<PAGE>   1

================================================================================

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

                            ------------------------

                                    FORM 10-Q

(MARK ONE)

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

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

                                       OR

[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934.

           FOR THE TRANSITION PERIOD FROM ___________ TO ___________.
                         COMMISSION FILE NUMBER 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 NUMBER)

              2092 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
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 [ ]

        The number of shares of the Registrant's Common Stock outstanding as of
May 15, 2001, net of shares held in treasury, was 11,894,010.

================================================================================

                                                                          Page 1
<PAGE>   2

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                              PAGE
<S>                                                                                           <C>
PART I.       FINANCIAL INFORMATION
Item 1.       Financial Statements
              Unaudited Consolidated Condensed Balance Sheets at March 31, 2001, and at
              December 31, 2000............................................................    3

              Unaudited Consolidated Condensed Statements of Operations for the three
              months ended March 31, 2001 and 2000.........................................    4

              Unaudited Consolidated Condensed Statements of Cash Flows for the three
              months ended March 31, 2001 and 2000.........................................    5

              Notes to Unaudited Consolidated Condensed Financial Statements...............    6

Item 2.       Management's Discussion and Analysis of Financial Condition and Results of
              Operations...................................................................    9

Item 3.       Quantitative and Qualitative Disclosures about Market Risk...................   20

PART II.      OTHER INFORMATION

Item 1.       Legal Proceedings............................................................   20

Item 6.       Exhibits and Reports on Form 8-K.............................................   21

SIGNATURES.................................................................................   21
</TABLE>



                                                                          Page 2
<PAGE>   3

                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

      The unaudited consolidated condensed financial information for the quarter
ended March 31, 2001 of Micro Linear Corporation ("Micro Linear" or the
"Company") and comparative unaudited consolidated financial information for the
corresponding period of the prior year, together with the balance sheet as of
December 31, 2000, are attached hereto and incorporated herein.

                            MICRO LINEAR CORPORATION
                 UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                 MARCH 31,           DECEMBER 31,
                                                                                   2001                 2000
                                                                                 ---------           ------------
<S>                                                                              <C>                 <C>
ASSETS
Current assets:
  Cash and cash equivalents ..........................................            $ 15,108             $ 17,664
  Short-term investments .............................................              15,136               18,100
  Accounts receivable, less allowance for doubtful accounts of
     $345 at March 31, 2001 and $406 at December 31, 2000 ............               1,313                  783
  Inventories ........................................................               2,450                1,406
  Other current assets ...............................................               8,788               11,477
                                                                                  --------             --------
     Total current assets ............................................              42,795               49,430
Property, plant and equipment, net ...................................              10,799               10,507
Other assets .........................................................               2,148                2,643
                                                                                  --------             --------
          Total assets ...............................................            $ 55,742             $ 62,580
                                                                                  ========             ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable ...................................................            $  1,515             $  3,021
  Deferred income on shipments to distributors .......................               2,313                2,718
  Other accrued liabilities ..........................................               3,412                5,355
  Current portion of long-term debt ..................................                 226                  226
                                                                                  --------             --------
     Total current liabilities .......................................               7,466               11,320
Long-term debt .......................................................               2,492                2,547
Other liabilities ....................................................                 705                  705
                                                                                  --------             --------
     Total liabilities ...............................................              10,663               14,572
Stockholders' equity:
  Preferred stock ....................................................                  --                   --
  Common stock .......................................................                  15                   15
  Additional paid-in capital .........................................              59,317               59,125
  Notes receivable from stockholders .................................                 (16)                 (63)
  Retained earnings ..................................................               5,952                9,159
  Accumulated other comprehensive income .............................                  44                    5
  Treasury Stock .....................................................             (20,233)             (20,233)
                                                                                  --------             --------
     Total stockholders' equity ......................................              45,079               48,008
                                                                                  --------             --------
          Total liabilities and stockholders' equity .................            $ 55,742             $ 62,580
                                                                                  ========             ========
</TABLE>


SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.



