to repurchase............         (1.0)
       Weighted-average shares used in computing basic and diluted net
           loss per share.............................................         28.5
                                                                         =================
       Basic and diluted net loss per share...........................     $   0.82
                                                                         =================
</TABLE>


At June 30, 2002, options to purchase approximately 2.0 million shares of
common stock are excluded from the determination of diluted net loss per
share, as the effect of such shares is anti-dilutive.

NOTE 16. SUBSEQUENT EVENT

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 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.

<PAGE>


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

         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

         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 the reorganization plan by its order entered on April 30, 2002.
Our plan of reorganization became effective of 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 our reorganization plan, we extinguished $325.7
million of liabilities, which included $280.0 million principal amount of
our 9 1/2% 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" 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 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. Our reorganization value was estimated
by an 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, we 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 and
liabilities at fair value upon adoption. Consequently, we engaged independent
appraisers to value our tangible and intangible assets. These appraisals
resulted in a $13.1 million increase in property, plant and equipment and a
$3.9 million increase in inventories held by the Company and its distributors
to reflect fair value at May 1, 2002. The appraisers 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. Goodwill of $26.7 million was also recorded as part of
fresh-start reporting.

         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 brandname 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
SFAS No. 142. See the section entitled "Recent Accounting Pronouncements"
below for more information on SFAS No. 142.

Critical Accounting Policies

         We believe our critical accounting policies are as follows:

          o    fresh-start reporting;

          o    estimating sales returns and allowances;

          o    estimating allowance for doubtful accounts;

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

          o    asset impairments.

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

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

         Fresh-start reporting. Upon emerging from Chapter 11 proceedings,
we adopted fresh-start reporting in accordance with SOP 90-7. Accordingly,
for financial reporting purposes, we valued our assets and liabilities at
fair value. With assistance of financial advisors 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 and
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. Results would have varied under different assumptions or
conditions.

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

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

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

         Asset impairments. Beginning in 2002, we apply the provisions of
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets." We
assess the impairment of long-lived assets whenever events or changes in
circumstances indicate that the carrying value may not be recoverable.
Factors we consider important which could trigger an impairment review
include the following:

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

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

          o    significant negative industry or economic trends.

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

         The intangible assets created by the adoption of fresh-start
accounting on our emergence from bankruptcy consist of existing technology,
brandname as well as excess enterprise value, or goodwill. The existing
technology and brandname 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 brandname 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 sheet at 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 tangible and intangible assets, in-process
research and development, interest expense and restructuring and
reorganization expenses. Additionally, these differences in our balance
sheets relate solely to 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 six-month periods ended June 30,
2002 and to the similar periods in 2001.

Results of Operations

Six-Month Periods Ended June 30, 2002 and June 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 six months of 2002. Our net
sales of $74.1 million in the first six months of 2002 represents a
decrease of 16.0% from net sales of $88.2 million in the first six months
of 2001. This decrease in net sales was attributable primarily to lower
unit shipments of standard products. In the first six months of 2002, net
sales in our standard products decreased 28.2% to $26.0 million, compared
to $36.2 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 serial communication, wireless
connectivity and peripherals products, offset partially by higher unit
sales of modem products. Net sales of our embedded control products
declined 7.5% to $48.1 million in the six months of 2002 compared to $52.0
in the same period of 2001. This decline was primarily the result of lower
unit shipments of Z80 microcontrollers.

         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 38.7% in
the first six months of 2002, up from 16.6% in the same period of 2001.
During the six-month period ended June 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 43.9% of sales for the six months ended June 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 64% of
capacity in the first six months of 2002, compared to 33% 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 six months of 2002.

