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

**FORM 10-Q**

**[X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934**

**For the quarterly period ended March 31, 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.**
(Debtor-in-Possession as of February 28, 2002)
             (Exact name of Registrant as specified in its charter)



|**Delaware**                                                   | **13-3092996**                         
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)

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

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

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

As of April 30, 2002, there were 32,017,272 shares of the Company's Voting
Common Stock, $.01 par value, and 10,000,000 shares of the Company's Non-Voting
Common Stock, $.01 par value outstanding.

This Report on Form 10-Q and other oral and written
statements made by the Company contain and incorporate forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933,
as amended (the "Securities Act"), and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), regarding future events
and the Company's 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 restructuring of our debt
and equity; the utilization of our manufacturing facilities; our ability to sell
or lease MOD III and our ability to successfully complete our restructuring of
operations and realize expected cost savings, 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 ZiLOG's distributors and customers significantly
reducing their existing inventories before ordering new products, and those
discussed below under "Management's Discussion and Analysis of Financial
Condition and Results of Operation," "Factors That May Affect Future
Results," 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. The
reader is therefore cautioned not to place undue reliance on the forward-looking
statements contained herein, that reflect our position as of the date of this
report.  The Company undertakes no obligation to publicly release updates or
revisions to these statements.



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





Extreme Connectivity © ZiLOG, Inc. 1999.











**ZiLOG, INC.
      QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2002
                                TABLE OF CONTENTS**



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

---

**PART I -- FINANCIAL INFORMATION**

**Item 1.  Financial Statements**

---

**ZILOG, INC.

                             (DEBTOR-IN-POSSESSION)

           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                 (in millions)**

`Three Months Ended
                                                 ---------------------
                                                 March 31,    April 1,
                                                    2002        2001
                                                 ---------- ----------
Net sales...................................         $36.0      $44.3
Cost of sales...............................          20.3       38.2
                                                 ---------- ----------
Gross margin................................          15.7        6.1

Operating expenses:
  Research and development..................           5.2        9.1
  Selling, general and administrative.......           8.1       13.6
  Special charges...........................           5.6        --
                                                 ---------- ----------
     Total operating expenses...............          18.9       22.7
                                                 ---------- ----------
Operating loss..............................          (3.2)     (16.6)

Other income (expense):
  Interest income...........................           0.1        0.5
  Interest expense (excludes contractual
     interest of $2,050 not recorded
     during reorganization).................          (5.0)      (7.3)
  Other, net................................           0.1       (0.3)
                                                 ---------- ----------
Loss before reorganization items, income
  taxes and loss from equity method
  investment................................          (8.0)     (23.7)
Reorganization items........................           3.8        --
Provision for income taxes..................           0.1        0.1
                                                 ---------- ----------
Loss before equity method investment........         (11.9)     (23.8)
Loss from equity method investment..........           --        (0.3)
                                                 ---------- ----------
Net loss....................................         (11.9)     (24.1)
Preferred stock dividends accrued...........          (1.4)      (1.2)
                                                 ---------- ----------
Net loss attributable to common
   stockholders.............................        $(13.3)    $(25.3)
                                                 ========== ==========`

See accompanying notes to condensed consolidated financial statements.

---

**ZILOG, INC.

                             (DEBTOR-IN-POSSESSION)

                UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

               (in millions, except share and per share amounts)**

`March 31,    December 31,
                                                                2002          2001
                                                             -----------  -----------
                                  ASSETS
Current assets:
  Cash and cash equivalents..............................         $17.5        $30.7
  Accounts receivable, less allowance for doubtful
    accounts of $0.7 at March 31, 2002 and $0.7 at
    December 31, 2001 ...................................          16.2         16.7
  Inventories............................................          14.6         17.3
  Prepaid expenses and other current assets..............           4.4          3.9
                                                             -----------  -----------
          Total current assets...........................          52.7         68.6
                                                             -----------  -----------

MOD III assets held for sale.............................          30.0          --

Property, plant and equipment, at cost...................          59.4         94.5
Less: accumulated depreciation and amortization..........         (47.1)       (48.7)
                                                             -----------  -----------
   Net property, plant and equipment.....................          12.3         45.8

Other assets.............................................           1.2          1.3
                                                             -----------  -----------
                                                                  $96.2       $115.7
                                                             ===========  ===========
             LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
  Short-term debt........................................         $10.0        $12.8
  Notes payable..........................................           --         280.0
  Interest payable on notes..............................           --          22.5
  Accounts payable.......................................          13.2         13.4
  Accrued compensation and employee benefits.............           7.2          9.0
  Other accrued liabilities..............................           7.7         14.6
  Dividends payable......................................           --          16.6
  Deferred income on shipments to distributors...........           6.0          6.6
                                                             -----------  -----------
          Total current liabilities......................          44.1        375.5

Other non-current liabilities............................          14.2         14.3
Liabilities subject to compromise........................         325.2          --

Stockholders' deficiency:
  Preferred Stock, $100.00 par value; 5,000,000 shares
    authorized; 1,500,000 shares designated as Series A
    Cumulative Preferred Stock; 250,000 shares of Series
    A Cumulative Preferred Stock issued and outstanding
    at March 31, 2002 and December 31, 2001; aggregate
    liquidation preference $42.2 at March 31, 2002......           25.0         25.0

  Common Stock, $0.01 par value; 70,000,000 shares
    authorized; 32,017,272 shares issued and outstanding
    at March 31, 2002 and at December 31, 2001.
    Class A Stock, $0.01 par value; 30,000,000 shares
    authorized; 10,000,000 shares issued and outstanding
    at March 31, 2002 and December 31, 2001...............          0.4          0.4
  Deferred stock based compensation.......................         (0.5)        (0.6)
  Additional paid-in capital..............................         13.2         13.2
  Accumulated deficit.....................................       (325.4)      (312.1)
                                                             -----------  -----------
          Total stockholders' deficiency..................       (287.3)      (274.1)
                                                             -----------  -----------
                                                                  $96.2       $115.7
                                                             ===========  ===========`

See accompanying notes to condensed consolidated financial statements.

---

**ZiLOG, INC.

                             (DEBTOR-IN-POSSESSION)

           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (in millions)**

`Three Months Ended
                                                             ----------------------
                                                             March 31,    April 1,
                                                                2002        2001
                                                             ----------  ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................      ($11.9)     ($24.1)
   Adjustments to reconcile net loss to cash used by
     operating activities:
     Depreciation and amortization........................         1.9        10.1
     Impairment of long lived assets......................         2.5         --
     Stock based compensation.............................         0.1         --
     Loss from disposition of equipment...................         --          0.2
   Changes in assets and liabilities:
     Accounts receivable..................................         0.5         7.0
     Inventories..........................................         2.7         5.0
     Prepaid expenses and other current and noncurrent
       assets.............................................        (0.4)        1.7
     Accounts payable.....................................        (0.2)       (0.8)
     Accrued compensation and employee benefits...........        (1.7)      (13.1)
     Liabilities subject to compromise....................         6.1         --
     Other accrued  liabilities...........................        (6.9)       (9.8)
                                                             ----------  ----------
           Net cash used by operations before
              repoganization items........................        (7.3)      (23.8)
   Reorganization items - professional fees paid..........        (2.2)        --
                                                             ----------  ----------
           Net cash used by operating activities.........         (9.5)      (23.8)

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures...................................        (0.9)       (3.1)
                                                             ----------  ----------
          Cash used by investing activities...............        (0.9)       (3.1)
                                                             ----------  ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  (Repayments of) proceeds from short-term debt...........        (2.8)       13.0
  Proceeds from issuance of common stock..................         --          0.1
                                                             ----------  ----------
           Cash (used) provided by operating activities...        (2.8)       13.1
                                                             ----------  ----------
Decrease in cash and cash equivalents.....................       (13.2)      (13.8)
Cash and cash equivalents at beginning of period..........        30.7        40.7
                                                             ----------  ----------
Cash and cash equivalents at end of period................       $17.5       $26.9
                                                             ==========  ==========`

See accompanying notes to condensed consolidated financial statements.

---

**ZiLOG, INC.

                             (DEBTOR-IN-POSSESSION)

        NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**



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 consolidated financial statements to reflect the outcome
of these uncertainties.



