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UNITED STATESSECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
 For the Quarterly Period Ended July 3, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
 For
the transition period from to
 Commission File Number 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. Employerincorporation or organization)
    
    Identification No.)2050 Concourse Drive
    
    95131San Jose, California
    
    (Zip Code)(Address of principal executive offices)
 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 þ o
 o þ




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TABLE OF CONTENTS
 PAGEPART I FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements (Unaudited except for Condensed Consolidated Balance Sheet at December 31, 2004)
    
    
    3Condensed Consolidated Balance Sheets at June 30, 2005 and December 31, 2004
    
    
    3Condensed Consolidated Statements of Operations for the three months and six months ended June 30, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2005 and 2004
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    28PART II OTHER INFORMATION
    
    
    28Item 6. Exhibits
    
    
    28SIGNATURES
    
    
    29Index to ExhibitsEXHIBIT 3.(ii)EXHIBIT 10.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 MICRO LINEAR CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
 June 30,
    
    December 31,2005
    
    2004(Unaudited)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    8,571
    
    
    $
    10,920Short-term investments
    
    
    5,174
    
    
    
    4,660Accounts receivable, net of allowance for
doubtful accounts of $129 at June 30, 2005 and
$139 at December 31, 2004
    
    
    3,675
    
    
    
    2,878Inventories
    
    
    2,519
    
    
    
    1,770Other current assets
    
    
    298
    
    
    
    210Total current assets
    
    
    20,237
    
    
    
    20,438Property and equipment, net
    
    
    531
    
    
    
    459Other assets
    
    
    28
    
    
    
    28Total assets
    
    $
    20,796
    
    
    $
    20,925Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    2,503
    
    
    $
    1,500Accrued compensation and benefits
    
    
    1,221
    
    
    
    988Deferred revenue
    
    
    308
    
    
    
    494Other accrued liabilities
    
    
    1,154
    
    
    
    1,121Total current liabilities
    
    
    5,186
    
    
    
    4,103Stockholders equity:Common stock
    
    
    16
    
    
    
    15Additional paid-in capital
    
    
    62,514
    
    
    
    61,368Accumulated deficit
    
    
    (26,682
    )
    
    
    (24,320
    )Accumulated other comprehensive loss
    
    
    (5
    )
    
    
    (8
    )Treasury stock
    
    
    (20,233
    )
    
    
    (20,233
    )Total stockholders equity
    
    
    15,610
    
    
    
    16,822Total liabilities and stockholders equity
    
    $
    20,796
    
    
    $
    20,925
 See accompanying notes to unaudited condensed consolidated financial statements.
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MICRO LINEAR CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
 THREE MONTHS ENDED
    
    SIX MONTHS ENDEDJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net revenue
    
    $
    5,964
    
    
    $
    6,508
    
    
    $
    10,210
    
    
    $
    10,348Cost of goods sold
    
    
    2,330
    
    
    
    2,683
    
    
    
    4,373
    
    
    
    4,776Gross margin
    
    
    3,634
    
    
    
    3,825
    
    
    
    5,837
    
    
    
    5,572Operating expenses:Research and development
    
    
    2,467
    
    
    
    2,612
    
    
    
    4,663
    
    
    
    5,253Selling, general and administrative
    
    
    2,112
    
    
    
    1,856
    
    
    
    3,718
    
    
    
    3,702Restructuring charges
    
    
    
    
    
    
    166
    
    
    
    
    
    
    
    166Total operating expenses
    
    
    4,579
    
    
    
    4,634
    
    
    
    8,381
    
    
    
    9,121Loss from operations
    
    
    (945
    )
    
    
    (809
    )
    
    
    (2,544
    )
    
    
    (3,549
    )Interest and other income
    
    
    103
    
    
    
    47
    
    
    
    196
    
    
    
    109Interest and other expense
    
    
    (2
    )
    
    
    (49
    )
    
    
    (7
    )
    
