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

Form 10-Q

|(Mark One)
|----------
|          
|x         
|          
|          
|          
|OR        
|          
|o         

For the transition
period
from__________to__________

Commission File Number 0-24758

|Micro   Linear Corporation                              
|--------------------------------------------------------
|(Exact   name of Registrant as specified in its charter)

|Delaware                                    |  | 94-2910085           
|------------------------------------------- |  | ---------------------
|                                            |  |                      
|(State   or other jurisdiction of           |  | (I.R.S.   Employer   
|incorporation   or organization)            |  | Identification   No.)
|                                            |  |                      
|2050   Concourse Drive San Jose, California |  | 95131                
|                                            |  |                      
|(Address of principal executive offices)    |  | (Zip Code)           

Registrants telephone number, including area code: (408) 433-5200

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 such reports), and (2) has been subject to such filing requirements for the past 90 days.

|Yes
x | No
o
|----- | ----

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

|Yes
o | No
x
|----- | ----

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

|Yes
o | No
x
|----- | ----

The number of shares of the Registrants Common Stock outstanding as of November 9, 2005, net of shares held in treasury, was 12,984,730.

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TABLE OF CONTENTS

|                                                                                                                           | PAGE
|-------------------------------------------------------------------------------------------------------------------------- | ----
|                                                                                                                           |     
|PART I FINANCIAL   INFORMATION                                                                                             | 3   
|Item 1. Financial Statements   (Unaudited except for Condensed Consolidated Balance Sheet at December 31,   2004)          | 3   
|Condensed   Consolidated Balance Sheets at September 30, 2005 and December 31, 2004                                        | 3   
|Condensed   Consolidated Statements of Operations for the three months and nine months   ended September 30, 2005 and 2004 | 4   
|Condensed   Consolidated Statements of Cash Flows for the nine months ended September 30,   2005 and 2004                  | 5   
|Notes   to Unaudited Condensed Consolidated Financial Statements                                                           | 6   
|Item 2. Managements Discussion   and Analysis of Financial Condition and Results of Operations                            | 10  
|Item 3. Quantitative and   Qualitative Disclosures about Market Risk                                                       | 27  
|Item 4. Controls and Procedures                                                                                            | 27  
|PART II OTHER   INFORMATION                                                                                                | 28  
|Item 4. Submission of Matters to a Vote of Security Holders                                                                | 28  
|Item 6. Exhibits                                                                                                           | 28  
|SIGNATURES                                                                                                                 | 29  
|Index to Exhibits                                                                                                          | 30  

2

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MICRO LINEAR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands)

|                                                                                                                            |  | September   30,   2005 |         | December   31,   2004 |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | --------------------- | -
|                                                                                                                            |  |                        |         |                       |  
|                                                                                                                            |  | (Unaudited)            |         |                       |  
|Assets                                                                                                                      |  |                        |         |                       |  
|Current Assets:                                                                                                             |  |                        |         |                       |  
|Cash   and cash equivalents                                                                                                 |  | $                      | 10,186  |                       | $
|Short-term   investments                                                                                                    |  |                        | 3,613   |                       |  
|Accounts   receivable, net of allowance for doubtful accounts of  $97 at September 30, 2005 and $139 at   December 31, 2004 |  |                        | 2,378   |                       |  
|Inventories                                                                                                                 |  |                        | 3,103   |                       |  
|Other   current assets                                                                                                      |  |                        | 268     |                       |  
|                                                                                                                            |  |                        |         |                       |  
|Total   current assets                                                                                                      |  |                        | 19,548  |                       |  
|Property and equipment, net                                                                                                 |  |                        | 476     |                       |  
|Other assets                                                                                                                |  |                        | 17      |                       |  
|                                                                                                                            |  |                        |         |                       |  
|Total   assets                                                                                                              |  | $                      | 20,041  |                       | $
|                                                                                                                            |  |                        |         |                       |  
|Liabilities   and Stockholders Equity                                                                                      |  |                        |         |                       |  
|Current liabilities:                                                                                                        |  |                        |         |                       |  
|Accounts   payable                                                                                                          |  | $                      | 2,327   |                       | $
|Accrued   compensation and benefits                                                                                         |  |                        | 854     |                       |  
|Deferred   revenue                                                                                                          |  |                        | 1,318   |                       |  
|Other   accrued liabilities                                                                                                 |  |                        | 956     |                       |  
|                                                                                                                            |  |                        |         |                       |  
|Total   current liabilities                                                                                                 |  |                        | 5,455   |                       |  
|Stockholders equity:                                                                                                       |  |                        |         |                       |  
|Common   stock                                                                                                              |  |                        | 16      |                       |  
|Additional   paid-in capital                                                                                                |  |                        | 63,264  |                       |  
|Accumulated   deficit                                                                                                       |  |                        | (28,454 | )                     |  
|Accumulated   other comprehensive loss                                                                                      |  |                        | (7      | )                     |  
|Treasury   stock                                                                                                            |  |                        | (20,233 | )                     |  
|                                                                                                                            |  |                        |         |                       |  
|Total   stockholders equity                                                                                                |  |                        | 14,586  |                       |  
|                                                                                                                            |  |                        |         |                       |  
|Total   liabilities and  stockholders equity                                                                               |  | $                      | 20,041  |                       | $
|                                                                                                                            |  |                        |         |                       |  

See accompanying notes to unaudited condensed consolidated financial statements.

3

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MICRO LINEAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) (Unaudited)

|                                                                  |  | THREE MONTHS ENDED   September 30, |        | NINE MONTHS ENDED   September 30, |  
|----------------------------------------------------------------- |  | ---------------------------------- | ------ | --------------------------------- | -
|                                                                  |  |                                    |        |                                   |  
|                                                                  |  | 2005                               |        | 2004                              |  
|                                                                  |  |                                    |        |                                   |  
|Net revenue                                                       |  | $                                  | 3,674  |                                   | $
|Cost of goods sold                                                |  |                                    | 1,589  |                                   |  
|                                                                  |  |                                    |        |                                   |  
|Gross   margin                                                    |  |                                    | 2,085  |                                   |  
|                                                                  |  |                                    |        |                                   |  
|Operating expenses:                                               |  |                                    |        |                                   |  
|Research   and development                                        |  |                                    | 2,350  |                                   |  
|Selling,   general and administrative                             |  |                                    | 1,606  |                                   |  
|Restructuring   charges                                           |  |                                    |       |                                   |  
|Gain   on sale of land and buildings                              |  |                                    |       |                                   |  
|                                                                  |  |                                    |        |                                   |  
|Total   operating expenses                                        |  |                                    | 3,956  |                                   |  
|                                                                  |  |                                    |        |                                   |  
|Income   (loss) from operations                                   |  |                                    | (1,871 | )                                 |  
|Interest and other income                                         |  |                                    | 111    |                                   |  
|Interest and other expense                                        |  |                                    | (4     | )                                 |  
|                                                                  |  |                                    |        |                                   |  
|Income   (loss) before income taxes                               |  |                                    | (1,764 | )                                 |  
|Provision for income taxes                                        |  |                                    | 8      |                                   |  
|                                                                  |  |                                    |        |                                   |  
|Net   income (loss)                                               |  | $                                  | (1,772 | )                                 | $
|                                                                  |  |                                    |        |                                   |  
|Net income (loss) per   share:                                    |  |                                    |        |                                   |  
|Basic                                                             |  |                                    |        |                                   |  
|Net   income (loss) per share                                     |  | $                                  | (0.14  | )                                 | $
|                                                                  |  |                                    |        |                                   |  
|Weighted   average number of shares used in per share computation |  |                                    | 12,906 |                                   |  
|                                                                  |  |                                    |        |                                   |  
|Diluted                                                           |  |                                    |        |                                   |  
|Net   income (loss) per share                                     |  | $                                  | (0.14  | )                                 | $
|                                                                  |  |                                    |        |                                   |  
|Weighted   average number of shares used in per share computation |  |                                    | 12,906 |                                   |  
|                                                                  |  |                                    |        |                                   |  

See accompanying notes to unaudited condensed consolidated financial statements.

4

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MICRO LINEAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)

|                                                                                  |  | NINE MONTHS ENDED   September 30, |       
|--------------------------------------------------------------------------------- |  | --------------------------------- | ------
|                                                                                  |  |                                   |       
|                                                                                  |  | 2005                              |       
|                                                                                  |  |                                   |       
|Operating activities:                                                             |  |                                   |       
|Net   loss                                                                        |  | $                                 | (4,134
|Adjustments   to reconcile net loss to net cash provided by operating activities: |  |                                   |       
|Gain   on sale of land and buildings                                              |  |                                   |      
|Depreciation   and amortization                                                   |  |                                   | 229   
|Provision   for doubtful accounts receivable                                      |  |                                   | 43    
|Restructuring                                                                     |  |                                   |      
|Provision   for excess inventory                                                  |  |                                   | 106   
|Stock-based   compensation expense                                                |  |                                   | 138   
|Changes   in assets and liabilities:                                              |  |                                   |       
|Accounts   receivable                                                             |  |                                   | 457   
|Inventories                                                                       |  |                                   | (1,439
|Other   assets                                                                    |  |                                   | (47   
|Accounts   payable                                                                |  |                                   | 827   
|Accrued   compensation and benefits, and other accrued liabilities                |  |                                   | (299  
|Deferred   revenue                                                                |  |                                   | 824   
|                                                                                  |  |                                   |       
|Net   cash used in operating activities                                           |  |                                   | (3,295
|                                                                                  |  |                                   |       
|Investing activities:                                                             |  |                                   |       
|Purchases   of property and equipment                                             |  |                                   | (246  
|Proceeds   from sale of land and buildings                                        |  |                                   |      
|Purchases   of short-term investments                                             |  |                                   | (5,464
|Proceeds   from sales and maturities of short-term investments                    |  |                                   | 6,512 
|                                                                                  |  |                                   |       
|Net   cash provided by investing activities                                       |  |                                   | 802   
|                                                                                  |  |                                   |       
|Financing activities:                                                             |  |                                   |       
|Principal   payments on debt                                                      |  |                                   |      
|Proceeds   from exercise of stock options                                         |  |                                   | 1,759 
|                                                                                  |  |                                   |       
|Net   cash provided by (used in) financing activities                             |  |                                   | 1,759 
|                                                                                  |  |                                   |       
|Net   increase (decrease) in cash and cash equivalents                            |  |                                   | (734  
|Cash   and cash equivalents at beginning of period                                |  |                                   | 10,920
|                                                                                  |  |                                   |       
|Cash   and cash equivalents at end of period                                      |  | $                                 | 10,186
|                                                                                  |  |                                   |       

See accompanying notes to unaudited condensed consolidated financial statements.

5

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MICRO LINEAR CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Organization

Headquartered in San Jose, CA, Micro Linear Corporation is a fabless semiconductor company specializing in wireless integrated circuits. The Company offers a full line of high data-rate ISM-band transceivers for consumer applications such as cordless phones, Personal Handyphone System (PHS), wireless speakers and headphones, game controllers, voice headsets and other electronic appliances. Micro Linear offers a uniquely broad line of transceivers that address the most popular unlicensed bands: 900 MHz, 2.4 GHz, and 5.8 GHz. Micro Linears products are available through its authorized representatives and distributors worldwide.