The Company received confirmation from the U.S. Bankruptcy
Court for the Northern District of California of its and ZiLOG-MOD III, Inc.'s
("MOD III") joint reorganization plan filed pursuant to chapter 11 of
the Bankruptcy Code. The 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.  Certain
reclassifications have been made to the prior year condensed consolidated
financial statements to conform to the 2002 presentation.  Such
reclassifications had no effect on previously reported results of operations or
accumulated deficit.



Upon emergence from chapter 11, ZiLOG will adopt fresh start reporting
pursuant to the provisions of the American Institute of Certified Public
Accountant's Statement of Position 90-7.  Under statement 90-7, on the
confirmation date the company's assets and liabilities will be restated to
reflect their fair values, the accumulated deficit will be eliminated, and
ZiLOG's debt and capital structure will be recast pursuant to the provisions of
the prepackaged reorganization plan described in Note 2.



2)FINANCIAL RESTRUCTURING AND REORGANIZATION

The Company has suffered recurring losses from operations, has 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 9.5% senior secured notes (the "Notes").

ZiLOG filed a pre-packaged chapter 11 plan of reorganization
with the bankruptcy court of the Northern District of California on February 28,
2002 (the "reorganization plan") and the bankruptcy court confirmed
the reorganization plan as described herein on April 30, 2002.  With the
consummation of its new $15.0 million revolving credit facility with a
commercial lender the plan of reorganization 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,
have not been compromised under the reorganization plan.

Under the reorganization plan, the Notes will be cancelled.  Each noteholder
will receive, in exchange for its Notes, its pro rata share of:



- 100% of ZiLOG's newly-issued common stock, except for
14%, which will be issued or reserved for issuance to employees, consultants,
and directors under a management incentive plan.



- 100% of the newly issued series A preferred stock issued
by ZiLOG-MOD III, its currently wholly-owned subsidiary.  Holders of MOD III
series A preferred stock will be entitled to receive an aggregate liquidation
preference of $30 million plus any accrued but unpaid dividends on the MOD III
series A preferred stock from the net proceeds of the sale of the MOD III
fabrication plant including the facility, equipment and all other assets
necessary for the operation of the facility, located in Nampa, Idaho, which the
Company will transfer to MOD III when the reorganization plan becomes effective
and from certain operating lease proceeds.  Dividends will accrue on the MOD III
series A preferred stock at 9.5% per annum.



- 50% of MOD III's newly issued series B preferred stock.
ZiLOG will retain the remaining 50% of the new MOD III series B preferred stock.
Holders of the new MOD III series B preferred stock will be entitled to receive
the net sale proceeds from any sale of MOD III's assets in excess of  $30
million plus accrued but unpaid dividends on the new MOD III series A preferred
stock.



The reorganization plan also provides 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 will be extinguished. Depending on how the Bankruptcy Court ultimately
treats certain former shareholders of Calibre, Inc. who filed a recission claim
against us, each holder of common stock will, however, receive a pro rata share
of $50,000.  Each holder of preferred stock will receive a pro rata share of
$150,000.

The reorganization plan also provides 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.



The Company believes that consummation of the reorganization
plan will substantially reduce uncertainty with respect to ZiLOG's future and
better position it to develop new products and maintain and expand its customer
base by focusing on its core business. ZiLOG is a pioneer in the semiconductor
industry and has a well-recognized brand.  It is expected that the retirement of
the Notes will allow the Company to devote more resources towards developing and
expanding its core business. reorganization planManagement believes that
completion of the reorganization plan will provide a stronger financial base
upon which to focus and execute its business plans.  The consolidated financial
statements do not include any adjustments that reflect the restructuring or
other events contemplated by the reorganization plan. Chapter 11 reorganization-
related costs of $3.8 million included in the unaudited condensed debtor-in-
possession statement of operations for the three months ended March 31, 2002
relate primarily to legal and other professional service fees.



Liabilities included in the unaudited condensed consolidated
debtor-in-possession balance sheet at March 31, 2002, which are subject to
compromise under the terms of the plan of reorganization, are summarized as
follows (in millions):

`Notes payable.................        $280.0
Accrued interest on Notes.....          27.2
Preferred dividends payable...          18.0
                                 ------------
  Total liabilities subject
    to compromise.............        $325.2
                                 ============`





The above balance sheet amounts represent the Company's
estimate of known or potential pre-petition claims.  Pursuant to requirements of
the Bankruptcy Code, schedules have been filed with the Bankruptcy Court setting
forth its assets and liabilities.  Differences between amounts recorded by ZiLOG
and claims filed by creditors are being investigated and resolved after the
chapter 11 bankruptcy proceedings.  Such claims remain subject to future
adjustment.  Any such adjustments would increase or decrease the liabilities
subject to compromise and reorganization costs in the period in which they have
become known.  Adjustments may result from negotiations, actions of the
Bankruptcy Court, further developments with respect to disputed claims,
rejection of executory contracts, and proofs of claim.  Payment terms for these
amounts will be established in connection with the chapter 11 bankruptcy
proceedings.





3)CRITICAL ACCOUNTING POLICIES



A brief description of these policies is set forth below. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.

On an on-going basis, ZiLOG evaluates its estimates,
including those related to revenue recognition, sales returns, allowance for
doubtful accounts, inventory write-downs and asset impairments. ZiLOG bases its
estimates on historical trends and various other assumptions that are believed
to be reasonable at the time the estimates are made. Actual results could differ
from those estimates.



Revenue recognition. ZiLOG sells its products through
two channels, direct sales to original equipment manufacturers (OEM) and sales
through third-party distributors. During the first quarter of 2002, sales to
original equipment manufacturers accounted for approximately 55% of total net
sales, and sales to distributors accounted for approximately 45% of total net
sales. ZiLOG applies the provisions of Staff Accounting Bulletin 101
"Revenue Recognition" and Statement of Financial Accounting Standards
No. 48 "Revenue Recognition When Right of Return Exists."   Revenues
from product sales to OEMs are recognized upon transfer of title, which usually
occurs upon delivery of products to a customer or its designated shipping agent.
At that time, the Company provides for estimated sales returns and other
allowances related to those sales. Net sales made to distributors have terms of
sale allowing certain rights of return and price protection for ZiLOG products
held in the distributors' inventories. Therefore, ZiLOG defers recognition of
revenue and the proportionate cost of revenues derived from sales to
distributors until the distributors sell its products to their customers. ZiLOG
evaluates the amounts to defer based on the level of actual distributors'
inventory on hand as well as inventory that is in transit. The gross profit
deferred as a result of this policy is reflected as "deferred income on sales to
distributors" in the accompanying consolidated balance sheets.



Estimating sales returns and allowances. Net revenue
consists of product revenue reduced by estimated sales returns and allowances.
To estimate sales returns and allowances, ZiLOG analyzes historical returns,
current economic trends, levels of inventories of our products held by our
customers, and changes in customer demand and acceptance of our products when
initially establishing and then evaluating quarterly the adequacy of the reserve
for sales returns and allowances. This reserve is reflected as a reduction to
accounts receivable in the accompanying consolidated balance sheets. Increases
to the reserve are recorded as a reduction to net revenue. Because the reserve
for sales returns and allowances is based on ZiLOG's judgments and estimates,
particularly as to future customer demand and acceptance of our products, the
Company's reserves may not be adequate to cover actual sales returns and other
allowances. If our reserves are not adequate, net revenues could be adversely
affected.



Allowance for doubtful accounts. ZiLOG maintains an
allowance for losses that may occur as a result of our customers' inability to
make required payments. Any increase in the allowance results in a corresponding
increase in general and administrative expenses. In establishing this allowance,
and then evaluating the adequacy of the allowance for doubtful accounts, ZiLOG
analyzes historical bad debts, customer concentrations, customer credit-worthiness,
 current economic trends and changes in customer payment terms. If
the financial condition of one or more customers unexpectedly deteriorates,
resulting in their inability to make payments, or if we otherwise underestimate
bad debts as a result of customers' inability to pay, ZiLOG could be required to
increase its allowance for doubtful accounts which could adversely affect
operating results.



Estimating write-downs of excess and obsolete
inventories.  ZiLOG identifies excess and obsolete products and analyzes
historical net sales demand forecasts, current economic trends, inventory age
and historical write-offs when evaluating the net realizable value of its
inventories. 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 ZiLOG's assumptions, the Company may be required to take further write-
downs of our inventory value, which could adversely impact cost of sales and
operating results.