         Research and Development Expenses. Research and development
expenses were $9.9 million in the first six months of 2002, reflecting a
39.3% decrease from the $16.3 million of research and development expenses
reported in the first six 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 six 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 six 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 $16.1 million in the first six months
of 2002 from $26.5 million in the first six months of 2001. The decrease in
our selling, general and administrative spending in the first six months of
2002 reflects lower payroll-related costs as a result of lower headcount,
elimination of 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):

<TABLE>
<CAPTION>
                                                                     Three Months Ended      Six Months Ended June
                                                                          June 30,*                   30,*
                                                                     ------------------      ---------------------
                                                                      2002         2001        2002         2001
                                                                     -------- ---------      ---------- ----------
<S>                                                                  <C>          <C>          <C>          <C>
Asset impairments:
    Austin, Texas assets .........................................   $  --        $  --        $ 1.7        $  --
    Internal use software ........................................      --          1.6          0.8          1.6
    Goodwill write-offs ..........................................     0.2           --          0.2           --
    Test and probe equipment write-offs...........................      --          1.4           --          1.4
Restructuring of operations:
    Employee severance and termination benefits ..................      --          2.3          1.2          2.3
    MOD III closure costs ........................................     0.6          0.3          2.5          0.3
    Lease termination costs ......................................     0.7           --          0.7           --
    Stock compensation ...........................................      --          1.7           --          1.7
Professional fees for debt restructuring .........................     0.3          0.8          4.0          0.8
                                                                     -----        -----        -----        -----
                                                                     $ 1.8        $ 8.1        $11.1        $ 8.1
                                                                     =====        =====        =====        =====
</TABLE>
--------------
*   The period ended June 30, 2002 reflects combined results of the
    Predecessor Company and the Successor Company. Figures for the June 30,
    2001 period reflect only the Predecessor Company.

         In connection with the closure of our Austin, Texas design center
in the first six 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 six months of 2002. Approximately $0.8 million of computer aided
design software was impaired in the first six months of 2002 as a result of
our decision to cancel development of the CarteZian family of 32-bit RISC
microprocessors. Additionally, we incurred $2.5 million of special charges
during the first six 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 six months
ended June 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.

         During the six months ended June 30, 2001, we incurred special
charges of $8.1 million for restructuring of operations comprised of
severance-related expenses of $4.0 million, 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; $0.8
million relating to financial advisors who were assisting with our
reorganization and restructuring plans; and $0.3 million of costs
associated with the closure of MOD III. In connection with this action, we
eliminated approximately 200 positions worldwide during the second quarter
of 2001.

         Stock-Based Compensation. During the first six months of 2002, we
recognized $2.1 million for stock based compensation in connection with the
award of restricted stock to certain executives and consultants. 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 six 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. The projects related to the research and development
(partially developed semiconductor product designs), had not reached
technological feasibility as of the effective date of our reorganization
and have no alternative future use. 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 meet customer design specifications,
including functions, features and performance requirements. There can be no
assurance that these products will ever achieve commercial viability.

         Factors considered in valuing in-process research and development
included the stage of development of each project, target markets and
associated risks of achieving technological feasibility and market
acceptance of the products. The value of the in-process technology was
determined by estimating the projected net cash flows after deducting the
costs to complete the projects arising from commercialization of the
products over periods ranging from four to six years. These cash flows were
then discounted to their net present value using a discount rate of 25%.
The estimated stage of completion was applied to the net present value of
future discounted cash flows to arrive at the in-process research and
development amount that was immediately expensed subsequent to the adoption
of fresh-start reporting.

         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 brandname of $9.2 million. We evaluate these assets for
impairment at each reporting period. We are amortizing these assets based
on the pattern-of-use method. The anticipated amortization schedule for
these assets is as follows (in millions):

                               Year Amount           Amortization
                               ----------------  ----------------

                                2002                   $    7.9
                                2003                        6.8
                                2004                        4.2
                                2005                        2.2
                                Thereafter                  5.1
                                                       ---------
                                Total                  $   26.2
                                                       ========

         Interest Expense. Our interest expense decreased to $5.2 million
for the first six months of 2002 compared to $14.6 million in the same
period of 2001. Interest expense in both years relates primarily to
interest due on our former senior notes. The decrease in our interest
expense in the first six months of 2002 compared to the first six 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, which would have totaled approximately $4.2 million, and the
cancellation of the notes upon the effectiveness of our plan of
reorganization.