Fiscal Year

We report results of operations on the basis of fifty-two or fifty-three week periods, ending on the Sunday closest to December 31. Fiscal year 2004 ended on January 2, 2005. The third quarter of 2005 ended on October 2, 2005 and the third quarter of 2004 ended on September 26, 2004. For presentation purposes, the accompanying financial statements refer to the calendar year end and month end of each respective period.

Principles of Consolidation

The consolidated financial statements include the accounts of Micro Linear Corporation and our wholly-owned subsidiary in the United Kingdom. All significant inter-company accounts and transactions have been eliminated.

The Company has designated the U.S. dollar as the functional currency for its United Kingdom subsidiary since that subsidiary is dependent on the parent companys economic environment. The gains and losses resulting from the transactions of the United Kingdom subsidiary are recorded as other income and expense. For the third quarter of 2005 and 2004, transaction gains and losses were not significant.

Basis of Presentation

The consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America and reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary to state fairly the financial position, results of operations, and cash flows for the periods presented. The unaudited condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes in the Annual Report on Form 10-K for the year ended January 2, 2005, filed with the Securities and Exchange Commission on April 4, 2005.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, and such differences may be material to the financial statements.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share includes the effect of all potentially dilutive common stock outstanding during the period. Diluted net income (loss) per share excludes potential common stock if the effect is anti-dilutive. We compute diluted net income (loss) per share using the treasury stock method for stock options outstanding.

A total of 4,175,349 shares of potential common stock related to stock options were not included in the dilutive net loss per share calculations for the three and nine months ended September 30, 2005 because their effect would be anti-dilutive.  A total 2,606,081 and 3,880,236 shares of potential common stock related to stock options were not included in the dilutive earnings per share calculations for the three and nine months ended September 30, 2004, respectively because their effect would be anti-dilutive.

6

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Stock-Based Compensation

We account for our employee stock option plans in accordance with Accounting Principles Board No. 25, Accounting for Stock Issued to Employees. Under APB No. 25, compensation cost is measured as the excess, if any, of the quoted market price of our stock at the date of grant or modification, over the exercise price of the option granted. Compensation cost for stock options, if any, is recognized ratably over the vesting period. We provide additional pro forma disclosures as required under SFAS No. 123, Accounting for Stock-Based Compensation and SFAS No. 148, Accounting for Stock-Based Compensation, Transition and Disclosure.

We account for stock issued to non-employees in accordance with the provisions of SFAS 123. Stock option awards issued to non-employees are accounted for at fair value using the Black-Scholes option-pricing model. The fair value of each non-employee stock award is remeasured at each period end until a commitment date is reached, which is generally the vesting date.

Pro Forma Net Income (Loss)

As required by SFAS No. 123 and SFAS No. 148, we disclose our pro forma net loss as if we had accounted for our employee stock purchase plan, employee stock options and director stock options subsequent to December 31, 1994 under the fair value method of SFAS No. 123. We estimate the fair value for these options at the date of grant using the Black-Scholes option pricing model and the multiple option approach with the following weighted-average assumptions:

|                                                 |  | Employee Stock Purchase Plan      |      | Stock Option Plans               |  
|------------------------------------------------ |  | --------------------------------- | ---- | -------------------------------- | -
|                                                 |  |                                   |      |                                  |  
|                                                 |  | Three Months Ended   September 30 |      | Nine Months Ended   September 30 |  
|                                                 |  |                                   |      |                                  |  
|                                                 |  | 2005                              |      | 2004                             |  
|                                                 |  |                                   |      |                                  |  
|Expected life (in years)                         |  |                                   | 0.5  |                                  |  
|Risk-free interest rate                          |  |                                   | 3.83 | %                                |  
|Volatility                                       |  |                                   | 41   | %                                |  
|Dividend yield                                   |  |                                   |     |                                  |  
|Weighted average fair value   of options granted |  | $                                 | 1.42 |                                  | $

The Black-Scholes option valuation model is intended for use in estimating the fair value of publicly traded options that have no vesting restrictions and are fully transferable, which differs significantly from the terms of our stock option awards. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility and the expected life of the options before exercise, which greatly affect the calculated grant date fair value.

The following table illustrates the effect on our net loss and net loss per share if we had recorded compensation costs based on the estimated grant date fair value as defined by SFAS No. 123 for all granted stock-based awards (in thousands except for per share amounts).

|                                                                                                                                      |  | Three Months Ended   September 30 |        | Nine Months Ended   September 30 |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ------ | -------------------------------- | -
|                                                                                                                                      |  |                                   |        |                                  |  
|                                                                                                                                      |  | 2005                              |        | 2004                             |  
|                                                                                                                                      |  |                                   |        |                                  |  
|Net income (loss), as   reported                                                                                                      |  | $                                 | (1,772 | )                                | $
|Add: Stock-based employee   compensation expense reported in net income (loss), net of related tax   effects                          |  |                                   |       |                                  |  
|Deduct: Stock-based   compensation expense determined under fair value based method for employee   awards, net of related tax effects |  |                                   | (232   | )                                |  
|                                                                                                                                      |  |                                   |        |                                  |  
|Pro forma net income (loss)                                                                                                           |  | $                                 | (2,004 | )                                | $
|                                                                                                                                      |  |                                   |        |                                  |  
|Pro forma net income (loss)   per share:                                                                                              |  |                                   |        |                                  |  
|Basic                                                                                                                                 |  | $                                 | (0.16  | )                                | $
|Diluted                                                                                                                               |  | $                                 | (0.16  | )                                | $
|Reported net income (loss)   per share:                                                                                               |  |                                   |        |                                  |  
|Basic                                                                                                                                 |  | $                                 | (0.14  | )                                | $
|Diluted                                                                                                                               |  | $                                 | (0.14  | )                                | $

7

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2. Financial Statement Details

Inventories consist of the following (in thousands):

|                                 |  | September   30, 2005 |       | December 31,   2004 |  
|-------------------------------- |  | -------------------- | ----- | ------------------- | -
|                                 |  |                      |       |                     |  
|Work-in-process                  |  | $                    | 1,111 |                     | $
|Finished goods                   |  |                      | 1,545 |                     |  
|Inventory held by   distributors |  |                      | 447   |                     |  
|                                 |  |                      |       |                     |  
|Total inventories                |  | $                    | 3,103 |                     | $
|                                 |  |                      |       |                     |  

Provision for Income Taxes

The provision for income taxes for the three months and nine months ended September 30, 2005 consists mainly of state taxes and some minor taxes incurred by our branch office in Japan. The provision for income taxes for the three months and nine months ended September 30, 2004 consists mainly of state taxes. We did not record a benefit for income taxes related to our net losses in the U.S., as we believe that the available objective evidence creates sufficient uncertainty regarding the realization of the deferred tax assets such that we have recorded a full valuation allowance. The effective tax rate for the three months ended September 30, 2005 was 0.5% and for the nine months ended September 30, 2005 was 0.4%.  The effective tax rate for the three months ended September 30, 2004 was 2.3% and for the nine months ended September 30, 2004 was 0.8%.

Comprehensive Income (Loss)

For the three months and nine months ended September 30, 2005 and 2004, comprehensive loss, which consists of the net loss for the periods and unrealized gain or loss on short-term marketable securities, was as follows (in thousands):

|                                                       |  | Three Months Ended September 30, |        | Nine Months Ended September 30, |  
|------------------------------------------------------ |  | -------------------------------- | ------ | ------------------------------- | -
|                                                       |  |                                  |        |                                 |  
|                                                       |  | 2005                             |        | 2004                            |  
|                                                       |  |                                  |        |                                 |  
|Net  income (loss)                                     |  | $                                | (1,772 | )                               | $
|Accumulated other   comprehensive gain (loss):         |  |                                  |        |                                 |  
|Unrealized   gain (loss) on marketable securities, net |  |                                  | (2     | )                               |  
|                                                       |  |                                  |        |                                 |  
|Comprehensive income (loss)                            |  | $                                | (1,774 | )                               | $
|                                                       |  |                                  |        |                                 |  

3. Recent Accounting Pronouncements

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R (SFAS No. 123R), Share-Based Payment, an amendment to Statement of Financial Accounting Standards No. 123 (SFAS No. 123), Accounting for Stock-Based Compensation and Statement on Financial Accounting Standards No. 95, Statement of Cash Flows. The revised standard addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the companys equity instruments or that may be settled by the issuance of such equity instruments. Under the new standard, companies will no longer be able to account for share-based compensation transactions using the intrinsic method in accordance with APB 25. Instead, companies
will be required to account for such transactions using a fair-value method and recognize the expense in the consolidated statement of income. In addition, the adoption of SFAS 123R will require additional accounting related to the income tax effects and additional disclosure regarding the cash flow effects resulting from share-based payment arrangements. On March 29, 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 107 (SAB 107). This Bulletin summarizes the views of the SEC staff regarding the interaction between SFAS 123R, Share-Based Payment, and certain SEC rules and regulations and provides the SEC staffs views regarding the valuation of share-based payment arrangements for public companies. In April 2005, the SEC postponed the implementation date of SFAS 123R to the fiscal year beginning after June 15, 2005. We have not yet determined which fair-value method and transitional provision we will follow. Currently, we disclose the pro forma net income (loss)
and related pro forma income (loss) per share information in accordance with SFAS 123 and Statement on Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation Costs - Transition and Disclosure. We believe that adoption of the new standard will have an adverse impact on our results of operations.

8

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In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151 (SFAS No. 151), Inventory Costs, an amendment of ARB No. 43, Chapter 4. SFAS No. 151 clarifies that abnormal inventory costs such as costs of idle facilities, excess freight and handling costs, and wasted materials (spoilage) are required to be recognized as current period charges. SFAS No. 151 will be effective in fiscal years beginning after June 15, 2005. The adoption of SFAS No. 151 is not expected to have a material effect on our financial position or results of operations.

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 153 (SFAS No. 153), Exchange of Nonmonetary Assets, an amendment of APB Opinion No. 29. SFAS No. 153 addresses the measurement of exchanges of nonmonetary assets and redefines the scope of transactions that should be measured based on the fair value of the assets exchanged. SFAS No. 153 will be effective for nonmonetary transactions in fiscal years beginning after June 15, 2005. The adoption of SFAS No. 153 is not expected to have a material effect on our financial position or results of operations.

In May 2005, as part of a broader attempt to eliminate differences with the International Accounting Standards Board, the FASB issued Statement of Financial Accounting Standards No. 154 (SFAS No. 154), Accounting Changes and Error Corrections, which replaces Accounting Principles Board Opinion No. 20 (APB No. 20), Accounting Changes, and FASB Statement of Financial Accounting Standards No. 3, Reporting Accounting Changes in Interim Financial Statements. Opinion No. 20 had required that changes in accounting principles be recognized by including the cumulative effect of the change in the period in which the new accounting principle was adopted. SFAS No. 154 requires retrospective application of the change to prior periods financial statements, unless it is impracticable to determine the period-specific effects of the change. The Statement is
effective for fiscal years beginning after December 15, 2005. The adoption of this statement is not expected to have a material effect on our financial statements.