Asset Impairments. ZiLOG applies the provisions of
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of long-lived Assets." ZiLOG assess the impairment of
long-lived assets whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Factors that could trigger an impairment
review include the following:



- significant changes in the manner of use of the acquired
assets;
- significant changes in the strategy for ZiLOG's overall
business; and
- significant negative industry or economic
trends.



When ZiLOGdetermines 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 the consolidated balance sheets and as special charges in the
consolidated statements of operations. During the first quarter of 2002,
ZiLOGreported special charges of $2.5 million relating to write-offs of
long-lived assets. If actual market conditions or net proceeds of assets to be
sold are less favorable than our assumptions, ZiLOGmay be required to
take further special charges for asset impairment, which could adversely impact
operating results.



4)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 principal
stockholder.  ZiLOG purchased services from AIT totaling approximately $0.8
million and $2.7 million during the three-month periods ended  March 31, 2002,
and April 1, 2001, respectively.  The Company had payments due to AIT of
approximately $0.4 million at March 31, 2002, and approximately $0.5 million at
December 31, 2001.  The Company's payment terms with AIT are net 30 days.



The Company sells products and engineering services to
GlobeSpan, Inc., of which Texas Pacific Group is a significant stockholder. The
Company's net sales to GlobeSpan totaled approximately $0.1 million and $2.4
million during the three-month periods ended March 31, 2002 and April 1, 2001,
respectively.  As of December 31, 2001, the Company had accounts receivable from
GlobeSpan of approximately $0.3 million. ZiLOG had no outstanding receivable
from GlobeSpan as of March 31, 2002. As of the effective date of the plan of
reorganization, Texas Pacific Group and its affiliates are no longer significant
shareholders of ZiLOG.



5) INVENTORIES



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



`March 31,   December 31,
                                     2002         2001
                                 ------------ ------------
     Raw materials.............         $1.0         $1.0
     Work-in-process...........          7.5         10.3
     Finished goods............          6.1          6.1
                                 ------------ ------------
                                       $14.6        $17.4
                                 ============ ============`



6)      SPECIAL CHARGES



In connection with the closure of the Company's Austin, Texas
design center in the first quarter of 2002, furniture, fixtures and equipment
with a book value of approximately $1.7 million were abandoned.  Also in
connection with this action and the streamlining of ZiLOG's sales force,
severance and termination benefits of approximately $1.2 million were paid in
the first quarter of 2002.  Approximately $0.8 million of computer aided design
software was impaired in the first quarter of 2002 as a result of the Company's
decision to cancel development of the Cartezian family of 32-bit RISC
microprocessors. Additionally, $1.9 million of special charges incurred during
the first quarter of 2002 relate to the closure of the MOD III eight-inch wafer
fabrication facility in Idaho. These costs include relocation of production
activities to alternative manufacturing sites and the closure of the MOD III
facility.



Special charges for the three months ended March 31, 2002,
were as follows (in millions):

`Asset impairments:
   Austin, Texas assets.........        $1.7
   Internal use software........         0.8
Restructuring of operations:
   Employee severance and
     termination benefits.......         1.2
   MOD III closure costs........         1.9
                                 ------------
                                        $5.6
                                 ============`







The following table summarizes special charges accrual
activity and ending accrual balances for the three-month period ended March 31,
2002 (in millions):

`Severance      Lease
                                     and      Cancellation   MOD III
                                 Termination    and Exit     Closure
                                   Benefits     Charges       Costs       Total
                                 ------------ ------------ ----------- ------------
December 31, 2001..........             $5.6         $2.8        $0.2         $8.6
Charges to expense.........              1.1        --            1.9         $3.0
Cash payments..............             (5.5)        (2.6)       (2.0)      ($10.1)
                                 ------------ ------------ ----------- ------------
March 31, 2002.............             $1.2         $0.2        $0.1         $1.5
                                 ============ ============ =========== ============`







7)	SEGMENT REPORTING



ZiLOG has two reportable business segments: Communications
and Embedded Controls.  The Company's Embedded Controls segment is comprised of
two business units:  Field Programmable Micro-controllers and Home
Entertainment.  Consistent with the rules of Statement of Financial Accounting
Standards ("SFAS") No. 131 , "Disclosures about Segment of an
Enterprise and Related Information", the Company has aggregated these two
business units into one reportable segment because these product lines have
similar gross margins and target consumer and industrial customer applications
based largely on ZiLOG's Z-8 line of 8-bit micro-controllers and digital signal
processors.  The Communications segment is predominantly based on the Company's
Z80 line of 8-bit microprocessors and serial communication devices.  Net sales,
EBITDA, and depreciation and amortization, included in Corporate and Other, were
generated primarily from foundry work performed for manufacturing partners.
EBITDA represents earnings (losses) before interest, income taxes, depreciation,
amortization of intangible assets, non-cash stock compensation expenses, equity
in loss of Qualcore, cumulative effect of change in accounting principle,
reorganization items and special charges.  EBITDA is presented because it is a
widely accepted financial indicator of a company's ability to service and/or
incur indebtedness.  However, EBITDA should not be construed  as a substitute
for operating income or loss, net income or loss or cash flows from operating
activities in analyzing our operating performance, financial position and cash
flows.  The EBITDA measure presented herein may not be comparable to EBITDA
presented by other companies.  Financial information regarding reportable
segments for the three-month periods ended March 31, 2002 and April 1, 2001 are
as follows (in millions):

`Corporate
                                  Communica-    Embedded       and        Total
                                    tions       Control       Other    Consolidated
                                 ------------ ------------ ----------- ------------
Three Months Ended
  March 31, 2002:
Net sales........................      $14.4        $21.5        $0.1        $36.0
                                                                       ============
Loss before reorganization items,
   income taxes and loss from
   equity method investment......      --           --           --          ($8.0)
Depreciation and amortization....        0.5          1.4        --            1.9
Special charges..................      --           --            5.5          5.5
Amortization of stock based
   compensation..................      --           --            0.1          0.1
Interest income..................      --           --           (0.1)        (0.1)
Interest expense.................      --           --            5.0          5.0
                                                                       ------------
EBITDA...........................        1.7          2.5         0.2         $4.4
                                                                       ============

Three Months Ended
 April 1, 2001:
Net sales........................      $20.0        $23.2        $1.1        $44.3
                                                                       ============
Loss before reorganization items,
   income taxes and loss from
   equity method investment......      --           --           --         ($23.7)
Goodwill amortization............      --           --           (0.3)        (0.3)
Depreciation and amortization....        3.0          6.7         0.4         10.1
Interest income..................      --           --           (0.5)        (0.5)
Interest expense.................      --           --            7.3          7.3
                                                                       ------------
EBITDA...........................       (2.8)        (4.4)        0.1       $ (7.1)
                                                                       ============`





Major customers:  During the three months ended March 31,
2002, one distributor, Pioneer-Standard Electronics, who buys from both of our
segments, accounted for approximately 10% of net sales.    For the three month
period ended April 1, 2001, Pioneer-Standard Electronics accounted for
approximately 14% of  net sales.



8)        NOTES PAYABLE



ZiLOG did not make its scheduled semi-annual interest
payments of $13.3 million on the outstanding 9.5% senior secured notes due 2005
(the "Notes") that were due on September 4, 2001 and March 1, 2002.  As a
result, the Notes became callable by the noteholders and during the third and
fourth quarters of 2001, the Company classified its indebtedness under the Notes
as a current liability on its balance sheet.  In connection with filing the
reorganization plan, ZiLOG classified the Notes as liabilities subject to
compromise on its March 31, 2002 balance sheet.  At March 31, 2002, an aggregate
of $27.2 million in accrued interest was due on the Notes and was also
classified as liabilities subject to compromise on the balance sheet.  As
described in Note 2, the reorganization plan filed on February 28, 2002 and
confirmed on April 30, 2002 provides for extinguishment of the Notes and all
related accrued interest.