         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.

         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.

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

<TABLE>
<CAPTION>
                                                                                Three Months Ended June    Six Months Ended June
                                                                                          30,*                      30,*
                                                                                -----------------------     --------------------
                                                                                   2002         2001         2002         2001
                                                                                -----------------------     --------------------
<S>                                                                            <C>             <C>          <C>           <C>
Reconciliation of net loss to EBITDA, as defined
     Net income (loss) ...............................................         $264.4          $(27.1)      $252.6        $(51.2)
     Cost of sales - amortization of fresh-start inventory
        adjustment ...................................................            3.9              --          3.9            --
     In-process research and development .............................           18.7              --         18.7            --
     Fresh-start adjustments .........................................          (83.7)             --        (83.7)           --
     Reorganization items ............................................            0.3              --          4.0            --
     Special charges .................................................            1.5             8.1          7.1           8.1
     Stock-based compensation ........................................            2.1             0.1          2.1           0.1
     Depreciation and amortization ...................................            3.7            10.0          5.6          19.7
     Equity investment loss ..........................................             --             0.3           --           0.7
     Interest expense, net ...........................................            0.3             7.0          5.1          13.8
     Income tax expense ..............................................            0.6             0.1          0.7           0.2
     Net gain on discharge of debt ...................................         (205.7)             --       (205.7)           --
     Other ...........................................................             --              --          0.2            --
                                                                               ------          ------       ------        ------
EBITDA, as defined ...................................................         $  6.1          $ (1.5)      $ 10.6        $ (8.6)
                                                                               ======          ======       ======        ======
</TABLE>
------------------------------
*   The period ended June 30, 2002 reflects combined results of the
    Predecessor Company and the Successor Company. Figures for the June 30,
    2001 period reflect only the Predecessor Company.

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

         Net Sales. Overall, our net sales during the three months ended
June 30, 2002 were $38.1 million, which represents a 13.4% decline from our
$44.0 million of net sales in the same period of 2001. This decline
reflects lower unit shipments in our standard products group, particularly
television, serial communication controller and foundry business. We expect
continuing sales declines in our standard products group reflecting
reductions of our de-emphasized television and peripheral products. Net
sales of embedded control products during the three months ended June 30,
2002 increased 3% compared to the same period in 2001, reflecting higher
unit shipments of Z8 microcontrollers.

         Gross Margin. Our cost of sales represents the cost of our wafer
fabrication, assembly and test operations. For the three-month period ended
June 30, 2002 our cost of sales also included $3.9 million of amortization
related to a one-time inventory adjustment in connection with our
fresh-start reporting. Our gross margin as a percentage of net sales
increased to 34.1% in second quarter of 2002 as compared to 19.3% in the
same period of 2001. Excluding the one-time effect of fresh-start
reporting, our gross margin in the quarter ended June 30, 2002 was $16.9
million or 44.4% of net sales. The improvement in our gross margin as a
percentage of sales for the three months ended June 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 second quarter of
2002, compared to the same period in 2001.

         Research and Development Expenses. Research and development
expenses were $4.6 million in the second quarter of 2002, reflecting a
36.1% decrease from the $7.2 million of research and development expense we
incurred in the same period of 2001. This decrease in research and
development expense was primarily due to the closure of our Austin, Texas
design center and the related cancellation of our CarteZian product
development activities during the first quarter of 2002.

         Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $8.0 million in the second quarter of
2002, reflecting a 38% decrease from the $12.9 million in the second
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 overall
lower sales levels in the second quarter of 2002, compared to the same
period in 2001.