4. Operations by Geographic Regions

The following is a summary of revenue by geographical regions (in thousands):

|                         |  | Three Months Ended   September 30, |       | Nine Months Ended   September 30, |  
|------------------------ |  | ---------------------------------- | ----- | --------------------------------- | -
|                         |  |                                    |       |                                   |  
|                         |  | 2005                               |       | 2004                              |  
|                         |  |                                    |       |                                   |  
|Net revenue:             |  |                                    |       |                                   |  
|United   States & Canada |  | $                                  | 312   |                                   | $
|Japan                    |  |                                    | 1,021 |                                   |  
|Hong   Kong              |  |                                    | 2,106 |                                   |  
|Other   Asia             |  |                                    | 57    |                                   |  
|Europe                   |  |                                    | 178   |                                   |  
|                         |  |                                    |       |                                   |  
|Consolidated             |  | $                                  | 3,674 |                                   | $
|                         |  |                                    |       |                                   |  

5. Sale of Land and Buildings

On July 28, 2004, we sold our San Jose facilities for approximately $7.0 million. During the third quarter of 2004, we recognized a gain on the sale of approximately $1.1 million and the sale generated cash of approximately $4.6 million, net of a $1.9 million mortgage payoff and closing costs of $0.5 million.

6. Restructuring Charges

In the second quarter of 2004 we provided $0.2 million for our remaining lease obligations, net of expected sublease payments, on our Utah facility which we vacated in the first quarter of 2004 when we entered into a sublease agreement for these premises. As of September 30, 2005, the remaining balance of our restructuring reserve relates to our continuing obligations for costs of the Utah facility in excess of expected sublease payments (in thousands).

|Balance, December 31, 2004  |  | $ | 149 |  
|--------------------------- |  | - | --- | -
|Cash payments               |  |   | (59 | )
|                            |  |   |     |  
|Balance, September 30, 2005 |  | $ | 90  |  
|                            |  |   |     |  

9

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

The statements in this report or incorporated by reference which are not historical are forward-looking statements and include, without limitation, statements under the caption, Managements Discussion and Analysis of Financial Condition and Results of Operations. Terms such as may, will, could, should, project, believe, anticipate, expect, plan, estimate, forecast, potential, intend, continue and variations of these words or similar expressions are intended to identify forward-looking statements.

These forward-looking statements include, but are not limited to, statements regarding: our expectation that wireless product revenue will continue to increase as a percentage of our total revenues as our legacy products near end-of-life, our expectation that average selling prices will fluctuate in future quarters, our expectation that the gross margin realized on certain of our legacy products will fluctuate from period to period, our expectations that manufacturing overhead costs will increase in the future, our beliefs regarding deferred tax assets, including our beliefs that the available objective evidence creates sufficient uncertainty regarding the realization of the deferred tax assets such that we have recorded a full valuation allowance, our expectation that international revenue will account for the substantial
majority of our total net revenue for the foreseeable future, our intention to expend significant resources in the development of new products during the foreseeable future, our expectation that our research and development costs may fluctuate in the coming quarters, our expectations regarding trade payables and accrued liability balances, our expectation that our capital expenditures will stay near third quarter levels in the coming quarter and that we will be able to provide for these expenditures without any additional sources of financing and our belief that existing cash resources are sufficient to fund any anticipated operating losses and purchases of capital equipment and provide adequate working capital for the next 12 months.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, our dependence on key products and customers, changes in the demand for our products and seasonal factors affecting certain of our products, our ability to attract and retain customers and distribution partners for existing and new products, our ability to develop and introduce new and enhanced products in a timely manner, our dependence on international sales and risks associated with international operations, our dependence on outside foundries and test subcontractors in the manufacturing process and other outside suppliers, our ability to recruit and retain qualified employees, and the strength of competitive offerings and
the prices being charged by those competitors, and the risks set forth below under Factors that May Affect Future Operating Results.

These forward-looking statements are made only as of the date of this report. We do not undertake to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. We caution you not to give undue weight to any of the forward-looking statements. You should not regard the inclusion of forward-looking information as a representation by us or any other person that we will achieve our objectives or plans.

Critical Accounting Policies

Managements Discussion and Analysis of Financial Condition and Results of Operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances. These form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of Micro Linears
Board of Directors. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies reflect its more significant estimates and assumptions used in the preparation of its consolidated financial statements. They include those regarding (1) revenue recognition, (2) estimating accrued liabilities and allowance for doubtful accounts, (3) inventory and related allowance for obsolete and excess inventory, (4) accounting for income taxes, and (5) valuation of long-lived assets.

The critical accounting policies are described in Item 7, Management Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended January 2, 2005.

10

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Overview

Micro Linear was founded in 1983, and until 2000, we were a supplier of advanced analog and mixed signal integrated circuits to the computer, communications, telecommunications, consumer and industrial markets. During 2000, we divested our manufacturing test operation and our non-communication product lines and focused our marketing, engineering and product development on new communications products, most notably wireless integrated circuits. During 2001, we established ourselves as a volume supplier of RF transceivers to the digital cordless telephone segment of the communications market. In 2005, we completed the development of a transceiver for use in Personal Handyphone Systems (PHS). We began initial shipments of this transceiver in the second quarter of 2005. Shipments of PHS transceivers were not significant in comparison to total shipments in the third quarter of 2005.

Currently, in addition to our transceivers designed for digital cordless telephones and PHS products, we offer a full line of high data-rate ISM-band transceivers for applications such as wireless speakers and headphones, game controllers, voice headsets and other electronic appliances. Micro Linear offers a broad line of transceivers that address the most popular unlicensed bands: 900 MHz, 2.4 GHz, and 5.8 GHz. To simplify system design and decrease time to market, we also offer starter kits and reference designs.

Wireless product revenue represented 76% of total net revenue for the third quarter of 2005 compared to 82% of total net revenue for the third quarter of 2004. Notwithstanding the third quarter of 2005, we expect that wireless product revenue will increase as a percentage of our total net revenue as our legacy networking products near end-of-life.

Results of Operations

Three Months and Nine Months Ended September 30, 2005 Compared with Three Months and Nine Months Ended September 30, 2004

The following tables present certain consolidated statements of operations data for the periods indicated (unaudited):

|                                      |  | For the   Three Months Ended September 30 |       
|------------------------------------- |  | ----------------------------------------- | ------
|                                      |  |                                           |       
|                                      |  | 2005                                      |       
|                                      |  |                                           |       
|                                      |  |                                           |       
|                                      |  |                                           |       
|                                      |  | ($ in   thousands)                        |       
|Net revenue                           |  |                                           |       
|Wireless                              |  | $                                         | 2,775 
|Networking                            |  |                                           | 899   
|                                      |  |                                           |       
|Total net revenue                     |  |                                           | 3,674 
|Cost of goods sold                    |  |                                           | 1,589 
|                                      |  |                                           |       
|Gross   margin                        |  |                                           | 2,085 
|Operating expenses:                   |  |                                           |       
|Research   and development            |  |                                           | 2,350 
|Selling,   general and administrative |  |                                           | 1,606 
|Gain   on sale of land and buildings  |  |                                           |      
|                                      |  |                                           |       
|Total   operating expenses            |  |                                           | 3,956 
|                                      |  |                                           |       
|Income (loss) from   operations       |  |                                           | (1,871
|Interest and other income             |  |                                           | 111   
|Interest and other expense            |  |                                           | (4    
|                                      |  |                                           |       
|Income (loss) before income   taxes   |  |                                           | (1,764
|Provision for taxes                   |  |                                           | 8     
|                                      |  |                                           |       
|Net income (loss)                     |  | $                                         | (1,772
|                                      |  |                                           |       

11

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|                                      |  | For the   Nine Months Ended September 30 |       
|------------------------------------- |  | ---------------------------------------- | ------
|                                      |  |                                          |       
|                                      |  | 2005                                     |       
|                                      |  |                                          |       
|                                      |  |                                          |       
|                                      |  |                                          |       
|                                      |  | ($ in   thousands)                       |       
|Net revenue                           |  |                                          |       
|Wireless                              |  | $                                        | 10,917
|Networking                            |  |                                          | 2,967 
|                                      |  |                                          |       
|Total net revenue                     |  |                                          | 13,884
|Cost of goods sold                    |  |                                          | 5,962 
|                                      |  |                                          |       
|Gross   margin                        |  |                                          | 7,922 
|Operating expenses:                   |  |                                          |       
|Research   and development            |  |                                          | 7,013 
|Selling,   general and administrative |  |                                          | 5,325 
|Restructuring   charges               |  |                                          |      
|Gain   on sale of land and buildings  |  |                                          |      
|                                      |  |                                          |       
|Total   operating expenses            |  |                                          | 12,338
|                                      |  |                                          |       
|Loss from operations                  |  |                                          | (4,416
|Interest and other income             |  |                                          | 307   
|Interest and other expense            |  |                                          | (10   
|                                      |  |                                          |       
|Loss before income taxes              |  |                                          | (4,119
|Provision for taxes                   |  |                                          | 15    
|                                      |  |                                          |       
|Net loss                              |  | $                                        | (4,134
|                                      |  |                                          |       

Net Revenue

|           |  | Three months 
    ended    September 30, 2005 |       | % Change   2004 to 2005 |                  | Three months
ended   September  30, 2004 |    | Nine months
ended    September 30, 2005 |       | % Change   2004 to 2005 |   | Nine months
ended    September 30, 2004 |                 
|---------- |  | --------------------------------------------- | ----- | ----------------------- | ---------------- | ---------------------------------------- | -- | --------------------------------------- | ----- | ----------------------- | - | --------------------------------------- | ----------------
|           |  |                                               |       |                         |                  |                                          |    |                                         |       |                         |   |                                         |                 
|           |  |                                               |       |                         | ($ in thousands) |                                          |    |                                         |       |                         |   |                                         | ($ in thousands)
|Wireless   |  | $                                             | 2,775 |                         |                  | (42.2                                    | )% | $                                       | 4,804 |                         | $ | 10,917                                  |                 
|Networking |  |                                               | 899   |                         |                  | (16.1                                    | )% |                                         | 1,071 |                         |   | 2,967                                   |                 
|           |  |                                               |       |                         |                  |                                          |    |                                         |       |                         |   |                                         |                 
|Total      |  | $                                             | 3,674 |                         |                  | (37.5                                    | )% | $                                       | 5,875 |                         | $ | 13,884                                  |                 
|           |  |                                               |       |                         |                  |                                          |    |                                         |       |                         |   |                                         |                 

Net revenue during the third quarter of 2005 decreased $2.2 million from the comparable third quarter of 2004. Revenue from wireless products, consisting mostly of digital cordless telephone transceivers, decreased approximately $2.0 million and revenue from networking products decreased $0.2 million from the comparable third quarter of 2004.

There were two primary causes for the decrease in wireless product revenues.  Demand for our ML5800 from a major digital cordless telephone customer decreased as that customer delayed the introduction of some of its new models and experienced delays in transferring the production of other models to a different factory.  In addition, average selling prices of our wireless products decreased 45% in the third quarter of 2005 as compared to the third quarter of 2004 primarily due to decreases in average selling prices of both of our high volume wireless products, the ML5800 and ML5824, and a shift in product mix to our lower priced ML5824. We expect that our average selling prices of our wireless products will continue to fluctuate from quarter to quarter as we introduce new products at higher selling prices and reduce the prices on products that are maturing.