9)       SHORT TERM DEBT



We have a senior secured credit facility (the
"Facility") from a commercial lender that provides for total
borrowings of up to $40.0 million, consisting of a four-year revolving credit
facility of up to $25.0 million and a five-year capital expenditure line of up
to $15.0 million which expire on December 30, 2002 and 2003, respectively. As of
March 31, 2002, the revolving credit facility bore interest at the stated prime
rate of 4.75% per annum.  There were no borrowings under the capital equipment
credit facility.  At March 31, 2002, the Company had no calculated availability,
net of borrowings of $10.0 million, under the revolving credit facility.Our default on the payment due on the Notes, and the expiration of the
applicable grace period on this payment on October 4, 2001, constitutes a
default under the Facility.  As a result, this lender is under no obligation to
make additional loans to the Company and we therefore may not be able to borrow
any such additional amounts  under this Facility.  In addition, this lender has
the option to call the loan and render the amounts outstanding under the
Facility immediately due and payable.



ZiLOG entered into a new financing agreement with its current
commercial lender, dated May 13, 2002,  to replace the Facility with a new
three-year $15.0 million senior secured revolving credit facility. The new
facility is on substantially similar terms as the existing revolving credit
facility, except that borrowings will 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%.  The Company canceled the capital expenditure line under the Facility.



10)     COMPREHENSIVE INCOME



The Company had no items of other comprehensive income to
report in either of the three-month periods ended March 31, 2002, or April 1,
2001.



11)LEGAL PROCEEDINGS



On July 29, 1996, we 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, we
sought a declaration that our former insurers, Pacific and Federal, had an
unconditional duty to defend and indemnify us in connection with two lawsuits
brought in 1994:  (1) in Santana v. ZiLOG and, (2) in Ko v. ZiLOG. Our
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 six million, three hundred thousand
dollars ($6,300,000), plus interest and costs of suit.



On February 26, 2002, we agreed to make a payment of $300,000
to fully settle these lawsuits.  We have already paid $75,000 of this amount.
The balance is to be paid in 3 equal installments over the next twelve months.
The outstanding balance accrues interest at 6% per annum.



We filed for protection under chapter 11 of the United States
Bankruptcy Code in the Northern District of California on February 28, 2002.
Prior to this filing, we solicited the acceptance of our plan of reorganization
from holders of our senior notes and our preferred stock. We received unanimous
acceptance of our plan of reorganization from the noteholders and preferred
shareholders voting.  In connection with the filing, we made several motions to
the judge requesting, among other things, that we be able to pay our employees
and trade creditors in the ordinary course.  These motions were granted. Our
plan of reorganization was confirmed on April 30, 2002, and became effective in
May 13, 2002.  (See Note 2)



One party has notified us that we may be infringing certain
patents.  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 are investigating the claims of
all of these parties.  We have had no further communications about any of this
for more than 10 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 Factors That May Affect
Future Results - "We could be subject to claims of infringement of third-
party intellectual property rights, which could result in significant expense to
us and/or loss of such rights."



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.



12) PREFERRED STOCK DIVIDENDS



As described in Note 9  to the Consolidated Financial
Statements of the Company's 2001 Annual Report on Form 10-K, ZiLOG's Series A
Cumulative Preferred Stock ("Series A Stock") accumulates 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 March 31, 2002, the Company has not paid any dividends on
the Series A Stock and the corresponding accrued dividends are approximately
$18.0 million.  During the three-month period ended March 31, 2002, $1.4 million
of dividends on Series A Stock were accrued and charged to accumulated deficit.
As of the effective date of the plan of reorganization, all accumulated
dividends will be  extinguished in accordance with the plan.



13)   RECENT ACCOUNTING PRONOUNCEMENTS



In August 2001, the FASB issued SFAS 143, "Accounting for
Asset Retirement Obligations." SFAS 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated retirement costs. SFAS 143 is generally effective for
fiscal years beginning after June 15, 2002 and the Company is in the process of
assessing the financial statement effect of its adoption.  However, ZiLOG will
be required to adopt SFAS 143 upon implementation of fresh-start accounting as
prescribed by SOP 90-7.



FINANCIAL INFORMATION

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



The information presented below should be read in conjunction
with the Condensed Consolidated Financial Statements included elsewhere herein.
Interim results are based on fiscal quarters of thirteen weeks in duration
ending on the last Sunday of each quarter.  The operating results for any
quarter are not necessarily indicative of results for any subsequent quarter or
the full fiscal year.



We prepare and release quarterly unaudited financial
statements prepared in accordance with generally accepted accounting principles
or GAAP. We also disclose and discuss EBITDA in our filings with the Securities
and Exchange Commission, earnings releases and investor conference calls. This
pro forma financial information excludes certain non-cash charges,
reorganization items and special charges, consisting primarily of depreciation
and amortization, reorganization items, asset impairments, equity investments,
stock-based compensation, debt restructuring, restructuring of operations and
lease termination costs. We believe the disclosure of such information helps
investors more meaningfully evaluate the results of our ongoing operations.
However, we urge investors to carefully review the GAAP financial information
included as part of our Quarterly Reports on Form 10-Q, our Annual Reports on
Form 10-K, and our quarterly earnings releases.  We also urge investors to
compare our GAAP financial information with the pro forma financial results
disclosed in our quarterly earnings releases and investor calls, and read the
associated reconciliations included with our press releases.



Our operating results have and will vary because of a number
of factors, including the timing and success of new product introductions,
customer design wins and losses, the success of cost reduction programs, changes
in product mix, volume, timing and shipment of orders, fluctuations in
manufacturing productivity, availability of third-party manufacturing services
at commercially reasonable prices and quality, and overall economic conditions.
Sales comparisons are also subject to customer order patterns and business
seasonality.



Critical Accounting Policies

We believe our critical accounting policies are as follows:



- revenue recognition;
- estimating sales, returns and allowances;
- estimating allowance for doubtful accounts;
- estimating write-downs of excess and obsolete
inventories; and
- asset impairments.



A brief description of these policies is set forth below. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.

On an on-going basis, we evaluate our estimates, including
those related to revenue recognition, 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.



Revenue recognition. We sell our products through two
channels, direct sales to original equipment manufacturers and sales through
third-party distributors. During the first quarter of 2002, sales to original
equipment manufacturers accounted for approximately 55% of our total net sales,
and sales to distributors accounted for approximately 45% of total net sales.
We apply the provisions of Staff Accounting Bulletin 101 "Revenue
Recognition." and Statement of Financial Accounting Standards No. 48
"Revenue Recognition When Right of Return Exists."   Revenues from
product sales to OEMs are recognized upon transfer of title, which usually
occurs upon delivery of our products to a customer or their designated shipping
agent. At that time, we provide for estimated sales returns and other allowances
related to those sales. Net sales made to distributors under terms allowing
certain rights of return and price protection for our products held in the
distributors' inventories. Therefore, we defer recognition of revenue and the
proportionate cost of revenues derived from sales to distributors until the
distributors sell our products to their customers. We evaluate the amounts to
defer based on the level of actual distributors' inventory on hand as well as
inventory that is in transit. The gross profit deferred as a result of this
policy is reflected as "deferred income on sales to distributors" in the
accompanying consolidated balance sheets.



Estimating sales returns and allowances. Net revenue
consists of product revenue reduced by estimated sales returns and allowances.
To estimate sales returns and allowances, we analyze historical returns, current
economic trends, levels of inventories of our products held by our customers,
and changes in customer demand and acceptance of our products when initially
establishing and then evaluating quarterly the adequacy of the reserve for sales
returns and allowances. This reserve is reflected as a reduction to accounts
receivable in the accompanying consolidated balance sheets. Increases to the
reserve are recorded as a reduction to net revenue. Because the reserve for
sales returns and allowances is based on our judgments and estimates,
particularly as to future customer demand and acceptance of our products, our
reserves may not be adequate to cover actual sales returns and other allowances.
If our reserves are not adequate, our net revenues 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 analyze historical bad debts, customer concentrations, customer
credit-worthiness, current economic trends and changes in our customer payment
terms. 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.  We identify excess and obsolete products and analyze
historical net sales demand forecasts, current economic trends, inventory age
and historical write-offs when evaluating the net realizable value of our
inventories. 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.  We apply the provisions of
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of long-lived Assets." We assess the impairment of long-
lived assets whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Factors we consider important which could
trigger an impairment review include the following:



- significant changes in the manner of our use of the
acquired assets;
- significant changes in the strategy for our overall
business; and
- significant negative industry or economic
trends.