         Special Charges. During the one-month ended April 30, 2002, ZiLOG
classified $1.5 million of costs as special charges and reorganization
items. Approximately $0.3 million of special charges taken both in the
two-month period ended June 30, 2002 and the one-month period ended April
30, 2002 relate to activities associated with the closure of the MOD III
eight-inch wafer fabrication facility in Idaho. 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. Lease termination costs of $0.7
million are related to the closure and relocation of certain sales offices.
Professional fees for debt restructuring of $0.3 million represent
third-party professional service fees for legal and financial advisors who
were assisting with the Company's debt and equity restructuring activities.
During the Chapter 11 filing of the voluntary petition for reorganization,
such costs were classified as "Reorganization Items." Additionally, $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.

         During the second quarter of 2001, we incurred special charges of
$8.1 million for restructuring of operations comprised of severance-related
expenses of $4.0 million, including $1.7 million of non-cash stock-option
related expenses; fixed-asset related impairments of $3.3 million,
including planning software and surplus test equipment; and $0.8 million of
professional fees relating to advisors who were assisting us with our
reorganization. In connection with these actions, we eliminated
approximately 200 positions worldwide during the second quarter of 2001.

         Stock-Based Compensation, In-Process Research and Development, and
Amortization of Intangible Assets for the three-month period ended June 30,
2002 related to our fresh-start accounting and are described in the
previous section entitled "Six-Month Periods Ended June 30, 2002 and June
30, 2001."

         Other Income/(Expense), Net. During the quarter ended June 30,
2002, our other income and expense was primarily comprised of $83.7 million
of fresh-start adjustments and $205.7 million of net gain on discharge of
debt. These items are described in the previous section entitled "Six-Month
Periods Ended June 30, 2002 and June 30, 2001". During the three months
ended June 30, 2001, our other income and expense was primarily comprised
of $7.3 million of interest expense that was almost entirely related to our
9 1/2% 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 June 30, 2002, we had cash and cash equivalents of $18.1
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 June 30, 2002 bore interest at 4.4%. The
previous revolving credit facility and capital expenditure line was
cancelled. As of June 30, 2002, we had outstanding borrowings of $9.1
million and there was no additional borrowing capacity under the facility.
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. In the first six months of 2002, our availability has decreased
and we have made repayments on our revolving credit facility totaling $3.7
million. If our borrowing base continues to decline, we will be required to
make further repayments on our revolving credit facility. 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 used by operating activities was $7.8 million for the six
months ended June 30, 2002, compared to $27.4 million for the six months
ended June 30, 2001. The use of cash by operating activities in the first
six months of 2002 primarily reflects our net loss of $35.7 million (after
adjusting for net gain on discharge of debt of $205.7 million and
fresh-start adjustments of $83.7 million), adjusted for depreciation and
amortization of $5.6 million. During the six-month period ended June 30,
2002, our significant use of operating cash included cash payments for
special charges of $16.7 million. The use of cash by operating activities
in the first six months of 2001 primarily reflects our net loss of $51.2
million, adjusted by depreciation and amortization of $19.7 million, a
decrease in accrued compensation and employee benefits of $17.8 million,
and an decrease in other accrued liabilities of $5.7 million, offset by
decreases in accounts receivable and inventories of $9.6 million and $8.5
million, respectively. Included in the change in other accrued liabilities
for the first six 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 six months of 2001, pursuant to a
previously accrued contractual obligation.

         Cash used by investing activities was $1.1 million for the six
months ended June 30, 2002 and was $3.7 million for the same period in
2001. Cash used for investing activities in both periods reflects capital
expenditures. In the first six 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
six months of 2001 primarily related to equipment in our MOD III wafer
manufacturing facility. Cash used for financing activities in the first six
months of 2002 was $3.7 million primarily representing repayments on our
revolving line of credit. In the first six months of 2001, $13.1 million of
cash was provided by investing activities primarily from borrowings under
our revolving line of credit.