    
    (86
    )Loss before income taxes
    
    
    (844
    )
    
    
    (811
    )
    
    
    (2,355
    )
    
    
    (3,526
    )Provision for income taxes
    
    
    6
    
    
    
    6
    
    
    
    7
    
    
    
    10Net loss
    
    $
    (850
    )
    
    $
    (817
    )
    
    $
    (2,362
    )
    
    $
    (3,536
    )Net loss per share (basic and diluted):Net loss per share
    
    $
    (0.07
    )
    
    $
    (0.07
    )
    
    $
    (0.19
    )
    
    $
    (0.29
    )Weighted average number of shares used in per share computation
    
    
    12,589
    
    
    
    12,377
    
    
    
    12,524
    
    
    
    12,356
 See accompanying notes to unaudited condensed consolidated financial statements.
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MICRO LINEAR CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 SIX MONTHS ENDEDJUNE 30,2005
    
    2004Net cash used in operating activities
    
    $
    (2,622
    )
    
    $
    (4,267
    )Cash flows from investing activities:Purchase of capital equipment
    
    
    (221
    )
    
    
    (354
    )Purchases of short-term investments
    
    
    (4,192
    )
    
    
    (4,917
    )Proceeds from sale and maturity of short-term investments
    
    
    3,681
    
    
    
    9,198Net cash (used in) provided by investing activities
    
    
    (732
    )
    
    
    3,927Cash flows from financing activities:Principal payments on debt
    
    
    
    
    
    
    (139
    )Proceeds from issuance of common stock
    
    
    1,005
    
    
    
    465Net cash provided by financing activities
    
    
    1,005
    
    
    
    326Net decrease in cash and cash equivalents
    
    
    (2,349
    )
    
    
    (14
    )Cash and cash equivalents at beginning of period
    
    
    10,920
    
    
    
    8,703Cash and cash equivalents at end of period
    
    $
    8,571
    
    
    $
    8,689
 See accompanying notes to unaudited condensed consolidated financial statements.
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MICRO LINEAR CORPORATION
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Organization and Summary of Significant Accounting Policies
 Organization
  Fiscal Year
  Principles of Consolidation
   Basis of Presentation
   Use of Estimates
  Net Loss Per Share
  6




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Stock-Based Compensation
   Pro Forma Net Loss
  Employee StockPurchase Plan
    
    Stock Option PlansThree Months Ended
    
    Six Months Ended
    
    Three Months Ended
    
    Six Months EndedJune 30
    
    June 30
    
    June 30
    
    June 302005
    
    2004
    
    2005
    
    2004
    
    2005
    
    2004
    
    2005
    
    2004Expected life (in
years)
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    2.93
    
    
    
    2.7
    
    
    
    2.6
    
    
    
    2.7Risk-free interest
rate
    
    
    2.88
    %
    
    
    1.03
    %
    
    
    2.88
    %
    
    
    1.03
    %
    
    
    3.62
    %
    
    
    2.23
    %
    
    
    3.60
    %
    
    
    2.08
    %Volatility
    
    
    51
    %
    
    
    49
    %
    
    
    51
    %
    
    
    49
    %
    
    
    44
    %
    
    
    66
    %
    
    
    46
    %
    
    
    59
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  7




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Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(In thousands, except
    
    (In thousands, exceptper share amounts)
    
    per share amounts)Net loss, as reported
    
    $
    (850
    )
    
    $
    (817
    )
    
    $
    (2,362
    )
    
    $
    (3,536
    )Add: Stock-based employee
compensation expense
reported in net loss, net
of related tax effects
    
    
    88
    
    
    
    
    
    
    
    88
    
    
    
    Deduct: Stock-based
compensation expense
determined under fair value
based method for employee
awards, net of related tax
effects
    
    
    (357
    )
    
    
    (255
    )
    
    
    (581
    )
    
    
    (561
    )Pro forma net loss
    
    $
    (1,119
    )
    