When we determine that the carrying value of long-lived
assets may not be recoverable based upon the existence of one or more of the
above indicators of impairment, and the undiscounted cash flows estimated to be
generated by those assets are less than the asset's carrying value, the carrying
value of the assets are reduced to their estimated fair value.  The estimated
fair value is usually determined based on an estimate of future discounted cash
flows.  Asset impairments are recorded as a reduction in the asset value in our
consolidated balance sheets and as special charges in our consolidated
statements of operations. During the first quarter of 2002, we reported special
charges of $2.5 million relating to write-offs of long-lived assets. If actual
market conditions or net proceeds of assets to be sold are less favorable than
our assumptions, we may be required to take further special charges for asset
impairment, which could adversely impact our operating results.



Overview



We were founded in 1974 as a designer, developer and
manufacturer of 8-bit microprocessors and we have evolved into a designer,
manufacturer and marketer of semiconductor micro-logic devices for use in the
communications and embedded control markets. Using proprietary technology, we
provide devices that our customers design into their end products. Our devices
enable data communications and telecommunications companies to process and
transmit information and also enable a broad range of consumer and industrial
electronics manufacturers to control the functions and performance of their
products.



Prior to February 1998, our common stock had been publicly
traded on the New York Stock Exchange under the symbol "ZLG." On February 27,
1998, we consummated a merger with an affiliate of Texas Pacific Group, and in
connection with that transaction we ceased having publicly traded equity. Since
the merger was structured as a recapitalization with a continuing minority
stockholder group, our financial statements still reflect our historical basis
of accounting. Our restructuring activities have included streamlining various
production facilities and outsourcing our assembly and some of our wafer
fabrication operations. In addition, we have recently discontinued development
of our Cartezian family of 32-bit microprocessors and refocused on our core 8-
bit and 16-bit product lines.



We sell our products through two channels, direct sales to
original equipment manufacturers and sales through third-party distributors.
During the first quarter of 2002, sales to original equipment manufacturers
accounted for approximately 55% of our total net sales, and sales to
distributors accounted for 45% of total net sales. During the same period, our
total net sales were comprised of approximately 36% domestic sales and 64%
international sales.

Financial Restructuring and Reorganization

We filed a pre-packaged chapter 11 plan of reorganization
with the bankruptcy court for the Northern District of California on February
28, 2002 and the bankruptcy court confirmed the plan on April 30, 2002.  The
plan of reorganization became effective on May 13, 2002.



We operated our business in chapter 11 in the ordinary course
and had obtained the necessary relief from the bankruptcy court to pay our
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
our employees, general unsecured creditors (including trade creditors,
licensors, and lessors) and secured creditors, other than holders of our senior
secured notes, will not be compromised under the plan.

Under the plan of reorganization, our $280M senior notes will be cancelled.
Each holder will receive, in exchange for its senior notes, its pro rata share
of:



- 100% of our newly issued common stock, except for 14%,
which will be issued or reserved for issuance to our employees, consultants, and
directors under a management incentive plan.



- 100% of the newly issued series A preferred stock issued
by our currently wholly owned subsidiary, MOD III.  Holders of MOD III series A
preferred stock will be entitled to receive an aggregate liquidation preference
of $30 million plus any accrued but unpaid dividends on the MOD III series A
preferred stock from the net proceeds of the sale of our MOD III fabrication
plant including the facility, equipment and all other assets necessary for the
operation of the facility, located in Nampa, Idaho, which we will transfer to
MOD III when the plan becomes effective and from certain operation lease
proceeds.  Dividends will accrue on the MOD III series A preferred stock at 9.5%
per annum.



- 50% of MOD III's newly issued series B preferred stock.
We will retain the remaining 50% of the new MOD III series B preferred stock.
Holders of the new MOD III series B preferred stock will be entitled to receive
the net sale proceeds from any sale of MOD III's assets in excess of  $30
million plus accrued but unpaid dividends on the new MOD III series A preferred
stock.



The plan of reorganization also provides for the cancellation
of our currently outstanding preferred and common stock and all options and
warrants related thereto.  All accumulated dividends and any other obligations
with respect to our outstanding preferred and common shares will be
extinguished.  Depending on how the Bankruptcy Court ultimately treats certain
former shareholders of Calibre, Inc. who filed a recission claim against us,
each holder of common stock will, however, receive a pro rata share of $50,000.
Each holder of preferred stock will receive a pro rata share of $150,000.

The plan of reorganization also provides for the payment in
full, with interest if appropriate, or reinstatement, as appropriate, of all
employee and trade claims.  In order for the reorganization planto have become
effective, we were required, among other things, to revise our charter and
bylaws, enter into a new secured financing agreement, and designate a new board
of directors.

We believe that the restructuring will substantially reduce
uncertainty with respect to our future and better position us to develop new
products and maintain and expand our customer base by focusing on our core
business. ZiLOG is a pioneer in the semiconductor industry and we have a well-
recognized brand.  We believe that the elimination of our senior secured notes
will allow us to devote more resources towards developing and expanding our core
business. We believe that completion of the plan will provide a stronger
financial base upon which we can focus and execute to develop a successful
business.  Our financial statements do not include any adjustments that reflect
the restructuring or other events contemplated by the plan.

Upon emergence from chapter 11 proceedings, we will adopt fresh start
reporting pursuant to the provisions of the American Institute of Certified
Public Accountant's Statement of Position 90-7.

Under statement 90-7, on the consummation date our assets and liabilities
will be restated to reflect their fair values, the accumulated deficit will be
eliminated, and our debt and capital structure will be recast pursuant to the
provisions of the prepackaged plan.

Results of Operations



Net Sales. Overall, similar to the semiconductor
industry as a whole, we have experienced several quarters of weakness in demand
for many of our products that has persisted through the first quarter of 2002
and has negatively affected net sales growth for most of our product lines.  Our
net sales of $36.0 million in the first quarter of 2002 declined 18.6% from net
sales of $44.3 million in the first quarter of 2001. This decrease in net sales
was attributable primarily to lower unit shipments of communications products.
Net sales of our communications segment declined 27.9% to $14.4 million in the
first quarter of 2002 compared to $20.0 in the first quarter of 2001.  This
decline was primarily the result of lower unit shipments of serial communication
controller and wireless connectivity products, offset partially by higher unit
sales of modem products. The decline in our sales of communications products
during the first quarter of 2002 reflects weak overall market conditions in the
telecommunications sector.  In the first quarter of 2002, net sales in our
embedded control segment decreased 7.4% to $21.4 million, compared to $23.2
million in the same period in 2001.  This decline was primarily the result of
lower unit shipments of Z8 microcontrollers and peripherals products, offset
partially by higher unit sales of television controller products.



Net sales by region are summarized below (in millions):

`Three Months Ended
                                 --------------------------------------------------
                                        March 31, 2002           April 1, 2001
                                 ------------------------- ------------------------
                                   Dollars     % of Total    Dollars    % of Total
                                 ------------ ------------ ----------- ------------
Net sales by region:
  Americas.....................         18.6           52%       26.5           60%
  Asia, including Japan........         12.6           35%       10.8           24%
  Europe.......................          4.8           13%        7.0           16%
                                 ------------ ------------ ----------- ------------
Total                                   36.0          100%       44.3          100%
                                 ============ ============ =========== ============`





Gross Margin. Our cost of sales 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 43.6% in the first quarter of 2002, up
from 13.7% in the same period of 2001. This improvement in gross margin was
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
wafer manufacturing factory utilization improved to 57% of capacity in the first
quarter of 2002, compared to 29% in the first quarter 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 quarter of 2002.





Research and Development Expenses. Research and
development expenses were $5.2 million in the first quarter of 2002, reflecting
a 42.7% decrease from the $9.1 million of research and development expenses
reported in the first quarter of 2001.  The decrease in research and development
expense primarily reflects lower payroll-related costs as a result of headcount
reductions. During the first quarter 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 quarter 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.



Selling, General and Administrative Expenses. Selling,
general and administrative expenses decreased to $8.1 million in the first
quarter of 2002 from $13.6 million in the first quarter of 2001.  The decrease
in our selling, general and administrative spending in the first quarter 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 facility in San Jose,
California.  Excluding special charges, the headquarters move is expected to
result in annual operating cost savings of approximately $4.5 million.