         The liquidity summary presented below is intended to identify
significant sources and uses of cash and cash equivalents for the periods
indicated. This information was developed by combining cash flow activity
of the Predecessor Company and the Successor Company and is not intended to
replace our statements of cash flows prepared in accordance with GAAP. The
$12.6 million decline in our cash balance during the six months ended June
30, 2002 includes cash payments of $11.1 million associated with our
restructuring of operations and $4.3 million of professional fees incurred
in connection with our reorganization plan. A summary of cash flows for the
six months ended June 30, 2002 and June 30, 2001 follows (in millions):

<TABLE>
<CAPTION>
                                                                                     Six Months
                                                                                   Ended June 30,*
                                                                            -----------------------------
                                                                                2002            2001
                                                                            ------------- ---------------

<S>                                                                             <C>            <C>
Cash Generation:
EBITDA, as defined ........................................................     $10.6          $(8.6)
                                                                                -----          -----
Cash Uses:
Restructuring activities:
     MOD III closure, including severance .................................      (6.1)          (1.2)
     Headquarters relocation and lease buyout .............................      (2.7)            --
     Design center closure and sales actions ..............................      (1.1)            --
     Retention bonuses ....................................................      (1.2)            --
                                                                                -----          -----
   Subtotal restructuring cash payments ...................................     (11.1)          (1.2)
Professional fees associated with recapitalization ........................      (4.3)          (0.8)
Employee loans approved in reorganization plan ............................      (2.3)            --
                                                                                -----          -----
   Subtotal professional fees and employee loans ..........................      (6.6)          (0.8)
                                                                                -----          -----
   Subtotal restructuring and reorganization items ........................     (17.7)          (2.0)
                                                                                -----          -----
Revolving line of credit proceeds (repayments) ............................      (3.8)          13.0
                                                                                -----          -----
Contractual obligation to former chief executive officer ..................        --          (10.2)
Capital expenditures ......................................................      (1.1)          (3.7)
Other balance sheet changes, net ..........................................      (0.6)          (6.5)
                                                                                -----          -----
Total cash usage during period ............................................     (23.2)          (9.4)
                                                                                -----          -----
Net change in cash during period ..........................................     $(12.6)        $(18.0)
Cash at beginning of period ...............................................     $30.7          $40.7
                                                                                -----          -----
Cash and Cash Equivalents .................................................     $18.1          $22.7
                                                                                =====          =====

</TABLE>
---------------------
*    The period ended June 30, 2002 reflects combined results of the
     Predecessor Company and the Successor Company. Figures for the June
     30, 2001 period reflect only the Predecessor Company.


         Our cash needs for the balance of 2002 include working capital,
professional fees incurred in connection with the preparation of this
registration statement 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 filing 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 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 $1.5 million to $2.0 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 six months ended June 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. 141, "Business Combinations," and 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. 141 require that all business
combinations be accounted for by the purchase method of accounting and
identifiable intangible assets be recognized apart from goodwill.

         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 are required to adopt this statement for exit
or disposal activities initiated starting May 1, 2002.
<PAGE>


                                RISK FACTORS

                     Risks Related to the Restructuring

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

         On February 28, 2002, we filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. The
United States Bankruptcy Court for the Northern District of California
confirmed our prepackaged plan of reorganization on April 30, 2002 and we
emerged from bankruptcy on May 13, 2002. Pursuant to the financial
restructuring, our formerly publicly traded 9 1/2% 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 June 30, 2002, we had no additional
borrowing capacity 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:

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

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

          o    changes in the prices of our products;

          o    technological change and product obsolescence;

          o    changes in product mix or fluctuations in manufacturing yields;

          o    variability of our customers' product life cycles;

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

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

          o    gain or loss of significant customers.

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

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

         We are experiencing a decline in revenues, as our customers are
not ordering product from us in the quantities that they previously ordered
in 1999 and 2000. This decline in revenue has been accentuated by our
decision in 2000 to deemphasize certain product offerings in 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.