Unit volume shipments of our wireless products increased 9% over the third quarter of 2004.  However, almost all of the increase in volumes was attributable to an increase in volumes of our ML5824, which has a lower average selling price than our ML5800. The ML5800 was our highest volume product shipping in the third quarter of 2004. Unit shipments of our ML2722, our 900MHz wireless transceiver, sold primarily to Giant Electronics, Ltd., a Plantronics Corporation subcontractor, increased 9% as compared to shipments in the third quarter of 2004.

Our volume of shipment of PHS transceivers was not significant in the third quarter of 2005, as we are experiencing a longer than expected sales cycle for our first generation PHS transceivers. A small number of PHS manufacturers are currently evaluating the ML1900.  The longer sales cycle is due to many factors, including delays by such PHS manufacturers in introducing new products that would incorporate our transceivers.  These delays are a result of internal technical problems experienced by such manufacturers and an increase in the time such manufacturers require to qualify our product. In addition, some potential customers have made the decision to defer utilizing our first generation PHS products because they do not meet such manufacturers performance criteria.  Instead they have decided to  wait and evaluate our second generation transceiver, the ML1905, when and if it becomes available. There can be no assurance any customers will
purchase the ML1900 or the ML1905. The Company currently has $1.3 million of PHS inventory. If we determine we are unable to see all this inventory, we will need to write-down all or a portion of it. The Company reviews and values all it's inventory on a quarterly basis.

12

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As these delays in the adoption of our first generation PHS products continue, more potential customers may choose to wait to evaluate our ML1905 or may consider using PHS transceivers offered by other component suppliers.  There can be no assurance when or if our PHS transceivers will begin shipping in significant volumes.

Sales of our networking products decreased to $0.9 million for the third quarter of 2005, from $1.1 million in the comparable third quarter of 2004.  This decrease of $0.2 million was primarily due to a 30% decrease in unit shipments of our legacy networking products as they approach end-of-life, offset somewhat by a 20% increase in average selling prices.  Average selling prices increased due to a combination of increases in our list prices for these legacy products and a shift in product mix.

Net revenue for the first nine months of 2005 decreased $2.3 million as compared to the first nine months of 2004. Our wireless product net revenue decreased 9% from the comparable period for 2004, while net revenue from our networking products decreased 30% during this same period. The decrease in our wireless product revenue during this period occurred mainly in the third quarter of 2005 due to a decrease in demand from a major digital cordless telephone customer.  Unit shipments of wireless products for the first nine months of 2005 increased 28% from the year ago period, but were offset by a 29% decrease in the average selling prices of these products.  The decrease in networking product net revenue during the first nine months of 2005, as compared to the first nine months of 2004, was due to the decline in shipments of our legacy networking products as they neared end-of-life.  Unit
shipments of networking products declined 31% during this period while average selling prices increased 1%.

In the third quarter and nine months ended September 30, 2005, sales to Uniden Corporation, Vtech Telecommunications, Ltd., and Giant Electronics, Ltd., a subcontract manufacturer for Plantronics Inc., each accounted for more than 10% of our net revenue.  In the third quarter of 2004, sales to Uniden Corporation and Vtech Telecommunications, Ltd., each accounted for more than 10% of our net revenue.  For the first nine months of 2004, sales to Uniden Corporation accounted for more than 10% our net revenue.

International revenue for the third quarter of 2005 totaled $3.4 million, or 92% of net revenue compared to $5.6 million, or 96% for the third quarter of 2004. International revenue for the first nine months of 2005 totaled $13.1 million, or 94% of total net revenue compared to $15.5, or 95% of net revenue for the first nine months of 2004.   Domestic revenue was approximately 8% of net revenue for the third quarter of 2005 compared to 4% of net revenue for the third quarter of 2004.   Domestic revenue was approximately 6% of net revenue for the first nine months of 2005 and 5% of net revenue for the first nine months of 2004. We expect that international revenue will account for the substantial majority of our total net revenue for the foreseeable future.

Gross Margin

|             |  | Three   months
    ended    September 30, 2005 |       | % Change   2004 to 2005 |                    | Three   months
ended    September 30, 2004 |    | Nine   months 
ended    September  30, 2005 |       | % Change   2004 to 2005 |   | Nine   months
ended    September 30, 2004 |                   
|------------ |  | ---------------------------------------------- | ----- | ----------------------- | ------------------ | ------------------------------------------ | -- | ------------------------------------------- | ----- | ----------------------- | - | ----------------------------------------- | ------------------
|             |  |                                                |       |                         |                    |                                            |    |                                             |       |                         |   |                                           |                   
|             |  |                                                |       |                         | ($ in   thousands) |                                            |    |                                             |       |                         |   |                                           | ($ in   thousands)
|Gross Margin |  | $                                              | 2,085 |                         |                    | (38.9                                      | )% | $                                           | 3,410 |                         | $ | 7,922                                     |                   
|%            |  |                                                | 57    | %                       |                    |                                            |    |                                             | 58    | %                       |   | 57                                        | %                 

Gross margin is affected by the unit volume of product shipments, selling prices, product mix, manufacturing subcontract costs, manufacturing utilization, product yields and manufacturing overhead costs. It is also periodically affected by costs incurred in connection with start-up and installation of new manufacturing processes at our subcontractors and, when necessary the write-down of inventory to net realizable value. Inventory write-downs involve significant estimation.  Actual results could be different from these estimates, which could result in either additional charges in future periods and reduction of gross margins, or benefits from sale of previously written down inventory and increases in gross margin.

Gross margin was 57% in the third quarter of 2005, relatively flat with the 58% gross margin achieved in the third quarter of 2004. Manufacturing overhead costs decreased approximately $0.4 million in the current quarter. The reduction in manufacturing overhead stemmed mainly from headcount reductions in our operations group and receipt of rebates from certain test and assembly subcontractors. During the third quarter of 2005, our gross margin benefited by approximately $69,000 from sales of previously written down inventory as compared to approximately $33,000 in the third quarter of 2004. We recognized charges of approximately $5,000 for additional reserves for excess products in the third quarter of 2005 as compared to approximately $0.3 million in the third quarter of 2004.

13

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Wireless product gross margin was 50% during the third quarter of 2005, down from 54% in the comparable year ago quarter. The average selling prices of our wireless products declined during the third quarter of 2005 due to a combination of price reductions on our maturing high volume wireless products and a shift in product mix. The decline in average selling prices was offset by a 36% reduction in the average direct unit costs for our wireless products, primarily due to a shift in product mix, as well as reductions in manufacturing overhead due to reduced headcount and receipt of rebates from certain contractors.

Networking product gross margin increased to 78% in the third quarter of 2005 up slightly from 75% for the comparable third quarter of 2004. The increase in gross margin was primarily due to the reduction in manufacturing overhead costs due mainly to reduced operations headcount. We expect that the gross margin realized from these legacy products will continue to fluctuate from period to period due to shifts in product mix resulting from changes in customer demand as well as product availability for those products that have been declared to be end-of-life.

Gross margin for the first nine months of 2005 increased to 57% from 55% in the first nine months of 2004. This increase was mainly due to a decrease in manufacturing overhead costs of $0.6 million in the first nine months of 2005 due primarily to the receipt of rebates from certain of our test and assembly subcontractors, a decrease in manufacturing headcount, and a decrease in other outside services costs related to the introduction of new products. We expect manufacturing overhead costs to fluctuate in the future as we prepare for the introduction of new products.

During the first nine months of 2005, our gross margin benefited by approximately $177,000 from sales of previously written down inventory as compared to approximately $83,000 of excess inventory that was sold in the comparable year ago period. We recognized charges of approximately $106,000 to provide additional reserves for excess inventory in the first nine months of 2005 as compared to approximately $434,000 in the first nine months of 2004.

Wireless product gross margin increased to 52% for the first nine months of 2005 from 51% for the first nine months of 2004.  Average selling prices of our wireless products decreased 29% during this period, offset by a 29% decrease in average unit costs.  Networking product gross margin increased to 76% for the first nine months of 2005 as compared to 67% for the first nine months of 2004.  The increase in networking product gross margin was primarily due to a combination of price increases and a shift in product mix.

Research and Development Expenses (R&D)

|    |  | Three   months   ended September 30, 2005 |       | % Change   2004 to 2005 |                    | Three   months
ended   September 30, 2004 |   | Nine   months 
ended   September  30, 2005 |       | % Change   2004 to 2005 |   | Nine   months
ended   September 30, 2004 |                   
|--- |  | ----------------------------------------- | ----- | ----------------------- | ------------------ | ----------------------------------------- | - | ------------------------------------------ | ----- | ----------------------- | - | ---------------------------------------- | ------------------
|    |  |                                           |       |                         |                    |                                           |   |                                            |       |                         |   |                                          |                   
|    |  |                                           |       |                         | ($ in   thousands) |                                           |   |                                            |       |                         |   |                                          | ($ in   thousands)
|R&D |  | $                                         | 2,350 |                         |                    | 8.5                                       | % | $                                          | 2,165 |                         | $ | 7,013                                    |                   

Research and development expenses include costs associated with the definition, design and development of new products. In addition, research and development expenses include test development and prototype costs associated with new products prior to their release to manufacturing.

We expense wafers and production mask sets related to new products as research and development costs until products based on new designs are fully characterized, support published data sheets and satisfy reliability tests.

Research and development costs will vary from quarter to quarter depending on the stage of products in development. Research and development expenses increased $0.2 million in the third quarter of 2005 as compared to the third quarter of 2004 due primarily to costs associated with the introduction of PHS products. Headcount related costs, consisting mainly of wages and benefits, increased approximately $0.2 million from the comparable third quarter of 2004 due to increases in headcount.  This increase was offset by a one-time performance bonus reversal of $0.3 million as the Company did not achieve set targets. Mask and prototype expenses increased by  $0.3 million related mainly to our PHS products.

Research and development costs decreased by approximately $0.4 million in the first nine months of 2005 as compared to the first nine months of 2004.   Headcount related costs increased $0.6 million due to increases in the research and development headcount which was offset by a one-time performance bonus reversal of $0.3 million. The increase in headcount related costs was also offset by decreases of $0.4 million in outside services costs, relating mainly to new product testing, a decrease of $0.1 million in mask and prototype costs, and a  $0.3 million decrease in equipment costs.

14

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We intend to expend significant resources in the development of new products during the foreseeable future. However, research and development expense will fluctuate in absolute dollars depending on the status of new products in development.

Selling, General and Administrative Expenses (SG&A)

|     |  | Three   months
ended September 30, 2005 |       | % Change    2004 to 2005 |                    | Three   months
ended September 30, 2004 |    | Nine   months
ended September  30, 2005 |       | % Change    2004 to 2005 |   | Nine   months
ended September 30, 2004 |                   
|---- |  | --------------------------------------- | ----- | ------------------------ | ------------------ | --------------------------------------- | -- | --------------------------------------- | ----- | ------------------------ | - | -------------------------------------- | ------------------
|     |  |                                         |       |                          |                    |                                         |    |                                         |       |                          |   |                                        |                   
|     |  |                                         |       |                          | ($ in   thousands) |                                         |    |                                         |       |                          |   |                                        | ($ in   thousands)
|SG&A |  | $                                       | 1,606 |                          |                    | (10.6                                   | )% | $                                       | 1,796 |                          | $ | 5,325                                  |                   

SG&A expenses consist mainly of costs associated with the marketing and sales of our products as well as those costs associated with the finance, information technology and administrative functions of our company.