    $
    (1,072
    )
    
    $
    (2,855
    )
    
    $
    (4,097
    )Pro forma net loss per share:Basic and diluted
    
    $
    (0.09
    )
    
    $
    (0.09
    )
    
    $
    (0.23
    )
    
    $
    (0.33
    )Reported net loss per share:Basic and diluted
    
    $
    (0.07
    )
    
    $
    (0.07
    )
    
    $
    (0.19
    )
    
    $
    (0.29
    )
 2. Financial Statement Details
 Inventories consist of the following (in thousands):
 June 30,
    
    December 31,2005
    
    2004Work-in-process
    
    $
    1,456
    
    
    $
    677Finished goods
    
    
    997
    
    
    
    954Inventory held by distributors
    
    
    66
    
    
    
    139Total inventories
    
    $
    2,519
    
    
    $
    1,770
 Provision for Income Taxes
  Comprehensive Loss
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net loss
    
    $
    (850
    )
    
    $
    (817
    )
    
    $
    (2,362
    )
    
    $
    (3,536
    )Accumulated other comprehensive gain (loss):Unrealized gain (loss) on marketable securities, net
    
    
    2
    
    
    
    (14
    )
    
    
    3
    
    
    
    (13
    )Comprehensive loss
    
    $
    (848
    )
    
    $
    (831
    )
    
    $
    (2,359
    )
    
    $
    (3,549
    )
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3. Recent Accounting Pronouncements
     9




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4. Operations by Geographic Regions
 The following is a summary of revenue by geographical regions (in thousands):
 Three Months Ended
    
    Sis Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net revenue:United States
    
    $
    192
    
    
    $
    229
    
    
    $
    456
    
    
    $
    481Japan
    
    
    2,799
    
    
    
    4,094
    
    
    
    5,000
    
    
    
    5,940Hong Kong
    
    
    2,126
    
    
    
    1,291
    
    
    
    3,420
    
    
    
    2,018Other Asia
    
    
    530
    
    
    
    269
    
    
    
    587
    
    
    
    521Europe
    
    
    317
    
    
    
    625
    
    
    
    661
    
    
    
    1,388Other
    
    
    
    
    
    
    
    
    
    
    86
    
    
    
    Consolidated
    
    $
    5,964
    
    
    $
    6,508
    
    
    $
    10,210
    
    
    $
    10,348
 5. Restructuring Charges
  ($inthousands)ExcessFacilitiesBalance, December 31, 2004
    
    $
    149Cash payments
    
    
    (30
    )Balance, June 30, 2005
    
    $
    119
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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 anticipation of a strong third quarter, our expectation
regarding trade variables and accrued liability balances, our expectation that our capital
expenditures will stay near second 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
  11




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Overview
    12




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Results of Operations
 Three Months and Six Months Ended June 30, 2005 Compared with Three Months and Six Months Ended
June 30, 2004
  For the Three Months Ended June 302005
    
    2004($ in thousands)% of Net
    
    
    
    
    
    % of NetRevenue
    
    
    
    
    
    RevenueNet revenueWireless
    
    $
    4,997
    
    
    
    83.8
    %
    
    $
    5,023
    
    
    
    77.2
    %Networking
    
    
    967
    
    
    
    16.2
    
    
    
    1,485
    
    
    
    22.8Total net revenue
    
    
    5,964
    
    
    
    100.0
    
    
    
    6,508
    
    
    
    100.0Cost of goods sold
    
    
    2,330
    
    
    
    39.1
    
    
    
    2,683
    
    
    
    41.2Gross margin
    
    
    3,634
    
    
    
    60.9
    
    
    
    3,825
    
    
    
    58.8Operating expenses:Research and development
    
    
    2,467
    
    
    
    41.3
    
    
    
    2,612
    
    
    
    40.1Selling, general and administrative
    
    
    2,112
    
    
    
    35.4
    
    
    
    1,856
    
    
    
    28.5Restructuring charges
    
    
    
