Net sales from continuing operations for the fiscal 2010 first quarter were $7.2 million, a sequential increase of 3 percent and a year over year decrease of 25 percent. The sequential increase exceeded the previously announced guidance range and follows quarterly sequential declines in the December, 2008 and March, 2009 fiscal quarters. The sequential decline in the two previous quarters reflects the worldwide fall in demand for end products as a result of the global economic crisis. On February 18, 2009 the Company sold its universal remote control and secured transaction processor businesses. In accordance with FASB No. 144, the comparative financial statements for its first fiscal quarter ended June 28, 2008 have been restated to reflect these sold businesses as discontinued operations.

GAAP net income for the fiscal first quarter ended June 27, 2009 was $0.4 million, or 2 cents per share, as compared to GAAP net income of $12.1 million in the previous fiscal quarter, or 71 cents per share. Net income for the fiscal 2010 first quarter includes a credit to other income of $1.0 million, or 6 cents per share, reflecting the sale and assignment to a third party of five patents and their associated intellectual property rights. Net income for the fiscal 2009 fourth quarter ended March 31, 2009 included a gain on sale of the two businesses of $21.6 million, partially offset by certain special and one-time charges of $3.5 million. The GAAP net income for Q1 fiscal 2010 compares to a GAAP net loss of $1.7 million for the first quarter fiscal 2009 which included special charges of $0.6 million reflecting costs associated with consolidation and manufacturing outsource activities.

"Our opening quarter of the 2010 fiscal year highlighted profitability, sequential sales growth, increased cash and a positive book-to-bill ratio. Following the sale of the businesses in February, we have revitalized the company making it leaner with a significantly lower breakeven sales level. Coupled with a laser-focus on our new product development and our esteemed industry brand from 35 years of microcontroller history, we believe we are well positioned as the global economy recovers," said Darin G. Billerbeck, Zilog's president and chief executive officer.

"While the current global economy continues to pose challenges and uncertainties, we are excited by our continued development of solutions for power management and sensing applications including the use of wireless. We are also energized by our recently announced 3.3 volt Serial Communications Controller product, which extends further power saving capabilities to customers who have long been pleased with our classic SCC portfolio," stated Billerbeck.

The company reported cash, cash equivalents and long-term investments of $34.7 million at June 27, 2009, compared to $33.3 million at March 31, 2009. Net cash provided by continuing operating activities was $2.0 million for the fiscal 2010 first quarter, as compared to $1.4 million for the first quarter in the prior fiscal year and net cash used in continuing operating activities of $8.1 million in the prior fiscal quarter. On a non-GAAP basis, adjusted EBITDA from continuing operations, as defined below, was positive $0.7 million for the fiscal 2010 first quarter, as compared to negative $2.2 million in the first fiscal quarter a year ago and negative $1.5 million in the prior fiscal quarter.

"In our first fiscal quarter, we generated positive adjusted EBITDA and positive net income including the sale and assignment of certain patent rights. As the market rapidly deteriorated after September 2008, our quick and decisive actions to sell two businesses and resize our core business resulted in a significantly lower Adjusted EBITDA breakeven sales level, including a 25 percent sequential reduction this quarter," said Perry J. Grace, Zilog's executive vice President and chief financial officer.

"We have continued to diligently manage our working capital, resulting in a fiscal Q1 increase in cash, cash equivalents and long term investments of $1.4 million and an expectation of a further increase again this quarter. In addition, our balance sheet strength allows us to better determine our strategic options as we move forward, regardless of the direction the global economy may take," stated Grace.

The Company expects net sales for its fiscal 2010 second quarter ending September 26, 2009 to be consistent with or up to 5 percent higher than the fiscal quarter ended June 27, 2009. Additionally, the Company expects cash, cash equivalents and long-term investments to be approximately $36 million to $37 million at September 26, 2009. This includes $1.0 million in cash received in July, 2009 for the patent sale and assignment and the expected receipt in August, 2009 of $1.55 million or 50 percent of the escrow funds from the February sale of the two businesses.