Special Charges. Special charges in the quarter ended
March 31, 2002, were as follows (in millions):

`Asset impairments:
   Austin, Texas assets.........        $1.7
   Internal use software........         0.8
Restructuring of operations:
   Employee severance and
     termination benefits.......         1.2
   MOD III closure costs........         1.9
                                 ------------
                                        $5.6
                                 ============`





In connection with the closure of our Austin, Texas design
center in the first quarter 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 quarter of 2002.
Approximately $0.8 million of computer aided design software was impaired in the
first quarter of 2002 as a result of our decision to cancel development of the
Cartezian family of 32-bit RISC microprocessors. Additionally, we incurred a
$1.9 million of special charges during the first quarter of 2002 associated with
the closure of our MOD III eight-inch wafer fabrication facility in Idaho. These
costs include relocation of production to alternative manufacturing sites and
the closure of the facility.  At March 31, 2002, approximately $0.1 million was
accrued for MOD III closure costs.  There were no special charges in the first
quarter of 2001.



The following table summarizes special charges accrual
activity and ending accrual balances for the three-month period ended March 31,
2002 (in millions):

`Severance      Lease
                                     and      Cancellation   MOD III
                                 Termination    and Exit     Closure
                                   Benefits     Charges       Costs       Total
                                 ------------ ------------ ----------- ------------
December 31, 2001..........             $5.6         $2.8        $0.2         $8.6
Charges to expense.........              1.1        --            1.9         $3.0
Cash payments..............             (5.5)        (2.6)       (2.0)      ($10.1)
                                 ------------ ------------ ----------- ------------
March 31, 2002.............             $1.2         $0.2        $0.1         $1.5
                                 ============ ============ =========== ============`

Interest Expense. In the first quarter of 2002 our
interest expense decreased to $4.9 million compared to $7.3 million in the same
period of 2001.  Interest expense in both years relates primarily to our senior
notes issued in conjunction with our recapitalization merger in February 1998.
The decrease in our interest expense in the first quarter of 2002 compared to
the first quarter 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.



Reorganization Costs. Chapter 11 reorganization-related
costs of $3.8 million included in our unaudited condensed debtor-in-possession
statement of operations for the three months ended March 31, 2002 relate
primarily to legal and other professional service fees.



Liabilities included in the unaudited condensed consolidated
debtor-in-possession balance sheet at March 31, 2002, which are subject to
compromise under the terms of the Plan of reorganization, are summarized as
follows (in millions):

`Notes payable.................        $280.0
Accrued interest on Notes.....          27.2
Preferred dividends payable...          18.0
                                 ------------
  Total liabilities subject
    to compromise.............        $325.2
                                 ============`

Income Taxes. Our provision for income taxes in both
the first quarters of 2002 and 2001 reflects foreign income taxes for the
jurisdictions in which we were profitable as well as foreign withholding taxes and
state minimum taxes.
Based on available evidence, including our cumulative losses to date, we have
provided a full valuation allowance of $79.1 million against our net deferred
tax assets at December 31, 2001.  We anticipate that our net operating losses
and tax credit carryforwards will be substantially consumed or eliminated as a
result of actions pursuant to our chapter 11 reorganization.  We expect that our
ability to utilize any remaining tax attributes after our reorganization is
completed will be significantly limited under Section 382 of the Internal
Revenue Code as a result of the change in ownership that is contemplated by the
reorganization plan.

Liquidity and Capital Resources



We incurred substantial indebtedness in connection with our
recapitalization merger in 1998. We currently have $280.0 million in aggregate
principal amount of senior notes outstanding which are publicly registered and
subject us to the reporting requirements of the Securities Exchange Act of 1934.
Interest on the senior notes was accrued at the rate of 9.5% per annum and is
payable semi-annually in arrears on March 1 and September 1, to holders of
record on the immediately preceding February 15 and August 15, respectively.  We
did not make the scheduled semi-annual interest payments of $13.3 million on the
notes for either the September 2001 or the March 2002 payment dates. As noted
previously, we have concluded that the best vehicle to achieve a restructuring
of our senior secured indebtedness was through consummation of a voluntary
prepackaged plan of reorganization pursuant to chapter 11 of the U.S. Bankruptcy
Code and our reorganization plan was confirmed by the Bankruptcy Court on April
30, 2002.  The plan of reorganization became effective on May 13, 2002.



As of March 31, 2002, we had cash and cash equivalents of
approximately $17.5 million, compared to $30.7 million at December 31, 2001.



Additionally, we have a senior secured credit facility from a
commercial lender that provides for total borrowings of up to $40.0 million,
consisting of a four-year revolving credit facility of up to $25.0 million and a
five-year capital expenditure line of up to $15.0 million which expire on
December 30, 2002 and 2003, respectively. Borrowings under the credit facility
bear interest at a rate per annum equal, at our option, to the commercial
lender's stated prime rate or the London Interbank Overnight Rate, commonly
known as LIBOR, plus 2.0% (4.9% at March 31, 2002) for the revolving credit
facility and the commercial lender's prime rate plus 1.0% (5.8% at March 31,
2002) or LIBOR plus 3.0% (5.9% at March 31, 2002) for the capital expenditure
line. As of March 31, 2002 borrowings under the revolving credit facility
totaled $10.0 million and there were $1.2 million of standby letters of credit
issued to our vendors under this facility. As of March 31, 2002 there were no
borrowings under the capital expenditure line. There is no additional borrowing
capacity under either facility and this loan is currently in default and could
be called by the lender.



We entered into a new credit facility with the same
commercial lender to replace our existing credit facility with a three-year
$15.0 million senior secured revolving credit facility upon emergence from our
chapter 11 bankruptcy.  The new facility is on substantially similar terms as
the existing 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%.  The capital expenditure line under our existing credit
facility was cancelled.



Cash used by operating activities was $9.5 millionfor
the three months ended March 31, 2002, compared to $23.7 million in the similar
period of 2001. The use of cash by operating activities in the first quarter of
2002 primarily reflects our net loss of $11.9 million, adjusted for depreciation
and amortization of $2.0 million.  During the three-month period ended March 31,
2002, our significant use of operating cash included cash payments for special
charges of $10.1 million.   The use of cash by operating activities in the first
quarter of 2001 primarily reflects our net loss of  $24.1 million, adjusted by
depreciation and amortization of $10.1 million, a decrease in accrued
compensation and employee benefits of $13.1 million, and an decrease in other
accrued and noncurrent liabilities of $9.8 million, offset by decreases in
accounts receivable and inventories of $7.0 million and $5.0 million,
respectively. Included in the change in other accrued and noncurrent liabilities
for the first quarter of 2001 was $13.3 million for a payment of interest on the
Notes. Additionally, the Company paid $10.3 million to its former Chief
Executive Officer in the first quarter of 2001, pursuant to a previously accrued
contractual obligation.



Cash used by investing activities was $0.9million
for the three months ended March 31, 2002 and was $3.1 million for the three
months ended April 1, 2001. Cash used for investing activities in both periods
reflects capital expenditures.  In the first quarter 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 quarter of 2001 primarily related to equipment in our MOD III wafer
manufacturing facility. Cash used for financing activities in the first quarter
of 2002 were $2.8 million representing repayments on our revolving line of
credit.  In the first quarter of 2001, $13.0 million of cash was provided by
investing activities from borrowings under our revolving line of credit.



Our cash needs include reorganization expenditures,
restructuring of operations, working capital, and capital expenditures. The 2002
business climate is expected to continue to be extremely difficult. Upon
emergence from chapter 11, we presently expect that our anticipated exit
financing, cash flows from operations and available cash, coupled with our
operational restructuring activities and other cash-savings initiatives will
allow us to satisfy all of our cash needs for the next 12 months.



Whether we are able to do so will depend primarily on our
results from operations during 2002 and on the success of our debt restructuring
plan and our other initiatives.  If we are not able to do so, we may need to
obtain additional cash resources, such as from new sources of debt or equity
financing or one or more sales of assets.  In the event additional financing is
required, we may not be able to raise money on acceptable terms or at all.

Effects of Inflation and Changing Prices

The Company believes that inflation and/or deflation had a minimal impact on
its overall operations during the first quarters of 2002 and 2001.

Recent Accounting Pronouncements

In August 2001, the FASB issued SFAS 143, "Accounting for
Asset Retirement Obligations." SFAS 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated retirement costs. SFAS 143 is generally effective for
fiscal years beginning after June 15, 2002 and we are in the process of
assessing the financial statement effect of its adoption.  However, we will be
required to adopt SFAS 143 upon implementation of fresh-start accounting as
prescribed by SOP 90-7.