    
    
    
    
    
    
    
    166
    
    
    
    2.6Total operating expenses
    
    
    4,579
    
    
    
    76.7
    
    
    
    4,634
    
    
    
    71.2Loss from operations
    
    
    (945
    )
    
    
    (15.8
    )
    
    
    (809
    )
    
    
    (12.4
    )Interest and other income
    
    
    103
    
    
    
    1.7
    
    
    
    47
    
    
    
    0.7Interest and other expense
    
    
    (2
    )
    
    
    (0.1
    )
    
    
    (49
    )
    
    
    (0.8
    )Loss before income taxes
    
    
    (844
    )
    
    
    (14.2
    )
    
    
    (811
    )
    
    
    (12.5
    )Provision for taxes
    
    
    6
    
    
    
    0.1
    
    
    
    6
    
    
    
    0.1Net loss
    
    $
    (850
    )
    
    
    (14.3
    )%
    
    $
    (817
    )
    
    
    (12.6
    )%
 For the Six Months Ended June 302005
    
    2004($ in thousands)% of Net
    
    
    
    
    
    % of NetRevenue
    
    
    
    
    
    RevenueNet revenueWireless
    
    $
    8,142
    
    
    
    79.7
    %
    
    $
    7,172
    
    
    
    69.3
    %Networking
    
    
    2,068
    
    
    
    20.3
    
    
    
    3,176
    
    
    
    30.7Total net revenue
    
    
    10,210
    
    
    
    100.0
    
    
    
    10,348
    
    
    
    100.0Cost of goods sold
    
    
    4,373
    
    
    
    42.8
    
    
    
    4,776
    
    
    
    46.2Gross margin
    
    
    5,837
    
    
    
    57.2
    
    
    
    5,572
    
    
    
    53.8Operating expenses:Research and development
    
    
    4,663
    
    
    
    45.7
    
    
    
    5,253
    
    
    
    50.8Selling, general and administrative
    
    
    3,718
    
    
    
    36.4
    
    
    
    3,702
    
    
    
    35.8Restructuring
    
    
    
    
    
    
    
    
    
    
    166
    
    
    
    1.6Total operating expenses
    
    
    8,381
    
    
    
    82.1
    
    
    
    9,121
    
    
    
    88.2Loss from operations
    
    
    (2,544
    )
    
    
    (24.9
    )
    
    
    (3,549
    )
    
    
    (34.4
    )Interest and other income
    
    
    196
    
    
    
    2.0
    
    
    
    109
    
    
    
    1.1Interest and other expense
    
    
    (7
    )
    
    
    (0.1
    )
    
    
    (86
    )
    
    
    (0.8
    )Loss before income taxes
    
    
    (2,355
    )
    
    
    (23.0
    )
    
    
    (3,526
    )
    
    
    (34.1
    )Provision for taxes
    
    
    7
    
    
    
    0.1
    
    
    
    10
    
    
    
    0.1Net loss
    
    $
    (2,362
    )
    
    
    (23.1
    )%
    
    $
    (3,536
    )
    
    
    (34.2
    )%
 13




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Net Revenue
 Three months ended
    
    % Change
    
    Three months ended
    
    Six months ended
    
    % Change
    
    Six months endedJune 30, 2005
    
    2004 to 2005
    
    June 30, 2004
    
    June 30, 2005
    
    2004 to 2005
    
    June 30, 2004($ in thousands)
    
    ($ in thousands)Wireless
    
    $
    4,997
    
    
    
    (0.5
    )%
    
    $
    5,023
    
    
    $
    8,142
    
    
    
    13.5
    %
    
    $
    7,172Networking
    
    
    967
    
    
    
    (34.9
    )%
    
    
    1,485
    
    
    
    2,068
    
    
    
    (34.9
    )%
    
    
    3,176Total
    
    $
    5,964
    
    
    
    (8.4
    )%
    
    $
    6,508
    
    
    $
    10,210
    
    
    