During the first quarter of 2005, we began the realignment of our sales and marketing functions in order to increase the focus on the introduction of our new products, expand the development of new markets within Asia, and concentrate on developing major accounts. As a result of these efforts, we realized savings in sales and marketing costs as we began to redirect our efforts from projects and activities that were of a lower priority and began to concentrate our resources on these new products, markets and customers.

SG&A costs decreased $0.2 million in our third quarter of 2005 as compared to the third quarter of 2004.  SG&A payroll related costs decreased $0.2 million due to reduction in headcount.  Additional provisions for doubtful accounts receivable, net of recoveries decreased by $0.2 million.  These reductions were offset by an increase of $0.1 million in consulting costs, mainly related to work done to comply with Section 404 of the Sarbanes Oxley Act.

SG&A costs decreased $0.2 million in the first nine months of 2005 as compared to the first nine months of 2004.   Payroll related costs decreased approximately $0.1 million. Additional provisions for doubtful accounts receivable, net of recoveries decreased by approximately $0.2 million. The decreases were offset by an increase of $0.1 million in commissions paid to sales representatives and $0.2 million of increased consulting costs related to work done to comply with Section 404 of the Sarbanes Oxley Act.

Interest and Other Income and Interest and Other Expense

|                           |  | Three   months
    ended
    September 30,   2005 |     | % Change 2004 to 2005 |                    | Three   months
ended
September 30,
2004 |   | Nine   months
ended    September 30,
2005 |     | % Change    2004 to 2005 |   | Nine monthsendedSeptember 30,   2004 |                   
|-------------------------- |  | ------------------------------------------------- | --- | --------------------- | ------------------ | --------------------------------------- | - | ----------------------------------------- | --- | ------------------------ | - | ------------------------------------ | ------------------
|                           |  |                                                   |     |                       |                    |                                         |   |                                           |     |                          |   |                                      |                   
|                           |  |                                                   |     |                       | ($ in   thousands) |                                         |   |                                           |     |                          |   |                                      | ($ in   thousands)
|Interest and other income  |  | $                                                 | 111 |                       |                    | 94.7                                    | % | $                                         | 57  |                          | $ | 307                                  |                   
|Interest and other expense |  | $                                                 | (4  | )                     |                    | 82.6                                    | % | $                                         | (23 | )                        | $ | (10                                  | )                 
|                           |  |                                                   |     |                       |                    |                                         |   |                                           |     |                          |   |                                      |                   

The increase in interest and other income for the first three and nine months of 2005, as compared to the first three and nine months of 2004, was primarily due to higher short-term interest rates in 2005. Interest and other expense incurred during 2004 consisted primarily of interest payments attributable to the mortgage on our San Jose facility. The decrease in interest and other expenses for the first nine months of 2005, as compared to the first nine months of 2004, was mainly due to the repayment of that mortgage in July 2004 when the property was sold.

Provision for Income Taxes

|                           |  | Three   months
ended
September 30, 2005 |   | % Change    2004 to 2005 |                    | Three   months
ended 
September 30, 2004 |   | Nine   months
endedSeptember  30, 2005 |    | % Change   2004 to 2005 |   | Nine   months
ended
September 30, 2004 |                   
|-------------------------- |  | --------------------------------------- | - | ------------------------ | ------------------ | ---------------------------------------- | - | -------------------------------------- | -- | ----------------------- | - | -------------------------------------- | ------------------
|                           |  |                                         |   |                          |                    |                                          |   |                                        |    |                         |   |                                        |                   
|                           |  |                                         |   |                          | ($ in   thousands) |                                          |   |                                        |    |                         |   |                                        | ($ in   thousands)
|Provision for income taxes |  | $                                       | 8 |                          |                    | 42.9                                     | % | $                                      | 14 |                         | $ | 15                                     |                   

15

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The provision for income taxes for the three months and nine months ended September 30, 2005 consists mainly of state taxes and some minor taxes incurred by our branch office in Japan. The provision for income taxes for the three months and nine months ended September 30, 2004 consists mainly of state taxes. We did not record a benefit for income taxes related to our net losses in the U.S., as we believe that the available objective evidence creates sufficient uncertainty regarding the realization of the deferred tax assets such that we have recorded a full valuation allowance. The effective tax rate for the three months ended September 30, 2005 was 0.5% and for the nine months ended September 30, 2005 was 0.4%.  The effective tax rate for the three months ended September 30, 2004 was 2.3% and for the nine months ended September 30, 2004 was 0.8%.

Liquidity and Capital Resources

|                                                       |  | For the Nine Months Ended   September  30, |       
|------------------------------------------------------ |  | ------------------------------------------ | ------
|                                                       |  |                                            |       
|                                                       |  | 2005                                       |       
|                                                       |  |                                            |       
|                                                       |  | (in thousands)                             |       
|Net cash used in operating   activities                |  | $                                          | (3,295
|Net cash provided by   investing activities            |  |                                            | 802   
|Net cash provided by (used   in) financing activities  |  |                                            | 1,759 
|                                                       |  |                                            |       
|Net increase (decrease) in   cash and cash equivalents |  | $                                          | (734  
|                                                       |  |                                            |       

Net cash used in operating activities during the first nine months of 2005 was mainly due to our net operating loss of $4.1 million. Our major uses of cash during the first nine months  were operating expenses and our cost of manufacturing products. Our inventory balances increased by $1.3 million mainly due to building product for an initial production ramp of our PHS products. Other major sources of cash during the first nine months of 2005 included a decrease in our accounts receivable balance of $0.5 million and a $1.3 million increase in our total liabilities. We expect trade payables and our accrued liability balances to continue to fluctuate from period to period due to variations in our production cycle and timing of other operating expenses. In addition, non-cash depreciation and amortization charges were $0.2 million for the first nine months of 2005, as compared to $0.4 million for the
nine months of 2004. The higher depreciation in 2004 was due to the depreciation associated with our San Jose property that was sold in July 2004. Net cash used in operating activities during the first nine months of 2004 was mainly due to our net operating loss of $2.9 million which was net of a gain of $1.1 million from the sale of our San Jose facilities in July 2004, and an increase in accounts receivable of $2.7 million.

Net cash provided by investing activities during the first nine months of 2005 was primarily due to net sales of short-term investments of $1.0 million.  This was partially offset by purchases of capital equipment of $0.2 million. The capital equipment purchased consisted mainly of engineering equipment and software design tools used in research and development projects. Capital expenditures were not significant during the third quarter of 2005. Capital expenditures for this type of equipment are expected to stay at or near the third quarter levels in the coming quarter. We anticipate that we will be able to provide for these expenditures without any additional sources of financing. Net cash provided by investing activities during the first nine months of 2004 was due primarily to the sale of our San Jose facilities for approximately $7.0 million during the third quarter. We recognized a net gain
on the sale of approximately $1.1 million and the sale generated net cash of approximately $4.6 million, after a $1.9 million mortgage payoff and $0.5 million of closing costs. Other investing activities during this period consisted primarily of net sales and maturities of short-term investments, which totaled $4.2 million for the first nine months of 2004.

Net cash provided by financing activities consists mainly of proceeds from the issuance of common stock in connection with the exercise of employee stock options. Proceeds from stock option exercises were $1.8 million for the first nine months of 2005 and $0.6 million for the comparable period of 2004. In the first nine months of 2004 principal payments on the mortgage for our San Jose property were $2.0 million. The mortgage was fully repaid when the property was sold in the third quarter of 2004.

Working capital was $14.1 million as of September 30, 2005, compared to $16.3 million as of December 31, 2004. Working capital at September 30, 2005 includes cash and cash equivalents of $10.2 million and short-term investments of $3.6 million.

We anticipate that existing cash resources are sufficient to fund any anticipated operating losses, purchases of capital equipment, and provide adequate working capital for at least the next 12 months. Our liquidity is affected by many factors, including, among others, the extent to which we pursue additional wafer fabrication capacity from existing foundry suppliers or new suppliers, capital expenditures, the level of our product development efforts, and other factors related to the uncertainties of the industry and global economies. Accordingly, there can be no assurance that events in the future will not require us to seek additional capital sooner or, if so required, that such capital will be available on terms acceptable to us.

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Recent Accounting Pronouncements

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R (SFAS No. 123R), Share-Based Payment, an amendment to Statement of Financial Accounting Standards No. 123 (SFAS No. 123), Accounting for Stock-Based Compensation and Statement on Financial Accounting Standards No. 95, Statement of Cash Flows. The revised standard addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the companys equity instruments or that may be settled by the issuance of such equity instruments. Under the new standard, companies will no longer be able to account for share-based compensation transactions using the intrinsic method in accordance with APB 25. Instead, companies
will be required to account for such transactions using a fair-value method and recognize the expense in the consolidated statement of income. In addition, the adoption of SFAS 123R will require additional accounting related to the income tax effects and additional disclosure regarding the cash flow effects resulting from share-based payment arrangements. On March 29, 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 107 (SAB 107). This Bulletin summarizes the views of the SEC staff regarding the interaction between SFAS 123R, Share-Based Payment, and certain SEC rules and regulations and provides the SEC staffs views regarding the valuation of share-based payment arrangements for public companies. In April 2005, the SEC postponed the implementation date of SFAS 123R to the fiscal year beginning after June 15, 2005. We have not yet determined which fair-value method and transitional provision we will follow. Currently, we disclose the pro forma net income (loss)
and related pro forma income (loss) per share information in accordance with SFAS 123 and Statement on Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation Costs - Transition and Disclosure. We believe that adoption of the new standard will have an adverse impact on our results of operations.

In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151 (SFAS No. 151), Inventory Costs, an amendment of ARB No. 43, Chapter 4, SFAS No. 151 clarifies that abnormal inventory costs such as costs of idle facilities, excess freight and handling costs, and wasted materials (spoilage) are required to be recognized as current period charges. SFAS No. 151 will be effective in fiscal years beginning after June 15, 2005. The adoption of SFAS No. 151 is not expected to have a material effect on our financial position or results of operations.

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 153 (SFAS No. 153), Exchange of Nonmonetary Assets, an amendment of APB Opinion No. 29. SFAS No. 153 addresses the measurement of exchanges of nonmonetary assets and redefines the scope of transactions that should be measured based on the fair value of the assets exchanged. SFAS No. 153 will be effective for nonmonetary transactions in fiscal years beginning after June 15, 2005. The adoption of SFAS No. 153 is not expected to have a material effect on our financial position or results of operations.

In May 2005, as part of a broader attempt to eliminate differences with the International Accounting Standards Board, the FASB issued Statement of Financial Accounting Standards No. 154 (SFAS No. 154), Accounting Changes and Error Corrections, which replaces Accounting Principles Board Opinion No. 20 (APB No. 20), Accounting Changes, and FASB Statement of Financial Accounting Standards No. 3, Reporting Accounting Changes in Interim Financial Statements. Opinion No. 20 had required that changes in accounting principles be recognized by including the cumulative effect of the change in the period in which the new accounting principle was adopted. SFAS No. 154 requires retrospective application of the change to prior periods financial statements, unless it is impracticable to determine the period-specific effects of the change. The Statement is
effective for fiscal years beginning after December 15, 2005. The adoption of this statement is not expected to have a material effect on our financial statements.