                                                                          Page 3
<PAGE>   4

                            MICRO LINEAR CORPORATION
            UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                                   THREE MONTHS ENDED MARCH 31,
                                                                                  -----------------------------
                                                                                    2001                 2000
                                                                                  --------             --------
<S>                                                                               <C>                  <C>
Net revenues .........................................................            $  3,423             $ 11,381
Cost of revenues .....................................................               1,462                5,367
                                                                                  --------             --------
   Gross profit ......................................................               1,961                6,014
                                                                                  --------             --------
Operating expenses:
   Research and development ..........................................               3,496                3,276
   Selling, general and administrative ...............................               2,354                2,606
                                                                                  --------             --------
                                                                                     5,850                5,882
                                                                                  --------             --------
   (Loss) income from operations .....................................              (3,889)                 132
Interest and other income, net .......................................                 865                  387
Interest expense .....................................................                (183)                 (56)
                                                                                  --------             --------
   (Loss) income before taxes ........................................              (3,207)                 463
Provision for income taxes ...........................................                  --                  162
                                                                                  --------             --------
   Net (loss) income .................................................            $ (3,207)            $    301
                                                                                  ========             ========

Basic:
   Net (loss) income per share .......................................            $  (0.27)            $   0.03
                                                                                  ========             ========
   Weighted average number of shares used in per share computation ...              11,894               11,218
                                                                                  ========             ========
Diluted:
   Net (loss) income per share .......................................            $  (0.27)            $   0.03
                                                                                  ========             ========
   Weighted average number of shares used in per share computation ...              11,894               11,998
                                                                                  ========             ========
</TABLE>


SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.



                                                                          Page 4
<PAGE>   5

                            MICRO LINEAR CORPORATION
            UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED MARCH 31,
                                                                        -----------------------------
                                                                          2001                 2000
                                                                        --------             --------
<S>                                                                     <C>                  <C>
Net cash (used in) provided by operating activities ........            $ (5,203)            $    789

Investing activities:
   Capital expenditures ....................................                (804)              (1,729)
   Proceeds from notes receivable ..........................                 542                   --
   Purchases of short-term investments .....................              (6,466)              (5,510)
   Sales of short-term investments .........................               9,430               10,857
                                                                        --------             --------
     Net cash provided by investing activities .............               2,702                3,618

Financing activities:
   Principal payments on debt ..............................                 (55)                 (51)
   Proceeds from issuance of common stock ..................                  --                  938
   Acquisition of treasury stock ...........................                  --                   --
                                                                        --------             --------
     Net cash (used in) provided by financing activities ...
                                                                             (55)                 887
                                                                        --------             --------
   Net (decrease) increase in cash and cash equivalents ....              (2,556)               5,294
   Cash and cash equivalents at beginning of period ........              17,664                7,381
                                                                        --------             --------
      Cash and cash equivalents at end of period ...........            $ 15,108             $ 12,675
                                                                        ========             ========
</TABLE>


SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.



                                                                          Page 5
<PAGE>   6

                            MICRO LINEAR CORPORATION
         NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


1)    Micro Linear Corporation (the "Company") supplies integrated circuits for
a number of applications in the communications market. These products are used
by customers to create advanced solutions to high speed networks supporting
broadband digital voice, data, or video transmission in the enterprise, small
office/home office (SOHO), and home markets. The Company sells its products to
original equipment manufacturers (OEMs) of data communication,
telecommunication, industrial, and consumer products, primarily in North
America, Asia and Europe. The Company is headquartered in San Jose, California
and has two research centers, one in Salt Lake City, Utah and the other in the
United Kingdom. The Company operates in a single industry segment.

2)    The financial information furnished herein is unaudited, but in the
opinion of management, the Company includes all adjustments (all of which are
normal, recurring adjustments) necessary for a fair presentation of the results
of operations for the periods indicated. The results of operations for the first
quarter of the current fiscal year are not necessarily indicative of the results
to be expected for the full year.

      The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q, and therefore do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. The unaudited consolidated condensed
financial statements and notes should be read in conjunction with the
consolidated financial statements and notes thereto in the Annual Report on Form
10-K for the year ended December 31, 2000.