    (1.3
    )%
    
    $
    10,348
     Gross Margin
 Three months ended
    
    % Change
    
    Three months ended
    
    Six months ended
    
    % Change
    
    Six months endedJune 30, 2005
    
    2004 to 2005
    
    June 30, 2004
    
    June 30, 2005
    
    2004 to 2005
    
    June 30, 2004($ in thousands)
    
    ($ in thousands)Gross Margin
    
    $
    3,634
    
    
    
    (5.0
    )%
    
    $
    3,825
    
    
    $
    5,837
    
    
    
    4.8
    %
    
    $
    5,572%
    
    
    61
    %
    
    
    
    
    
    
    59
    %
    
    
    57
    %
    
    
    
    
    
    
    54
    %
   14




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Research and Development Expenses (R&D)
 Three months ended
    
    % Change
    
    Three months ended
    
    Six months ended
    
    % Change
    
    Six months endedJune 30, 2005
    
    2004 to 2005
    
    June 30, 2004
    
    June 30, 2005
    
    2004 to 2005
    
    June 30, 2004($ in thousands)
    
    ($ in thousands)R&D
    
    $
    2,467
    
    
    
    (5.6
    )%
    
    $
    2,612
    
    
    $
    4,663
    
    
    
    (11.2
    )%
    
    $
    5,253
      15




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##### Table of Contents



Selling, General and Administrative Expenses (SG&A)
 Three months ended
    
    % Change
    
    Three months ended
    
    Six months ended
    
    % Change
    
    Six months endedJune 30, 2005
    
    2004 to 2005
    
    June 30, 2004
    
    June 30, 2005
    
    2004 to 2005
    
    June 30, 2004($ in thousands)
    
    ($ in thousands)SG&A
    
    $
    2,112
    
    
    
    13.8
    %
    
    $
    1,856
    
    
    $
    3,718
    
    
    
    0.4
    %
    
    $
    3,702
   Interest and Other Income and Interest and Other Expense
 Three months ended
    
    % Change
    
    Three months ended
    
    Six months ended
    
    % Change
    
    Six months endedJune 30, 2005
    
    2004 to 2005
    
    June 30, 2004
    
    June 30, 2005
    
    2004 to 2005
    
    June 30, 2004($ in thousands)
    

($ in thousands)Interest and other
income
    
    $
    103
    
    
    
    119
    %
    
    $
    47
    
    
    $
    196
    
    
    
    79.8
    %
    
    $
    109Interest and other
expense
    
    $
    (2
    )
    
    
    95.9
    %
    
    $
    (49
    )
    
    $
    (7
    )
    
    
    91.9
    %
    
    $
    (86
    )
  Provision for Income Taxes
 Three months ended
    
    % Change
    
    Three months ended
    
    Six months ended
    
    % Change
    
    Six months endedJune 30, 2005
    
    2004 to 2005
    
    June 30, 2004
    
    June 30, 2005
    
    2004 to 2005
    
    June 30, 2004($ in thousands)
    

($ in thousands)Provision for
income taxes
    
    $
    6
    
    
    
    0.0
    %
    
    $
    6
    
    
    $
    7
    
    
    
    30.0
    %
    
    $
    10
  16




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##### Table of Contents



Liquidity and Capital Resources
 For the Six Months EndedJune 30,2005
    
    2004(in thousands)Net cash used in operating activities
    
    $
    (2,622
    )
    
    $
    (4,267
    )Net cash (used in) provided by investing activities
    
    
    (732
    )
    
    
    3,927Net cash provided by financing activities
    
    
    1,005
    
    
    
    326Net decrease in cash and cash equivalents
    
    $
    (2,349
    )
    
    $
    (14
    )
      17




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##### Table of Contents



Recent Accounting Pronouncements
     Factors That May Affect Future Operating Results
  18




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##### Table of Contents



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.
  