Factors That May Affect Future Operating Results

The risks and uncertainties described below are not the only ones we face. If any of the following risks actually occurs, our business, financial condition or results of operations could be materially and adversely affected:

Our operating   results are difficult to predict and are likely to fluctuate   significantly. They   may fail to meet or exceed the expectations of securities analysts or investors, causing our   stock price to decline.

Our operating results are difficult to predict and have fluctuated significantly in the past. They are likely to continue to fluctuate in the future as a result of many factors, some of which are outside of our control.  For example, during the quarter ended September 30, 2005, we posted net revenues of $3.7 million, which represented a decrease of 37% from the comparable third quarter of 2004.  As a result of the announcement of these results, our stock price traded as low as $1.50 on the next day of trading on the Nasdaq Stock

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Market and closed at $1.99, a 43% decrease from the prior days closing price. Some of the factors that may cause these fluctuations include:

| |  | the level and timing of spending by our customers,   both in the U.S. and in foreign markets;                                
| | - | -----------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                              
| |  | changes in market demand, including seasonal and   cyclical fluctuations;                                                    
| |   |                                                                                                                              
| |  | timing, amount, cancellation or rescheduling of   customer orders;                                                           
| |   |                                                                                                                              
| |  | fluctuations in manufacturing yields;                                                                                        
| |   |                                                                                                                              
| |  | timing of revenue recognition from contracts, which   may span several quarters;                                             
| |   |                                                                                                                              
| |  | competitive market conditions;                                                                                               
| |   |                                                                                                                              
| |  | the announcement or introduction of new or enhanced   products by us, or competitors, or both;                               
| |   |                                                                                                                              
| |  | any delay in the introduction of new or enhanced   products by us or a delay in the sales cycle of such products;            
| |   |                                                                                                                              
| |  | market acceptance of our new products, including our   new PHS products,  and continuing   demand for our existing products; 
| |   |                                                                                                                              
| |  | cost and availability of wafers, other components   and testing services;                                                    
| |   |                                                                                                                              
| |  | mix of products sold;                                                                                                        
| |   |                                                                                                                              
| |  | fluctuations in end user demand for wireless   products manufactured by our customers which incorporate our technology;      
| |   |                                                                                                                              
| |  | economic conditions specific to the networking and   wireless industries and markets, as well as general economic conditions;
| |   |                                                                                                                              
| |  | ability to hire and retain qualified technical and   other personnel;                                                        
| |   |                                                                                                                              
| |  | development of new industry standard communication   protocols;                                                              
| |   |                                                                                                                              
| |  | demand placed on foundries may exceed available supply   resulting in supply allocations or long lead times; and             
| |   |                                                                                                                              
| |  | availability and performance of advanced silicon   process technologies from foundry sources.                                

We believe that period-to-period comparisons of our operating results will not necessarily be meaningful. You should not rely on these comparisons as an indication of our future performance. If our operating results in one or more future periods fail to meet or exceed the expectations of securities analysts or investors, the trading price of our common stock may fluctuate, possibly by a significant amount.

The markets in which we operate are intensely competitive, and many competitors are larger and more established. If we do not compete successfully, our business could be harmed.

Intense international and domestic competition, decreasing selling prices, rapid technological change, short product life cycles and cyclical patterns characterize the markets for our products. Competitors include significantly larger corporations. New entrants in these markets could provide additional competition. Most of our competitors are substantially larger and have greater financial, technical, marketing and other resources than we do. Many of these large organizations are in a better position to withstand any significant reduction in spending by customers in these markets. They often have broader product lines and market focus, and will therefore not be as susceptible to downturns in a particular market. In addition, many competitors have focused on the wireless market for longer than we have, and therefore have more long-standing and established relationships with domestic and foreign
customers.

The computer networking equipment and wireless markets have undergone a period of rapid growth and consolidation in recent years. We expect our dependence on sales to digital cordless phone and network equipment manufacturers to continue. Our business and results of operations would be harmed in the event of a significant slowdown in the digital cordless phone or computer networking equipment market. In addition, as a result of competitive pricing pressures, we have experienced lower margins on some of our products. Such pricing pressures will continue to have an adverse effect on our results of operations, and our business could suffer unless they can be offset by higher margins on other products or lower operating expenses.

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We do not currently manufacture our own semiconductor wafers. As a result, we are vulnerable to process technology advances competitors use to manufacture products offering higher performance and lower cost. Larger companies with wafer manufacturing facilities, broader product lines, greater technical and financial resources and greater service and support capabilities have an advantage in this market.

In addition, our products are generally sole-sourced to our customers. If our customers were to develop other sources for our products, our operating results would be harmed.

The market for wireless applications is characterized by rapid technological change. Our future success depends on our ability to respond to these changes.

Rapidly changing technology, frequent product introductions and evolving industry standards make it difficult to accurately predict the markets future growth rate, size or technological direction. In view of the evolving nature of this market, suppliers of wireless products may decide to adopt alternative standards or technologies that are incompatible with our products. If we are unable to design, develop, manufacture and sell products that are compatible with these new standards or technologies, our business and operating results would be harmed.

We need to develop and introduce new and enhanced products in a timely manner to successfully compete in our industry.

Continuing technological advancement, changes in customer requirements and evolving industry standards characterize the wireless and computer equipment networking markets. To compete successfully, we must design, develop, manufacture and sell new or enhanced products that:

| |  | provide increasingly higher levels of performance   and reliability; 
| | - | ---------------------------------------------------------------------
| |   |                                                                      
| |  | meet performance or other objective specified   parameters;          
| |   |                                                                      
| |  | are cost effective;                                                  
| |   |                                                                      
| |  | are brought to market in a timely manner;                            
| |   |                                                                      
| |  | are in accordance with existing or evolving industry   standards; and
| |   |                                                                      
| |  | achieve market acceptance.                                           

The development of these new circuits is highly complex. We have sometimes experienced delays in completing the development of new products. Successful product development and introduction depends on many factors, including:

| |  | proper new product definition;                                  
| | - | ----------------------------------------------------------------
| |   |                                                                 
| |  | timely completion and introduction of new product   designs;    
| |   |                                                                 
| |  | availability of foundry capacity;                               
| |   |                                                                 
| |  | acceptable manufacturing yields; and                            
| |   |                                                                 
| |  | market acceptance of our products and our customers   products.

We must be able to adjust to changing market conditions quickly and cost-effectively to compete successfully. Furthermore, we must introduce new products in a timely manner, and achieve market acceptance for these products. If we do not accurately predict our customers or potential customers requirements or if the products we design do not meet these requirements, or the performance criteria required by our customers or potential customers, our sales may suffer and we may not generate sufficient revenue to offset the

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costs incurred with developing such products. For example, for several reasons, we have experienced a longer than expected sales cycle for our new PHS products, one of which was that our first generation PHS products did not meet the performance criteria of certain of our potential customers and these customers have made the decision to defer utilizing our first generation products and wait to evaluate our second generation transceiver, the ML1905, when and if it becomes available.  In addition, our customers products which incorporate our products must be introduced in a timely manner and achieve market acceptance. If we, or our customers, fail to develop and introduce new products successfully, our business and operating results would suffer.

To successfully develop and market certain of our planned products, we may need to enter into technology development or licensing agreements with third parties. If we cannot enter into such agreements on acceptable terms, our ability to develop and market new products could suffer, and our business and operating results would be adversely affected.

Customers typically take a long time to evaluate our new products. It takes three to six months or more for customers to test new products, and at least an additional three to 12 months until customers begin significant production of products incorporating our products. We may therefore experience a lengthy delay between product development and the generation of revenue from new products. Delays inherent in such a long sales cycle raise additional risks that customers may decide to cancel or change their product plans. Such changes could result in the loss of anticipated sales. For example, during the quarter ended September 30, 2005, sales of our wireless products dropped 42% from the third quarter of 2004 as a result of, among other things, decreased demand for our ML5800 from one of our customers as it delayed the introduction of some of its new models which incorporate our product.   Our
business, financial condition, and results of operations would suffer if customers reduce or delay orders, or choose not to release products incorporating our products.

We have a history of losses and, because of continued investment in product development, expect to incur losses in the future. We may not become profitable.

We have incurred quarterly net losses from June 2000 through September 2005, except for a profit in the third quarter of 2002, which was attributable to an income tax refund, and a net profit for the third quarter of 2004 which occurred from the sale of our land and buildings. Because of those losses, we had an accumulated deficit of $28.5 million as of September 30, 2005.

Successful engineering development and market penetration in the product areas we have chosen to compete in require high levels of engineering and product development expense. We intend to continue to spend significant amounts on new product and technology development. The products we develop may not achieve market acceptance and may not generate sufficient sales to offset the engineering costs incurred during such product development.  For example, we are experiencing a longer than expected sales cycle for our first generation PHS transceivers and we may not generate sales from these products in the near future or ever.  Our networking products are reaching maturity, and revenue from this product line has declined and is expected to decline further over the next 12 months. We expect to incur losses in the future and may not achieve our goals of net income and cash flow.

To the extent that our existing resources and cash generated from operations are insufficient to fund our future activities, we may need to raise additional capital. If funds are not available on acceptable terms, we may not be able to hire or retain employees, fund our operations or compete effectively.

We believe that our existing capital resources and cash generated from operations will enable us to maintain our operations for at least the next 12 months. However, if our capital requirements or results of operations vary materially from those currently planned, we may require additional financing sooner than anticipated. If additional funds are raised through the issuance of debt securities, these securities could have rights, preferences and privileges senior to our common stock, and the terms of this debt could impose restrictions on our operations. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders. We cannot be certain that additional financing will be available in amounts or on terms acceptable to us, if at all. If adequate funds are not available to us on acceptable terms, our ability to hire, train or retain employees, to fund our
operations and sales and marketing efforts, take advantage of unanticipated opportunities, develop or enhance services or products, or respond to competitive pressures would be significantly limited, which could harm our business, financial condition and operating results.

We depend on networking, wireless, and telecommunications spending for our revenue. Any decrease or delay in spending in these industries would negatively impact future operating results and financial condition.

Demand for our products in the future will depend on the amount and timing of spending by network providers, manufacturers of wireless consumer products, and telecommunications equipment suppliers. Spending in these areas depends upon a variety of factors, including competitive pressures, discretionary consumer spending patterns, and general economic conditions.

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During certain periods, new orders slowed, customers cancelled or placed holds on existing orders, and new order levels fluctuated, due to developments in the general economy and capital markets. This situation could recur in the future. Because the majority of our revenue comes from sales to a few customers, a delay in orders from one customer could have a significant negative effect on future revenue.

Relatively short product life cycles characterize the computer network equipment and digital cordless telephone markets. If one or more of our significant customers were to select circuits manufactured by a competitor for future products, our business would suffer. The loss of one or more of our current customers, failure to attract new customers, or disruption of our sales and distribution channels could harm our business and operating results.

Our customer base is concentrated. The loss of one or more key customers or distributors would harm our business.