3)    For financial reporting purposes, the Company's fiscal year ends on the
Sunday closest to December 31. Fiscal year 2000 ended on December 31, 2000. The
Company's fiscal quarters are 13 weeks in length. The first quarter of 2001
ended on April 1, 2001. However, for presentation purposes, the accompanying
unaudited consolidated condensed financial statements refer to the quarters'
calendar month end for convenience.

      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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

4)    During the three months ended March 31, 2001, three customers accounted
for 10%, 14% and 25%, respectively, of net revenues. During the three months
ended March 31, 2000, one customer accounted for 23% of total sales and no
other customer accounted for more than 10% of total sales.

5)    Supplemental Financial Information

      Inventories used in the computation of cost of goods sold consist of the
following (in thousands):

<TABLE>
<CAPTION>
                                                   MARCH 31,       DECEMBER 31,
                                                     2001              2000
                                                   ---------       ------------
<S>                                                <C>             <C>
Raw materials ..........................            $    0            $   25
Work-in-process ........................               845               710
Finished goods .........................             1,605               671
                                                    ------            ------
   Total inventories ...................            $2,450            $1,406
                                                    ======            ======
</TABLE>

      Property, plant and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                             MARCH 31,        DECEMBER 31,
                                                               2001              2000
                                                             ---------        ------------
<S>                                                          <C>              <C>
Land .............................................            $ 2,850            $ 2,850
Buildings and improvements .......................              5,445              5,445
Machinery and equipment ..........................             13,060             12,256
Assets held for sale .............................              3,414              3,414
                                                              -------            -------
                                                               24,769             23,965
Accumulated depreciation and amortization ........             13,970             13,458
                                                              -------            -------
   Net property, plant and equipment .............            $10,799            $10,507
                                                              =======            =======
</TABLE>



                                                                          Page 6
<PAGE>   7


6)    Cash payments for income taxes and interest expense totaled $0 and
$35,000, respectively, for the three months ended March 31, 2001. Cash payments
for income taxes and interest expense totaled $3,000 and $56,000, respectively,
for the three months ended March 31, 2000.

7)    The Company's provision for taxes on income is based on estimates of the
levels of income and certain deductions expected for the year, which may be
subject to change. The Company's effective tax rate for the first quarter of
2001 was 0%, as compared to a rate of 35% for the same period in 2000. The 0%
effective rate for 2001 is due primarily to the recording of a valuation
allowance related to recent changes in the business, increases in expected
future development costs and the Company's inability to carryback the current
losses against taxable income in prior tax years.

8)    From January 1996 through the end of the first quarter of 1999, the
Company's Board of Directors had approved the repurchase of an aggregate of
$20.3 million of the Company's Common Stock. Through March 31, 1999, the Company
had repurchased 2,696,900 shares for a total cost of $20.2 million. The
Company's common stock buy-back program was terminated at the end of the first
quarter of 1999.

      Comprehensive income (loss) is defined as the change in equity (net
assets) of a business enterprise during the period from transactions and other
events and circumstances from non-owner sources. Accumulated other comprehensive
consists of the change in the unrealized income (loss) on investments. Total
comprehensive income (loss) of the Company for the quarters ended March 31, 2001
and 2000 was $39,000 and $(41,000), respectively.

      Basic earnings per share have been computed based upon the weighted
average number of common shares outstanding during the respective periods.
Diluted earnings per share have been computed, when the result is dilutive,
using the treasury stock method for stock options outstanding.

      Earnings per share for the quarters ended March 31, 2001 and 2000 were
calculated as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                       Three Months Ended March 31,
                                -------------------------------------------------------------------------
                                               2001                                  2000
                                ----------------------------------    -----------------------------------
                                                             Per-                                   Per-
                                    Loss         Shares     Share       Income       Shares        Share
                                (Numerator)  (Denominator)  Amount    (Numerator)  (Denominator)   Amount
                                -----------  -------------  ------    -----------  -------------   ------
<S>                             <C>          <C>           <C>        <C>          <C>             <C>
Basic Income (Loss)
 Per Share:
Net income (loss)
 available to common
  stockholders                    $(3,207)       11,894      $(0.27)    $   301        11,218      $0.03
                                  =======       =======      ======     =======       =======      =====