    
    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;
    
    market acceptance of our new 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.
  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.
  19




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##### Table of Contents



The market for wireless applications is characterized by rapid technological change. Our future
success depends on our ability to respond to these changes.
  We need to develop and introduce new and enhanced products in a timely manner to successfully
compete in our industry.
  
    
    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.
  
    
    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.
 20




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##### Table of Contents



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.
   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 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.
   21




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##### Table of Contents



Our customer base is concentrated. The loss of one or more key customers or distributors would harm
our business.
   We depend on international sales and are subject to the risks associated with international
operations, which may negatively affect our business.
  
    
    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
    
    political and economic instability, including wars, acts of terrorism, political unrest,
boycotts and any related conflicts or similar events worldwide.
  22




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##### Table of Contents



Selling prices for wireless products typically decrease, which could lead to lower operating
results.
  
    
    rapidly changing technologies;
    
    price-performance enhancements;
    
    product introductions by competitors;
    
    price pressure from significant customers; and
    
    product maturity and obsolescence.
  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.
  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.
  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.
  23




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##### Table of Contents



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.
         24




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##### Table of Contents



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.
   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 success depends on our ability to protect our intellectual property and proprietary rights.
     25




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##### Table of Contents



We have in the past, and may in the future, be parties to legal proceedings that could have a
negative financial impact on us.
  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.
  
    
    variations in our actual or anticipated operating results;
    
    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.
  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.
   26




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##### Table of Contents



Recently enacted regulatory changes may cause us to incur increased costs.
  Changes to financial accounting standards may affect our results of operations and cause us to
change our business practices.
  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.
  27




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Interest Rate Risk
   Foreign Currency Exchange Risk
  
 Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures.
  Changes in internal control over financial reporting.
 
 PART II. OTHER INFORMATION
 
 Item 6. Exhibits
 ExhibitNumber
    
    Description of Document3(ii)
    
    Amended and Restated Bylaws of the Registrant10.1
    
    Amendment to 1994 Director Option Plan31.1
    
    Rule 13a-14(a) Certification by the Chief Executive Officer31.2
    
    Rule 13a-14(a) Certification by the Chief Financial Officer32.1*
    
    Section 1350 Certification by the Chief Executive Officer32.2*
    
    Section 1350 Certification by the Chief Financial Officer.
 
 *
    
    In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and
34-47986, Final Rule: Managements Reports on Internal Control Over Financial Reporting and
Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in
Exhibit 32.1 and Exhibit 32.2 are deemed to accompany this Form 10-Q and will not be deemed filed
for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be
incorporated by reference into any filing under the Securities Act or the Exchange Act, except to
the extent that the registrant specifically incorporates it by reference. 28




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##### Table of Contents



SIGNATURES
  MICRO LINEAR CORPORATIONDate: August 17, 2005
    By
    
    /s/ TIMOTHY A. RICHARDSONTimothy A. RichardsonPresident and Chief Executive Officer
(Principal Executive Officer)Date: August 17, 2005
    By
    
    /s/ MICHAEL W. SCHRADLEMichael W. SchradleChief Financial Officer
(Principal Financial and Accounting Officer) 29




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Description of Document3(ii)
    
    Amended and Restated Bylaws of the Registrant10.1
    
    Amendment to 1994 Director Option Plan31.1
    
    Rule 13a-14(a) Certification by the Chief Executive Officer31.2
    
    Rule 13a-14(a) Certification by the Chief Financial Officer32.1*
    
    Section 1350 Certification by the Chief Executive Officer32.2*
    
    Section 1350 Certification by the Chief Financial Officer.
 
 *
    
    In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and
34-47986, Final Rule: Managements Reports on Internal Control Over Financial Reporting and
Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in
Exhibit 32.1 and Exhibit 32.2 are deemed to accompany this Form 10-Q and will not be deemed filed
for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be
incorporated by reference into any filing under the Securities Act or the Exchange Act, except to
the extent that the registrant specifically incorporates it by reference.