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

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

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

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

          o    refocusing of strategic priorities;

          o    reallocating personnel and responsibilities to better utilize
               human resources;

          o    reducing research and development and capital expenditure
               spending;

          o    reducing our workforce; and

          o    instituting temporary office and facility shutdowns.

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

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

         Our future financial performance and success are largely dependent
on our ability to implement our business strategy. We may be unable to
implement our business strategy and, even if we do implement our strategy
successfully, our results of operations may fail to improve.

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

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

         Our operating results depend on our ability to introduce and sell
new products. Rapidly changing technologies and industry standards, along
with frequent new product introductions, characterize the industries that
are currently the primary end-users of semiconductors. As these industries
evolve and introduce new products, our success will depend on our ability
to adapt to such changes in a timely and cost-effective manner by
designing, developing, manufacturing, marketing and providing customer
support for new products and technologies.

         Our ability to introduce new products successfully depends on
several factors, including:

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

          o    proper new product selection;

          o    timely completion and introduction of new product designs;

          o    support from foundry services;

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

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

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

Acts of war or terrorism could harm our business.

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

Our industry is highly competitive and we cannot assure you that we will be
able to compete effectively.

         The semiconductor industry is intensely competitive and is
characterized by price erosion, rapid technological change and heightened
competition in many markets. The industry consists of major domestic and
international semiconductor companies, many of which have substantially
greater financial and other resources than we do with which to pursue
engineering, manufacturing, marketing and distribution of their products.
Emerging companies are also increasing their participation in the
semiconductor industry. Our current and future products compete with, or
may compete with, products offered by Advanced Micro Devices, ARM, Atmel,
Conexant, Intel, Lucent Technologies, Microchip, Motorola, NEC, Philips,
Sharp, ST Microelectronics, Texas Instruments and Toshiba, among others.
Our ability to compete successfully in our markets depends on factors both
within and outside of our control, including:

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

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

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

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

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

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

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

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

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

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

          o    equipment not performing as expected;

          o    process technology changes not operating as expected; and

          o    production personnel not operating equipment as expected.

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

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

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

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

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

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

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

We depend on third-party assemblers and the failure of these third parties
to continue to provide services to us on sufficiently favorable terms could
harm our business.

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

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

         Approximately 59% of our net sales for the six months ended June
30, 2002 and 55% of our net sales for the year ended December 31, 2001 were
to foreign customers and we expect that international sales will continue
to represent a significant portion of our net sales in the future. We
maintain significant operations or rely on a number of contract
manufacturers in the Philippines, Indonesia, Taiwan and India. We cannot
assure you that we will be successful in overcoming the risks that relate
to or arise from operating in international markets. Risks inherent in
doing business on an international level include:

          o    economic and political instability;

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

          o    transportation delays;

          o    power supply shortages and shutdowns;

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

          o    existence of language barriers and cultural distinctions;

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

          o    other uncertainties relating to the administration of, or
               changes in, or new interpretation of, the laws, regulations and
               policies of the jurisdictions in which we conduct our business.

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

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

The lease of for 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.

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 44% of our net sales for the six
months ended June 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 54% for the six months ended June 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 13% of our net sales for the six
months ended June 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 $1.3 million for the six months ended June 30, 2002.
These reduced sales due to design changes have harmed us in the past and
additional design changes could harm our operating results in the future.

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

         We depend on our ability to attract and retain highly skilled
technical and managerial personnel. We believe that our future success in
developing marketable products and achieving a competitive position will
depend in large part on our ability to identify, recruit, hire, train,
retain and motivate highly skilled technical, executive, managerial,
marketing and customer service personnel. Competition for these personnel
is intense, especially in Northern California, where our headquarters are
located, and we may not be able to successfully recruit, assimilate or
retain sufficiently qualified personnel. Our failure to recruit and retain
necessary technical, executive, managerial, merchandising, marketing and
customer service personnel could harm our business and our ability to
obtain new customers and develop new products. In addition, our current
financial condition could have a negative impact on our ability to recruit
and retain employees.