Factors That May Affect Future Results

Risks Related to Our Business and Industry





Recent terrorist activities and resulting military and
other actions could harm our business.



Terrorist attacks in New York, Washington, D.C. and
Pennsylvania in September 2001 have disrupted domestic and international
commerce.  The continued threat of terrorism, any ongoing military action and
heightened security measures in response to this threat may cause significant
disruption to commerce throughout the world.  To the extent that this disruption
results in delays or cancellations of orders, a general decrease in spending on
technology products or our inability to effectively market and ship our
products, our business and results of operations could be harmed.  We are unable
to predict whether the threat of terrorism or the responses thereto will result
in any long-term commercial disruptions or if such activities or responses will
have a long-term adverse effect on our business, results of operations or
financial condition.

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



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



- our ability to introduce and sell new products and
technologies on a timely basis;



- changes in the prices of our products;



- technological change and product
obsolescence;



- changes in product mix or fluctuations in manufacturing
yields;



- variability of our customers' product life
cycles;



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



- increases in the cost of raw materials;
and



- gain or loss of significant customers.



In addition to causing fluctuations in the price of our
securities, any significant declines in our operating performance could harm our
ability to meet our debt service and other obligations.



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
businesses may 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.  We are uncertain how
long this decline will last.  In 1997 and 1998, we experienced similar
significant declines in customer demand for our products.  In response to these
reductions in demand, other semiconductor manufacturers and we reduced prices to
avoid a significant decline in capacity utilization. During 2001 we experienced
significant declines in our capacity utilization in our manufacturing facilities
and we reduced selling prices on certain products. We may be required to further
reduce selling prices, which could negatively impact our financial condition.
In addition, 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, we expect future losses and we
may not achieve or maintain profitability in the future.



We have a history of net losses, we expect future net losses
and we may not achieve profitability in the near future. We incurred net losses
of $11.9 million in the three months ended March 31, 2002, $128.0 million in
2001, $58.2 million in 2000, and  $37.9 million in 1999. As of March 31, 2002,
we had an accumulated deficit of approximately $325.4 million.



We have implemented and are considering additional cost
cutting measures, but these cost-cutting measures may not result in increased
efficiency or future profitability.



Similar to other semiconductor companies, we have implemented
and may consider implementing additional significant cost cutting measures that
may include:



- consolidation of our wafer fabrication facilities,
outsourcing significant manufacturing transfer of our probe operations to the
Philippines;



- canceling new product lines;



- closing design facilities and sales
offices;



- refocusing of business priorities;



- reallocation of personnel and responsibilities to better
utilize human resources;



- reductions in workforce; and



- temporary office and facility shutdowns.



As part of our cost cutting measures, we are considering the
disposition of one or more product lines, business units or other assets. We may
not be able to consummate any divestiture at a fair market price. We may also be
unable to reinvest the proceeds from any disposition to produce the same level
of operating profit as the divested product lines or to generate a commensurate
rate of return on the amount of our investment. We may also be required to pay
some or all of the proceeds from assets sales to our senior lenders rather than
retaining such proceeds for working capital.  Our cost cutting measures may not
increase our efficiency or future profitability.



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 micro-logic 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:

- proper new product selection;



- timely completion and introduction of new product
designs;



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



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



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



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



Our future success may be dependent on the release and
acceptance of our new eZ80 Internet Engine family of products.



We have delivered samples of our first eZ80 Webserver
product to some of our customers and have released the first eZ80 product to
production.  These new products may not perform as anticipated and there may be
unforeseen redesigns or delays in their final release. Our failure to release
these products as scheduled or the failure of these products to meet our
customers' expectations would affect us adversely. While we do expect to receive
revenues from these products in 2002, it is not clear how significant those
revenues will be. Future revenues may also be insufficient to recover the costs
associated with their development.



Products as complicated as the eZ80 Webserver frequently
contain errors and defects when first introduced or as new versions are
released. Delivery of products with such errors or defects, or reliability,
quality or compatibility problems, could require significant expenditures of
capital and other resources and significantly delay or hinder market acceptance
of these products. Any such capital expenditures or delays could harm our
operating results materially, damage our reputation and affect our ability to
retain our existing customers and to attract new customers.



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 communications products compete with, or are expected to
compete with, products offered by Advanced Micro Devices, ARM, Atmel,  Conexant,
Intel, Lucent Technologies, Maxim, MIPS Technologies, Mitel, Motorola, NEC,
NetSilicon, Philips, PMC-Sierra, Sharp, Texas Instruments and Toshiba.  Our
current and future embedded control products compete with, or are expected to
compete with, products offered by Atmel, Hitachi, Intel, Microchip, Mitsubishi,
Motorola, NEC, Philips, Samsung, Sanyo, Sharp, ST Microelectronics and Toshiba.
Our ability to compete successfully in our markets depends on factors both
within and outside of our control, including:



- our ability to design and manufacture new products that implement new
technologies;



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



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



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



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



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



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

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

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



For example, we may experience problems that make it
difficult to manufacture the quantities of our products that we anticipate
producing in our .65 micron wafer fabrication processes. These difficulties may
include:



- equipment being delivered later than or not performing as
expected;



- process technology changes not operating as expected;

- complications in moving production from our eight-inch wafer fabrication
facility to our five-inch wafer fabrication facility or to outside foundries in
connection with our announced wafer fabrication facility consolidation plans;
and







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



In connection with the closure of our MOD III wafer
fabrication facility, we intend to 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.  Should we
be unable to obtain the requisite foundry capacity to manufacture our complex
new products, or should we have to pay high prices to foundries in periods of
tight capacity, our ability to increase our revenues might be impaired. Any
delay in initiating production at third-party facilities, any inability to have
new products manufactured at foundries or any failure to meet our customers'
demands could damage our relationships with our customers and may decrease our
sales.



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



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



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



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



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



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



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



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



Approximately 65% of our net sales in 2001, and approximately
64% of our net sales in the first quarter of 2002, 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 and
rely on a number of contract manufacturers in the Philippines, Indonesia,
Taiwan, Malaysia and India.   We cannot assure you that we will be successful in
overcoming the risks that relate to or arise from operating in international
markets.  Risks inherent in doing business on an international level
include:



- economic and political instability;



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



- transportation delays;



- power supply shortages and shutdowns;



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



- existence of language barriers and cultural
distinctions;



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



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



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



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



A significant amount of our revenues comes from relatively
few of our customers, and any decrease of revenues from these customers, 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 for a significant portion of
our revenues primarily because we depend on third-party distributors to market
and sell our products. These third-party distributors accounted for
approximately 39% of our net sales in 2001, and approximately 45% of our net
sales in the first quarter of 2002. Our distributors may not continue to
effectively market, sell or support our products.  Our ten largest customers
accounted for 55% of our net sales in 2001 and approximately 52% of our net
sales in the first quarter of 2002. Pioneer-Standard alone accounted for
approximately 13% of our net sales in 2001, and approximately 10% of our net
sales in the first quarter of 2002. 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. Because we do not have long-
term supply contracts with most of our customers, changes in the designs of
their products could have sudden and significant impacts on our sales. Any
resulting decreased sales could reduce our profitability. For example, a number
of our customers have changed the designs of computer mouse pointing devices
that they manufacture, and as a result, these devices no longer contain our
products. As a result of these design changes, net sales of our computer mouse
pointing devices and other computer peripheral products decreased substantially
from approximately $15.4 million in 2000 and to approximately $4.9 million in
2001. In the first quarter of 2002, net sales to our computer mouse pointing
devices and other computer peripheral products were $0.9 million. These reduced
sales have and may continue to harm our operating results materially.



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.



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 result in significant expense to us
and/or our loss of such rights.



The semiconductor industry is characterized by frequent
claims and related litigation regarding patent and other intellectual property
rights. Third parties may assert claims or initiate litigation against us, our
licensors, our foundries, our service providers, or our customers with respect
to existing or future products. Any intellectual property litigation initiated
against us could subject us to significant liability for damages and attorneys'
fees, invalidation of our proprietary rights, injunctions or other court orders
that could prevent us from using specific technologies or engaging in specific
business activities.