A significant majority of our net revenue comes from sales to relatively few customers. Sales to our ten largest customers, excluding domestic distributors, accounted for approximately 87% of net revenue for both the three months and nine months ended September 30, 2005, respectively, and approximately 89% and 83% of net revenue for the comparable periods in 2004. Three customers, Uniden Corporation, VTech Telecommunications, Ltd, and Giant Electronics, Ltd., a subcontract manufacturer for Plantronics, Inc., together accounted for 68% of our net revenue for the third quarter of 2005. Sales to domestic distributors accounted for approximately 7% and 4% of net revenue for the three months and nine months ended September 30, 2005, respectively, and approximately 4% for both of the comparable periods in 2004. We anticipate that a limited number of key customers and distributors will continue to provide a
significant portion of our net revenue for the foreseeable future. Our future success depends on our ability to retain our current customers and attract new customers. A reduction, delay or cancellation of orders from one or more significant customers could materially harm our operating results. For example, for the quarter ended September 30, 2005, sales of our wireless products dropped 40% from the third quarter of 2004 as a result of, among other things, decreased demand for our ML5800 from one of our customers as it delayed the introduction of some of its new models which incorporate our product. In addition, our operating results could be adversely affected if one or more of our major customers were to develop other sources for the products we now supply them.

Generally, customers may cancel or reschedule orders to purchase standard products without significant penalty until 30 days prior to requested shipment. Customers frequently revise delivery schedules, and the quantities of products to be delivered, to reflect changes in their needs. Since backlog can be canceled or rescheduled, our backlog at any time is not necessarily indicative of future revenue.

We depend on international sales and are subject to the risks associated with international operations, which may negatively affect our business.

Sales to customers outside of the United States represented 92% and 94% of net revenue for the three months and nine months ended September 30, 2005, respectively, and 96% and 95% of net revenue for the comparable periods in 2004. We expect that international sales will continue to generate a substantial proportion of net revenue for the foreseeable future. Our international operations are subject to a number of risks, including:

| |  | changes in regulations and laws of foreign   governments and telecommunications standards;                
| | - | ----------------------------------------------------------------------------------------------------------
| |   |                                                                                                           
| |  | import and export legislation and license   requirements, tariffs, taxes, quotas and other trade barriers;
| |   |                                                                                                           
| |  | compliance with foreign laws, treaties and technical   standards;                                         
| |   |                                                                                                           
| |  | delays resulting from difficulty in obtaining export   licenses for certain technology;                   
| |   |                                                                                                           
| |  | fluctuations in currency exchange rates;                                                                  
| |   |                                                                                                           
| |  | difficulty in collecting accounts receivable;                                                             
| |   |                                                                                                           
| |  | difficulty in managing foreign operations;                                                                
| |   |                                                                                                           
| |  | loss of one or more international distributors;                                                           
| |   |                                                                                                           
| |  | geopolitical risks, changes in diplomatic and trade   relationships and economic instability; and         

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| |  | political and economic instability, including wars,   acts of terrorism, political unrest, boycotts and any related conflicts or   similar events worldwide.                                                                                                                                                                                                                                                                        
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | Substantially all of our international sales must be   licensed by the Office of Export Administration of the U.S. Department of   Commerce. To date, we have not experienced any material difficulties in   obtaining export licenses. In the future, if we have difficulties or delays   in obtaining expert licenses, we may be unable to sell our products to   international customers, which could harm our operating results.

Our international sales are typically denominated in U.S. dollars. Fluctuations in currency exchange rates could cause our products to become relatively more expensive to customers in a particular country, while competitors products denominated in local currencies become less expensive. This may lead to a reduction in sales or profitability in that country, which could adversely affect our business.

Gains and losses on the conversion to U.S. dollars of accounts receivable, accounts payable and other international assets and liabilities may contribute to fluctuations in operating results. In addition, international customers typically take longer to pay for purchases than customers in the United States. If foreign markets do not continue to develop, or foreign sales cycles prove unpredictable, our revenue and business would be adversely affected.

Selling prices for wireless products typically decrease, which could lead to lower operating results.

Average selling prices for products in the wireless markets have rapidly declined due to many factors, including:

| |  | rapidly changing technologies;                
| | - | ----------------------------------------------
| |   |                                               
| |  | price-performance enhancements;               
| |   |                                               
| |  | product introductions by competitors;         
| |   |                                               
| |  | price pressure from significant customers; and
| |   |                                               
| |  | product maturity and obsolescence.            

The decline in the average selling prices of our products may cause substantial fluctuations in our operating results. We continue to develop and market new products that incorporate valued new features and sell at higher prices. Failure to deliver new products offering increased value would result in a decline in both revenue and margins, harming our business, financial condition, and results of operations.

Defects in our products, product returns and product liability could result in a decrease in customers and revenue, unexpected expenses and loss of market share.

Complex products such as ours frequently contain errors, defects, and bugs upon release. These errors, defects and bugs are sometimes discovered after we begin to ship products. We expend significant resources to remedy these problems, but occasionally have faced legal claims by customers and others. Product defects can also cause interruptions, delays or cancellations of sales to customers, in addition to claims against us, all of which could adversely affect our operating results.

We depend on the health of the semiconductor industry, which is highly cyclical. The decline in demand in the semiconductor industry could affect our financial condition and results of operations.

The semiconductor industry experiences significant downturns and wide fluctuations in supply and demand. The industry also experiences significant fluctuations in anticipation of changes in general economic conditions. This causes significant variances in product demand and production capacity, and aggravates both our manufacturing costs and product selling prices. These cyclical patterns, which we expect to continue, may substantially harm our business, financial condition, and results of operations.

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Because we do not have long-term commitments from our distributors or customers, we must estimate customer demand, and errors in our estimates can have negative effects on our inventory levels, sales and operating results.

Our sales are made on the basis of individual purchase orders rather than long-term purchase commitments. We regularly request indications from customers as to their future plans and requirements, to ensure that we will be prepared to meet production demand for our products. However, we may not receive anticipated purchase orders for our products. We must be able to effectively manage the expenses and inventory risks associated with meeting potential demand. If we fail to meet customers supply expectations, we may lose business from such customers. If we expend resources and purchase materials, or enter into commitments to acquire materials and manufacture products, and customers do not purchase these products, we may end up with excess inventory and may be required to write off excess inventory in accordance with our inventory policy, which could harm  our business and operating results.

Design wins, which require significant expenditures, often precede the generation of volume sales by a year or more. The value of any design win will largely depend upon the commercial success of the customers product, and on the extent to which the design of the customers product accommodates components manufactured by our competitors. We cannot assure that we will achieve design wins, or that any design win will result in significant future revenue.

We depend on a limited number of outside foundries and test subcontractors in the manufacturing process, and any failure to obtain sufficient foundry or testing capacity could significantly delay our ability to ship our products, damage our customer relationships, and result in reduced revenue.

We utilize outside foundries for all wafer production. We believe that utilizing outside foundries enable us to focus on our design strengths, minimize fixed costs and capital expenditures and access diverse manufacturing technologies. We currently intend to continue to rely exclusively upon our outside foundries for our wafer fabrication requirements. However, there are significant risks associated with the reliance on outside foundries, including the lack of assured wafer supply and control over delivery schedules, delays in obtaining access to key process technologies, and limited control over manufacturing yields and production costs.

The manufacture of integrated circuits is a highly complex and technically demanding process. We have diversified our sources of wafer supply and have worked closely with our foundries to minimize the likelihood of reduced manufacturing yields. However, our foundries have sometimes experienced lower than anticipated manufacturing yields, particularly in connection with the introduction of new products and the installation and start-up of new processes. Reduced yields have, at times, negatively affected our operating results, a situation which may recur in the future.

Dependence on foundries located outside of the United States subjects us to numerous risks, including exchange rate fluctuations, export and import restrictions, trade sanctions, political instability and tariff increases. One of our main foundries is located in Singapore, which presents specific risks due to political instability in that region.

We purchase wafers from outside foundries pursuant to customers purchase orders. We generally do not have a guaranteed level of wafer capacity or wafer costs at our foundries. Our wafer suppliers could prioritize capacity for other uses, or reduce or eliminate deliveries to us on short notice. In addition, we depend upon a limited number of foundries for our wafer requirements. Any sudden demand for an increased amount of wafers, or sudden reduction or elimination of any source of wafers, could result in a material delay in the shipment of products. Disruptions in supply, which have occurred in the past, may occur in the future. If such a disruption occurred, and we were unable to qualify alternative manufacturing sources for our products in a timely manner, or if such sources were unable to produce wafers with acceptable manufacturing yields, our business and operating results would be materially
and adversely affected.

We rely on four outside test service subcontractors to test our products. The same risks described in the paragraphs above, concerning guaranteed capacity, dependence upon a limited number of test service subcontractors, and disruptions in service, also apply to our test and assembly subcontractors.

Rapid technological change and frequent new product introductions characterize the markets for our products. To remain competitive, we must develop or obtain access to new semiconductor process technologies in order to reduce die size, increase die performance and functional complexity, and improve manufacturing yields. If we are unable to obtain access to advanced wafer processing technologies, limiting our ability to introduce competitive products on a timely basis, our future operating results would be harmed.

Minute levels of contaminants in the semiconductor manufacturing environment, defects in the masks used to print circuits on a wafer, difficulties in the fabrication process and other factors can cause a substantial percentage of wafers to be rejected or a significant number of die on each wafer to be nonfunctional. Many of these manufacturing problems are difficult to diagnose and time consuming and expensive to remedy. Our foundries have, at times, experienced lower than anticipated yields, which have adversely affected production and operating results.

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The manufacturing processes utilized by our foundries are continuously being improved in order to increase yield and product performance. Process changes can, however, result in interruptions in production or significantly reduced yields. New process technologies and new products are especially susceptible to wide variations in manufacturing yields and efficiency. Irregularities, adverse yield fluctuations or other manufacturing problems at our foundries could result in production interruption or delivery delays, which would harm our business and results of operations.

We have granted nontransferable, limited process licenses to some of our foundries to utilize our processes to manufacture and sell wafers to other customers. We protect our proprietary technology, particularly our design methodology, but may not be able to prevent its misappropriation by our foundries or others.

We and the independent foundries and subcontractors we use to manufacture and test our products are subject to environmental laws. Failure to comply with these laws could delay manufacturing of our products and result in unexpected expenses.

Our wafer suppliers and test and assembly subcontractors are subject to a variety of U.S. and foreign government regulations related to the discharge or disposal of toxic, volatile or otherwise hazardous chemicals used in their manufacturing processes. Failure by our suppliers or subcontractors to comply with environmental regulations could result in fines, suspension of production or cessation of operations. Environmental regulations could also require our suppliers or subcontractors to acquire equipment or incur other expenses to comply with environmental regulations. If our suppliers or subcontractors incur substantial additional expenses, product costs could significantly increase, adversely affecting our results of operations.

We are also subject to a variety of environmental regulations relating to our operations. If we fail to comply with present and future regulations, the government could impose fines on us, or compel us to suspend or cease operations. If we or our suppliers or subcontractors fail to control the use or discharge of hazardous substances, we could be subject to civil or criminal liabilities, which could harm our business and operating results.

Because competition for qualified personnel is intense, we may not be successful in attracting and retaining personnel, which could have an impact upon the development or sales of our products.

Our future success will depend to a significant extent on our ability to attract, retain and motivate qualified personnel, especially those with engineering design experience and expertise. We may not be successful in attracting and retaining such qualified personnel.

Competitors may attempt to recruit our employees. While employees are required to sign standard agreements concerning confidentiality and ownership of inventions, we do not have employment contracts or non-competition agreements with most of our personnel. The loss of the services of key employees, the inability to attract or retain qualified personnel, or delays in hiring personnel, particularly engineers and other technical personnel, could negatively affect our business and prevent us from achieving our business goals.