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

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

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

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

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

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

          o    pay substantial damages;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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. 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 June 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 June 30, 2002 (dollars in millions):

                                             Carrying Value         Fair Value
                                             ----------------- ---------------
           Cash Equivalents:
               Fixed rate                        $ 17.5             $ 17.5
               Average interest rate               1.23%                --
           Short-Term Debt:
               Variable-rate debt                $  9.1             $  9.1
               Interest rate                        4.4%                --
<PAGE>


                                  PART II

                             OTHER INFORMATION

Item 1.  Legal Proceedings

         We have been notified by several parties that we may be infringing
certain patents. In addition, four of our customers have notified us that
they have been approached by patent holders who claim that they are
infringing certain patents. The customers have asked us for
indemnification. We have had no further communications about any of the
claims from our customers for at least 13 months. In the event that we
determine, however, that any such notice may involve meritorious claims, we
may seek a license. Based on industry practice, we believe that in most
cases any necessary licenses or other rights could be obtained on
commercially reasonable terms. However, no assurance can be given that
licenses could be obtained on acceptable terms or that litigation will not
occur. The failure to obtain necessary licenses or other rights or the
advent of litigation arising out of such claims could have a material
adverse effect on our financial condition. See the section entitled "Risk
Factors -- 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."

         We are participating in other litigation and responding to claims
arising in the ordinary course of business. We intend to defend ourselves
vigorously in these 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 2.  Changes in Securities and Use of Proceeds

         In connection with our plan of reorganization, which became
effective on May 13, 2002, we cancelled all of our previously outstanding
debt and equity securities. We amended our articles of incorporation and
our bylaws to define the rights associated with our newly-issued shares of
common stock, par value $0.01 per share. See Note 2 to the unaudited
condensed consolidated financial statements for more information on our
financial restructuring and reorganization.

         We are restricted from paying any cash dividends on our common
stock by the terms of the amended and restated credit agreement governing
our revolving credit facility as described under the section entitled
"Management's Discussion and Analysis of Financial Condition and Result of
Operations--Liquidity and Capital Resources."

         On May 17, 2002, we sold 90,580 shares of our common stock to
Federico Faggin for $2.76 per share, or an aggregate of $250,000.80. This
issuance was exempt from registration under the Securities Act of 1933
pursuant to Section 4(2) thereof on the basis that the transaction did not
involve a public offering. We intend to use the proceeds from this sale for
general corporate purposes.

Item 3.  Defaults Upon Senior Securities

         We did not make our scheduled semi-annual interest payments of
$13.3 million on our former 9 1/2% Senior Secured Notes due 2005 that were
due on September 4, 2001 and March 1, 2002. Our default on the interest
payment due on the notes, and the expiration of the applicable grace period
on October 4, 2001, constituted an event of default under our former
capital expenditure and revolving credit facility. Pursuant to our plan of
reorganization, which was made effective on May 13, 2002, these notes and
the accrued interest were cancelled, and our credit facilities were
replaced. See the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for more information.

Item 6.  Exhibits and Reports on Form 8-K

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

<TABLE>
<CAPTION>
Exhibit Number                                                  Description
----------------     ------------------------------------------------------