NON-GAAP FINANCIAL INFORMATION (Unaudited)

The Company may make reference to certain Non-GAAP financial measures. Management believes that these Non-GAAP measures are useful measures of operating performance and liquidity because they may exclude the impact of certain items, such as amortization of intangible assets, stock-based compensation, depreciation, non-operating interest, income taxes and special charges. However, these Non-GAAP measures should be considered in addition to, not as a substitute for, or superior to, net income (loss) and net cash provided by (used in) operating activities, or other financial measures prepared in accordance with GAAP.

                                            Three Months Ended                            Jun. 27,  Mar. 31,  Dec. 27,  Sep. 27,  Jun. 28,                              2009      2009      2008      2008      2008                                              (in thousands)   Reconciliation of    Non-GAAP Net Loss    to GAAP Net Loss    Non-GAAP net income    (loss) from continuing    operations                $394   ($1,776)   ($2,871)  ($2,563)  ($2,397)   Non-GAAP adjustments on    Continuing operations:     Special charges and      credits                  135     3,478      1,696       554       590     Amortization of      intangible assets          -       174        209       209       209     Non-cash stock-based      compensation COS          19        21         44        30        42     Non-cash stock-based      compensation R&D          24       (24)       126        47        72     Non-cash stock-based      compensation SG&A        183       201        297       211       257    Total non-GAAP     adjustments               361     3,850      2,372     1,051     1,170   GAAP Net loss from    Continuing operations      $33   ($5,626)   ($5,243)  ($3,614)  ($3,567)    Non-GAAP Net Income (Loss) from continuing operations (Unaudited)   

Non-GAAP net income (loss) from continuing operations (Non-GAAP net income (loss)) excludes special charges and non-cash charges relating to the amortization of intangible assets and stock-based compensation. Following the sale of the two businesses in February, 2009, Non-GAAP net income (loss) was restated to exclude amounts related to the Company's discontinued operations. We believe that Non-GAAP net income (loss) is a useful measure as it excludes certain special charge items as well as certain non-cash charges, which facilitates a comparison of the Company's operating performance. However, this Non-GAAP measure should be considered in addition to, not as a substitute for, or superior to, the net loss measured in accordance with GAAP.

                                            Three Months Ended                            Jun. 27,  Mar. 31,   Dec. 27,  Sep. 27,  Jun. 28,                              2009      2009       2008      2008      2008                                              (in thousands)   Reconciliation of    Net Loss and Cash    Flows From Operating    Activities to EBITDA    Reconciliation of net    loss to EBITDA:      Net income (loss)       from continuing       operations              $33   ($5,626)   ($5,243)   ($3,614)  ($3,567)      Depreciation and       amortization            318       452        466        478       436      Interest income           (3)       (4)       (24)       (49)      (70)      Provision (benefit)       for income taxes         40        (2)        67         62        54   EBITDA from continuing    operations                $388   ($5,180)   ($4,734)   ($3,123)  ($3,147)    Reconciliation of EBITDA    to net cash provided by    (used in) continuing    operating activities:        EBITDA                 $388   ($5,180)   ($4,734)   ($3,123)  ($3,147)       Provision (benefit)        for income taxes       (40)        2        (67)       (62)      (54)       Interest income           3         4         24         49        70       Non-cash stock-based        compensation           226       198        467        288       371       Loss on disposition        of operating assets      -       986         11          -        35       Changes in other        operating assets        and liabilities      1,457    (4,119)      (571)      (577)    4,124    Net cash provided by     (used in) continuing     operating activities   $2,034   ($8,109)   ($4,870)   ($3,425)   $1,399     Non-GAAP EBITDA (Unaudited)   

Management believes that Non-GAAP EBITDA ("EBITDA"), that is Earnings or loss Before Interest, Taxes, Depreciation and Amortization, is a useful measure of financial performance. Following the sale of the two businesses in February, 2009, EBITDA was restated to exclude amounts related to the Company's discontinued operations. We believe that the disclosure of EBITDA helps investors more meaningfully evaluate our liquidity position by the elimination of non-cash related items such as depreciation and amortization.