Effect of dilutive                                                                        780
  securities:
  Stock options

Diluted Income (Loss) Per
 Share:
 Net income (loss)
   available to common
   stockholders assuming
   dilution                       $(3,207)       11,894      $(0.27)    $   301        11,998      $0.03
                                  =======       =======      ======     =======       =======      =====
</TABLE>


      Options to purchase 3,566,853 shares of common stock were outstanding as
of March 31, 2001, but were not reflected in the computations of diluted
earnings per share for the three months ended March 31, 2001 because the Company
recorded a net loss in the period and to do so would have been anti-dilutive.



                                                                          Page 7
<PAGE>   8

(9)   During the three-month period ending June 30, 2000, stock options were
granted with an exercise price of $2.06 per share, which was below the fair
market value of the common stock at the date of grant. Deferred compensation of
approximately $1.5 million was recorded in accordance with APB no. 25 and is
being amortized over the related vesting period. Compensation expense of
$187,500 was recorded for the three months ended March 31, 2001.

(10)  In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, ("SFAS 133"), "Accounting for Derivatives and Hedging Activities" which
requires that all derivative financial instruments be recorded on the balance
sheet at their fair market value. Changes in the fair value of derivatives are
recorded each period in current earnings (loss) or comprehensive income (loss),
depending on whether a derivative is designed as part of a hedge transaction,
and if so, the type of hedge transaction. Substantially all of the Company's
revenues and the majority of its costs are denominated in U.S. dollars, and to
date, the Company has not entered into any derivative contracts. The Company
adopted SFAS 133 in the first quarter of fiscal 2001 and believes that adoption
will not have a significant effect on its consolidated results of operations or
financial position.

      In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements,"
("SAB 101") which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. The adoption of SAB 101 did not
have an impact on any of the periods presented.

      In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation - an Interpretation of APB 25"
("FIN 44"). This interpretation clarifies the definition of an employee for
purposes of applying Opinion 25; the criteria for determining whether a plan
qualifies as a noncompensatory plan; the accounting consequence of various
modifications to the terms of a previously fixed stock option plan or award; and
the accounting for an exchange of stock compensation awards in business
combinations. The adoption of FIN 44 did not have a material effect on the
financial statements.

(11)  A discussion of certain pending legal proceedings is included in Item 1
of Part II of the Company's Form 10-Q for the fiscal quarter ended March 31,
2001. No assurance can be given that these matters will be resolved without the
Company becoming obligated to make payments or to pay other costs to the
opposing party, with the potential for having a material adverse effect on the
Company's financial position or its results of operations.

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

<TABLE>
<CAPTION>
                                                                                  THREE MONTHS ENDED
                                                                         ------------------------------------
                                                                             MARCH 31,          DECEMBER 31,
                                                                               2001                2000
                                                                         ----------------    ----------------
<S>                                                                      <C>                 <C>
Net revenues:
     United States...................................................          $1,371             $1,710
     Asia............................................................           1,373              1,946
     Europe..........................................................             679                610
     Other...........................................................            ----               ----
                                                                         ----------------    ----------------
                                                                               $3,423             $4,266
                                                                         ================    ================

Income (loss) from operations:
     United States...................................................         $(3,498)           $(3,405)
     Asia............................................................            ----               ----
     Europe..........................................................            (391)              (417)
     Other...........................................................            ----               ----
                                                                         ----------------    ----------------
                                                                              $(3,889)           $(3,822)
                                                                         ================    ================

Identifiable assets:
     United States...................................................         $55,409            $61,452
     Asia............................................................            ----               ----
     Europe..........................................................             333                424
     Other...........................................................            ----               ----
                                                                         ----------------    ----------------
                                                                              $55,742            $61,876
                                                                         ================    ================

Capital expenditures:
     United States...................................................            $799               $259
     Asia............................................................            ----               ----
     Europe..........................................................               5               ----
     Other...........................................................            ----               ----
                                                                         ----------------    ----------------
                                                                                 $804               $259
                                                                         ================    ================