<S>                  <C>
     2.1 (a)         Joint Reorganization Plan, as confirmed by order of the U.S. Bankruptcy Court for the Northern
                     District of California, dated April 30, 2002.
     3.1 (b)         Amended and Restated Certificate of Incorporation of ZiLOG, Inc.
     3.2 (b)         Amended and Restated Bylaws of ZiLOG, Inc.
     4.1             Form of Restricted Stock Purchase Agreement.
     4.2             Form of Non-Qualified EBITDA-Linked Option Grant Agreement.
     4.3             Form of Non-Qualified Non-EBITDA-Linked Option Grant Agreement.
    10.1             Employment Agreement, dated April 9, 2002, between ZiLOG, Inc. and Gerald Corvino.
    10.2             Employment Agreement, dated April 9, 2002, between ZiLOG, Inc. and Perry Grace.
    10.3             Employment Agreement, dated April 9, 2002, between ZiLOG, Inc. and Daniel M. Jochnowitz.
    10.4             Financing Agreement, dated May 13, 2002, between CIT Financing and ZiLOG, Inc.
    10.5             Contribution Agreement, dated May 13, 2002, between ZiLOG, Inc. and ZiLOG-MOD III, Inc.
    10.6             Services Agreement, dated May 13, 2002, between ZiLOG Inc. and ZiLOG-MOD III, Inc.
    10.7             Employment Agreement, dated May 14, 2002, between ZiLOG, Inc. and Michael D. Burger.
    10.8             Employment Agreement, dated May 14, 2002, between ZiLOG, Inc. and Thomas Vanderheyden.
    10.9             Employment Agreement, dated May 14, 2002, between ZiLOG, Inc. and Norman G. Sheridan.
    10.10            Consulting Agreement, dated May 17, 2002, between ZiLOG, Inc. and Federico Faggin.
    10.11            Amendment Number 1 to Employment Agreement, dated May 23, 2002, between ZiLOG, Inc. and James M.
                     Thorburn.
</TABLE>
----------------------------------------
(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.


(b)    Reports on Form 8-K:

The Company filed a current report on Form 8-K on May 15, 2002, reporting
that the United States Bankruptcy Court for the Northern District of
California confirmed its joint "prepackaged" reorganization plan on April
30, 2002.
<PAGE>


                                ZiLOG, Inc.

                                 SIGNATURES

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


                                ZiLOG, Inc.
                                (Registrant)


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

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



Date:  August 16, 2002
<PAGE>


                               EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number                                                  Description
----------------     ------------------------------------------------------
<S>                  <C>
     2.1 (a)         Joint Reorganization Plan, as confirmed by order of the U.S. Bankruptcy Court for the Northern
                     District of California, dated April 30, 2002.
     3.1 (b)         Amended and Restated Certificate of Incorporation of ZiLOG, Inc.
     3.2 (b)         Amended and Restated Bylaws of ZiLOG, Inc.
     4.1             Form of Restricted Stock Purchase Agreement.
     4.2             Form of Non-Qualified EBITDA-Linked Option Grant Agreement.
     4.3             Form of Non-Qualified Non-EBITDA-Linked Option Grant Agreement.
    10.1             Employment Agreement, dated April 9, 2002, between ZiLOG, Inc. and Gerald Corvino.
    10.2             Employment Agreement, dated April 9, 2002, between ZiLOG, Inc. and Perry Grace.
    10.3             Employment Agreement, dated April 9, 2002, between ZiLOG, Inc. and Daniel M. Jochnowitz.
    10.4             Financing Agreement, dated May 13, 2002, between CIT Financing and ZiLOG, Inc.
    10.5             Contribution Agreement, dated May 13, 2002, between ZiLOG, Inc. and ZiLOG-MOD III, Inc.
    10.6             Services Agreement, dated May 13, 2002, between ZiLOG Inc. and ZiLOG-MOD III, Inc.
    10.7             Employment Agreement, dated May 14, 2002, between ZiLOG, Inc. and Michael D. Burger.
    10.8             Employment Agreement, dated May 14, 2002, between ZiLOG, Inc. and Thomas Vanderheyden.
    10.9             Employment Agreement, dated May 14, 2002, between ZiLOG, Inc. and Norman G. Sheridan.
    10.10            Consulting Agreement, dated May 17, 2002, between ZiLOG, Inc. and Federico Faggin.
    10.11            Amendment Number 1 to Employment Agreement, dated May 23, 2002, between ZiLOG, Inc. and James M.
                     Thorburn.
</TABLE>
----------------------------------------
(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.