Our success depends on our ability to protect our intellectual property and proprietary rights.

We attempt to protect our intellectual property rights through patents, trademarks, copyrights, licensing arrangements, maintaining certain technology as trade secrets and other measures. However, any patent, trademark, copyright or other intellectual property rights we own may be invalidated, circumvented or challenged. We cannot be certain that our intellectual property rights will provide competitive advantages, or that any pending or future patent applications will be issued with the scope of the claims sought by us. Competitors may develop technologies that are similar or superior to our technology, duplicate our technology or design around the patents that we own. In addition, effective patent, copyright and trade secret protection may be unavailable or limited in certain foreign countries in which we do business.

We believe that the future success of our business will depend on our ability to translate technological expertise and innovation into new and enhanced products. We enter into confidentiality or license agreements with our employees, consultants, vendors and customers, and limit access to and distribution of our proprietary information. Nevertheless, we may not be able to prevent the misappropriation of our technology.

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In addition, we have taken legal action to enforce our patents and other intellectual property rights, protect our trade secrets, determine the validity and scope of the proprietary rights of others, and defend against claims of infringement or invalidity. If a third party makes a valid claim, and we cannot obtain a license to the technology on reasonable terms, our operations could be harmed.

We may be subject to legal proceedings and claims from time to time in the ordinary course of our business, including claims of alleged infringement of the proprietary rights and other intellectual property rights of third parties. Intellectual property litigation is expensive and time-consuming, and could divert our managements attention away from running our business.

We have in the past, and may in the future, be parties to legal proceedings that could have a negative financial impact on us.

From time to time we have received correspondence from vendors, distributors, customers or end-users of our products regarding disputes with respect to contract rights, product performance or other matters that occur in the ordinary course of business. Some of these disputes may involve us in costly litigation or other actions, the outcome of which cannot be determined in advance and may adversely affect our business. The defense of lawsuits or other actions could divert our managements attention away from running our business. In addition, negative developments with respect to litigation could cause the price of our common stock to decline significantly.

Our stock price has been and will likely continue to be volatile because of stock market fluctuations that affect the price of technology stocks. A decline in our stock price could result in securities class action litigation against us, which could divert managements attention and harm our business.

Our stock price has been and is likely to continue to be highly volatile. Between January 1, 2005 and September 30, 2005 our stock price has traded as high as $6.24 on June 2, 2005 and as low as $3.72 on September 29, 2005. For example, during the quarter ended September 30, 2005, we posted net revenues of $3.7 million, which represented a decrease of 37% from the comparable third quarter of 2004.  As a result of the announcement of these results, our stock price traded as low as $1.50 on the next day of trading on the Nasdaq Stock Market and closed at $1.99, a 43% decrease from the prior days closing price. Our stock price could fluctuate significantly due to a number of factors, including:

| |  | variations in our actual or anticipated operating   results;                                                          
| | - | ----------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                       
| |  | delays in the introduction of new products or delay   in the sales cycle for new products, including our PHS products;
| |   |                                                                                                                       
| |  | sales of substantial amounts of our stock;                                                                            
| |   |                                                                                                                       
| |  | announcements about us or about our competitors,   including technological innovation or new products;                
| |   |                                                                                                                       
| |  | litigation and other developments relating to our   patents or other proprietary rights or those of our competitors;  
| |   |                                                                                                                       
| |  | conditions in the computer networking equipment and   wireless markets;                                               
| |   |                                                                                                                       
| |  | governmental regulation and legislation; and                                                                          
| |   |                                                                                                                       
| |  | changes in securities analysts estimates of our   performance, or our failure to meet analysts expectations.        

Many of these factors are beyond our control. In addition, the stock markets in general, and the NASDAQ National Market and the market for technology companies in particular, have experienced extreme price and volume fluctuations recently. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. These broad market and industry factors may decrease the market price of our common stock, regardless of our actual operating performance. In the past, companies that have experienced volatility in the market prices of their stock have been the objects of securities class action litigation. If we were the objects of securities class action litigation, it could result in substantial costs and a diversion of managements attention and resources, which could harm our business.

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Our Certificate of Incorporation and Bylaws, Stockholder Rights Plan and Delaware law contain provisions that could discourage a change in control, even if the change in control would be beneficial to our stockholders.

Provisions of our Amended and Restated Certificate of Incorporation, Bylaws, the 1998 Shareholder Rights Plan, our stock option plans and Delaware law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock.

Under the Shareholder Rights Plan, adopted in August 1998, each share of our outstanding common stock carries one Right to purchase 1/1000 of a share of  Series A Participating Preferred Stock at an exercise price of $30.00 per Right. If someone acquires 15% or more of our common stock, each Right not owned by a holder of 15% or more of our common stock entitles the holder, upon payment of the $30.00 exercise price, to receive common stock having a current market value of $60.00. This issuance of additional common stock would significantly reduce the percentage of common stock held by a potential acquirer. The Rights expire in August 2008.

In addition, Section 203 of the Delaware General Corporation Law and the terms of our stock option plans may discourage, delay or prevent a change in control of Micro Linear. Specifically, Section 203 prohibits a Delaware corporation from engaging in any business combination with an interested stockholder for three years after the date the stockholder became an interested stockholder unless specific conditions are met. Also, in the event outstanding options granted pursuant to certain of our stock option plans are not assumed by an acquiring corporation, the unvested portion of such options may be accelerated upon a change of control. In addition, some individual stock option grants provide for the partial or complete acceleration of vesting upon a change of control.

Recently enacted regulatory changes may cause us to incur increased costs.

Recently enacted and proposed changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules adopted by the SEC and NASDAQ, could cause us to incur increased costs as we evaluate the implications of new rules and respond to new requirements. The new rules could make it more difficult for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, or as executive officers. We are presently evaluating and monitoring developments with respect to these new and proposed rules, and we cannot predict or estimate the amount of
additional costs we may incur or the timing of such costs.

Changes to financial accounting standards may affect our results of operations and cause us to change our business practices.

We prepare our financial statements to conform with generally accepted accounting principles, or GAAP, in the United States. These accounting principles are subject to interpretation by the American Institute of Certified Public Accountants, the Securities and Exchange Commission and various bodies formed to interpret and create appropriate accounting policies. A change in those policies can have a significant effect on our reported results and may affect our reporting of transactions completed before a change is announced. Changes to those rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business. For example, accounting policies affecting many aspects of our business, including rules relating to employee stock option grants, have recently been revised or are under review. The Financial Accounting Standards Board and other
agencies have finalized changes to U.S. generally accepted accounting principles that will require us, starting in our first quarter of 2006, to record a charge to earnings for employee stock option grants and other equity incentives. We may have significant and ongoing accounting charges resulting from option grant and other equity incentive expensing that could reduce our overall net income. In addition, since we historically have used equity-related compensation as a component of our total employee compensation program, the accounting change could make the use of equity-related compensation less attractive to us and therefore make it more difficult to attract and retain employees.

While we believe that we currently have adequate internal control procedures in place, we are still exposed to potential risks from recent legislation requiring companies to evaluate controls under Section 404 of the Sarbanes-Oxley Act of 2002.

We are evaluating our internal controls systems in order to allow management to report on, and our independent public accountants to attest to, our internal controls, as required by Section 404 of the Sarbanes-Oxley Act. We are performing the system and process evaluation and testing required in an effort to comply with the management certification and auditor attestation requirements of Section 404. We are required to be in compliance with this section of the Sarbanes-Oxley Act by December 31, 2006. As a result, we are incurring additional expenses and a diversion of managements time. While we believe that our internal control procedures are adequate and we anticipate being able to fully implement the requirements relating to internal controls and all other aspects of Section 404 in a timely fashion, we cannot be certain as to the timing of completion of our evaluation, testing and remediation
actions or the impact of the same on our operations since there is no precedent available by which to measure compliance adequacy. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC or The Nasdaq National Market. Any such action could adversely affect our financial results and the market price of our common stock.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

As of September 30, 2005, our investment portfolio consisted of U.S. government obligations, commercial paper and money market funds, typically with maturities of less than 12 months. Some of these securities are subject to interest rate risk, and will decline in value if market interest rates increase. If market interest rates were to increase immediately and uniformly by 10% as of September 30, 2005, the decline in the fair value of the portfolio would not be material.

Foreign Currency Exchange Risk

We have international facilities and are, therefore, subject to foreign currency rate exposure. We limit our foreign currency risks principally by maintaining minimal foreign currency balances. Since our exposure related to exchange rate volatility has not been significant, we do not currently hedge this exposure.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.We maintain disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls are designed to meet, and management believes that they meet, reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that, subject to the limitations noted above, our disclosure controls and procedures were effective to ensure that material information relating to us, including our consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which this Quarterly Report on Form 10-Q was being prepared.

(b) Changes in internal control over financial reporting.There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with the evaluation described in Item 4(a) above that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders

The registrants Annual Meeting of Stockholders was held on August 4, 2005.

The following actions were taken at the annual meeting:

1. The following Directors were elected

|                   |  | For |            | Withheld | 
|------------------ |  | --- | ---------- | -------- | 
|                   |  |     |            |          | 
|Timothy Richardson |  |     | 11,980,743 |          | 
|Laura Perrone      |  |     | 12,012,805 |          | 
|Joseph Rizzi       |  |     | 11,981,198 |          | 
|A. Thampy Thomas   |  |     | 11,985,898 |          | 
|John Zucker        |  |     | 11,985,898 |          | 

2. The ratification of the appointment of PricewaterhouseCoopers LLP as our independent public accounting firm for the year ending December 31, 2005 was approved.

|For        |  | Against |       | Abstain | 
|---------- |  | ------- | ----- | ------- | 
|           |  |         |       |         | 
|12,199,365 |  |         | 6,325 |         | 

Item 6. Exhibits

|Exhibit   Number |  | Description   of Document                                    
|---------------- |  | -------------------------------------------------------------
|                 |  |                                                              
|31.1             |  | Rule 13a-14(a) Certification by the Chief Executive   Officer
|31.2             |  | Rule 13a-14(a) Certification by the Chief Financial   Officer
|32.1*            |  | Section 1350 Certification by the Chief Executive   Officer  
|32.2*            |  | Section 1350 Certification by the Chief Financial   Officer  

| 
|-
|*

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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.

|                        | MICRO LINEAR CORPORATION
|----------------------- | ------------------------
|                        |                         
|Date: November 16, 2005 | By                      
|                        |                         
|                        |                         
|                        |                         
|                        |                         
|                        |                         
|Date: November 16, 2005 | By                      
|                        |                         
|                        |                         
|                        |                         
|                        |                         

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INDEX TO EXHIBITS

|Exhibit    Number |  | Description of Document                                      
|----------------- |  | -------------------------------------------------------------
|                  |  |                                                              
|                  |  |                                                              
|31.1              |  | Rule 13a-14(a) Certification by the Chief Executive   Officer
|                  |  |                                                              
|31.2              |  | Rule 13a-14(a) Certification by the Chief Financial   Officer
|                  |  |                                                              
|32.1*             |  | Section 1350 Certification by the Chief Executive   Officer  
|                  |  |                                                              
|32.2*             |  | Section 1350 Certification by the Chief Financial   Officer. 

| 
|-
|*

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