These lawsuits, regardless of their success, would likely be
time-consuming and expensive to resolve and would divert management's time and
attention from our business. Any potential intellectual property litigation
could also force us to do one or more of the following:



- pay substantial damages;



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



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



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



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



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



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



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



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



One party has notified ZiLOG that it may be infringing
certain patents.  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.  ZiLOG is investigating the
claims of all of these parties.  Even though we have not heard anything about
any of these for at least nine months, and while we believe that we are unlikely
to have liability in any of these situations, no assurance can be given in this
regard.  In the event ZiLOG determines that such notice may involve meritorious
claims, ZiLOG may seek a license.  Based on industry practice, ZiLOG 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 ZiLOG.



We are defending one lawsuit, in the ordinary course of
business. We may lose this suit and we may be subject to a material judgment
against us.



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



To grow our business and maintain our competitive position,
we have made acquisitions in the past and may acquire other businesses in the
future. In the past, for example, we acquired substantially all of the assets
and assumed the operating liabilities of Seattle Silicon Corporation in April
1999 for approximately $6.1 million. In July 2000, we acquired Calibre in
exchange for 741,880 shares of our common stock, including shares of our common
stock issuable upon the exercise of vested options.



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



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



- ineffective communication and cooperation in product
development and marketing among senior executives and key technical personnel;



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



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



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



- difficulties in retaining relationships with suppliers
and customers of the acquired business.



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.



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. Although we believe that we are in
material compliance with all relevant laws and regulations and have all material
permits necessary to conduct our business, 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.



Risks Related to Our Capital Structure



The agreements governing our indebtedness may limit our
ability to finance future operations or capital needs or engage in business
activities that may be in our interest.



The terms of our post-confirmation credit facility
contain restrictive covenants that may impair our ability to take corporate
actions that we believe to be in the best interests of our stockholders,
including restricting our ability to:



- dispose of assets;



- incur additional indebtedness;



- prepay other indebtedness or amend some debt
instruments;



- pay dividends or repurchase our stock;



- create liens on assets;



- enter into sale and leaseback transactions;



- make investments, loans or advances;



- make acquisitions or engage in mergers or
consolidations;



- change the business conducted by us or our
subsidiaries;



- make capital expenditures or engage in specific
transactions with affiliates; and



- otherwise restrict other corporate
activities.



Our ability to comply with this agreement may be affected by
events beyond our control, including prevailing economic, financial and industry
conditions.  The breach of any of such covenants or restrictions could result in
a default, which may permit our lender to cause all amounts we owe them to
accelerate and become due and payable, together with accrued and unpaid
interest.  We may not be able to repay all of our borrowings if they are
accelerated and, in such event, our business may be harmed materially and the
value of our common stock could decrease significantly.





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 long-term debt
obligations.  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.
We mitigate default risk by investing in only the highest quality securities and
monitoring the credit ratings of such investments.  We have no cash flow
exposure due to rate changes for our cash equivalents or our Notes as these
instruments have fixed interest rates.

The table below presents principal amounts and related average rates by year
of maturity for our cash equivalents and debt obligations as of March 31, 2002
(dollars in millions):

`Carrying
                                                   Value    Fair Value
                                                 ---------- ----------
Cash Equivalents:
  Fixed rate .........................               $16.4      $16.4
  Average interest rate ..............                1.08%      --

Short Term Debt:
  Variable-rate debt..................               $10.0      $10.0
  Interest rate.......................                4.75%      --

  Fixed rate .........................              $280.0     $112.0
  Stated interest rate ...............                9.50%      --`



Part II.  OTHER INFORMATION

Item 1.  Legal Proceedings





On July 29, 1996, we 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, we
sought a declaration that our former insurers, Pacific and Federal, had an
unconditional duty to defend and indemnify us in connection with two lawsuits
brought in 1994:  (1) in Santana v. ZiLOG and, (2) in Ko v. ZiLOG. Our
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 six million, three hundred thousand
dollars ($6,300,000), plus interest and costs of suit.



On February 26, 2002, we agreed to make a payment of $300,000
to fully settle these lawsuits.  We have already paid $75,000 of this amount.
The balance is to be paid in 3 equal installments over the next twelve months.
The outstanding balance accrues interest at 6% per annum.



We filed for protection under Chapter 11 of the United States
Bankruptcy Code in the Northern District of California on February 28, 2002.
Prior to this filing, we solicited the acceptance of our plan of reorganization
from holders of our senior notes and our preferred stock. We received unanimous
acceptance of our plan of reorganization from the noteholders and preferred
shareholders voting.  In connection with the filing, we made several motions to
the judge requesting, among other things, that we be able to pay our employees
and trade creditors in the ordinary course.  These motions were granted.



The plan of reorganization was confirmed on April 30, 2002,
and became effective on May 13, 2002.



One party has notified us that we may be infringing certain
patents.  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 are investigating the claims of
all of these parties.  We have had no further communications about any of this
for at least 10 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 Factors That May Affect Future Results -
"We could be subject to claims of infringement of third-party intellectual
property rights, which could result in significant expense to us and/or loss of
such rights."



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 3.  Defaults Upon Senior Securities



ZiLOG did not make its scheduled semi-annual interest
payments of $13.3 million on the Notes that were due on September 4, 2001 and
March 1, 2002.  At March 31, 2002, the total amount of interest accrued on the
Notes was approximately $27.2 million.  Our default on the interest payment due
on the Notes, and the expiration of the applicable grace period on October 4,
2001, constitutes an event of default under our capital expenditure and
revolving credit facility. An  aggregate of $10.0 million in borrowings were
outstanding on the credit facility as of March 31, 2002.



Refer to Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in Item 2 herein for a discussion
of the key provisions of ZiLOG's reorganization plan filed on February 28, 2002
and confirmed by the bankruptcy court judge on April 30, 2002.





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


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

           Exhibit Number                         Exhibit Description
	   --------------		-----------------------------------------
                3.1 (a)                 Certificate of Incorporation of ZiLOG, Inc.
                3.3 (a)                 Bylaws of ZiLOG, Inc.
    		3.5 (b)			Certificate of Amendment of Certificate of
					Incorporation of ZiLOG, Inc.

		10. 6                   Employment Agreement, dated as of January 7,
					2002, between ZiLOG, Inc. and James Thorburn
					(incorporated by reference to Exhibit 5 to
					Exhibit 99.2 to the Current Report on Form
					8-K filed with the Commission on January 30,
					2002).

		10.7 			Non-Solicitation and Non-Hire Agreement,
					dated as of January 28, 2002, between ZiLOG,
					Inc. and TPG Partners II, L.P. (incorporated
					by reference to Exhibit 4 to Exhibit 99.2 to
					the Current Report on Form 8-K filed with the
					Commission on January 30, 2002).

		10.10 			Mutual Release Agreement, dated as of January
					28, 2002, between ZiLOG, Inc., ZiLOG-MOD III,
					Inc., TPG Partners II, L.P., John Marren and
					William Price (incorporated by reference to
					Exhibit 11 to Exhibit 99.2 to the Current
					Report on Form 8-K filed with the Commission
					on January 30, 2002).

		10.11			Tax Agreement, dated as of January 28, 2002,
					between	ZiLOG, Inc. and TPG Partners II, L.P.
					(incorporated by reference to Exhibit 12 to
					Exhibit 99.2 to the Current Report on Form
					8-K filed with the Commission on January 30,
					2002).
----------------------------------

          (a) Incorporation herein by reference to the item of the same name filed as an
          Exhibit to the Company's Registration Statement on Form S-4 (File No.
          333-51203) declared effective by the Securities and Exchange Commission on
          July 9, 1998.

          (b) Incorporation herein by reference to the item of the same name filed as an
          Exhibit to the Company's Quarterly Report on Form 10-Q for the Quarter
          ended September 30, 1998.`

b)   Reports on Form 8-K:



The Company filed a Current Report on Form 8-K on March 4,
2002, reporting the filing of the Registrant's voluntary petition for bankruptcy
protection under chapter 11 of the U.S. Bankruptcy Code.



The Company filed a Current Report on Form 8-K on January 30,
2002, with respect to its solicitation of votes on its reorganization plan.





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**ZiLOG, INC.

                                   SIGNATURES**

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



| |            
| | -----------
| | ZiLOG, INC.

| |             
| | ------------
| | (Registrant)



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

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



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

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

Date: May 14, 2002

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