Depreciation and amortization:
     United States...................................................            $483               $723
     Asia............................................................            ----               ----
     Europe..........................................................              29                 28
     Other...........................................................            ----               ----
                                                                         ----------------    ----------------
                                                                                 $512               $751
                                                                         ================    ================
</TABLE>




                                                                          Page 8
<PAGE>   9

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

         Some of the statements in this report or incorporated by reference are
forward-looking, including, without limitation, the statements under the
captions "Management's Discussion and Analysis of Financial Condition and
Results of Operations". These statements include those that contain words like
"may," "will," "could," "should," "project," "believe," "anticipate," "expect,"
"plan," "estimate," "forecast," "potential," "intend," "continue" and variations
of these words or comparable words including any statements about a future time,
result or other circumstance. In addition, all of the non-historical information
herein is forward-looking, include any statement about a future time, result or
other circumstance. Forward-looking statements are not a guarantee of future
performance and involve risks and uncertainties including any statement about a
future time, result or other circumstance. Actual results may differ
substantially from the results that the forward-looking statements suggest for
various reasons. These forward-looking statements are made only as of the date
of this report. Micro Linear does not undertake to update or revise the
forward-looking statements, whether as a result of new information, future
events or otherwise.

         The forward-looking statements included in this report are based on,
among other items, current assumptions that Micro Linear will be able to meet
its current operating cash and debt service requirements, that Micro Linear will
be able to successfully resolve disputes and other business matters as
anticipated, that competitive conditions within the semiconductor, integrated
circuit and custom diode assembly industries will not affect the Company
materially or adversely, that Micro Linear will retain existing key personnel,
that Micro Linear's forecasts will reasonably anticipate market demand for its
products, and that there will be no other material adverse change in its
operations or business. Other factors that could cause results to vary
materially from current expectations are referred to elsewhere in this report.
Assumptions relating to the foregoing involve judgments that are difficult to
make and future circumstances that are difficult to predict accurately or
correctly. Forecasting and other management decisions are subjective in many
respects and thus susceptible to interpretations and periodic revisions based on
actual experience and business developments, the impact of which may cause Micro
Linear to alter its internal forecasts, which may in turn affect results or
expectations. Micro Linear Corporation does not undertake to announce publicly
these changes that may occur in our expectations after the periods presented
herein. Readers are cautioned against giving undue weight to any of the
forward-looking statements.

         Adverse changes to our results could result from any number of factors,
including, for example, fluctuations in economic conditions, potential effects
of inflation, lack of earnings visibility, dependence upon certain customers or
markets, dependence upon suppliers, future capital needs, rapid technological
changes, difficulties in integrating acquired businesses, ability to realize
cost savings or productivity gains, potential cost increases, dependence on key
personnel, difficulties regarding hiring and retaining qualified personnel in a
competitive labor market, risks of doing business in international markets, and
problems of third parties.

         The inclusion of forward-looking information should not be regarded as
a representation by Micro Linear or any other person that its objectives or
plans will be achieved. Additional factors that could cause results to vary
materially from current expectations are discussed under the heading "Important
factors related to forward-looking statements and associated risks" in the
annual report in the Form 10-K as filed with the Securities and Exchange
Commission in December 2000, and elsewhere in that Form 10-K, including but not
limited to, under the headings, "Legal Proceedings," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and the notes to
the financial statements.

                                    OVERVIEW

   Micro Linear was founded in 1983. Until 2000, the Company was a supplier of
advanced analog and mixed signal integrated circuits to the computer,
communication, telecommunications, consumer and industrial markets. The company
supplied integrated circuits for a variety of applications, including local area
networks, video, telecommunications, power and battery management, motor
control, and data acquisition. The Company utilized a number of different
Bipolar, BiCMOS, and CMOS silicon process technologies in the design of these
products and a number of different silicon foundries for their manufacture.

   The Company divested its manufacturing test operation and its
non-communication product lines during 2000 and focused its engineering and
product development on new communications products, in particular, broadband
wireless integrated circuits. Using proprietary technologies together with
advanced circuit design methodologies, the Company is developing highly
integrated, high performance RF transceivers, baseband processors, and embedded
software for a number of emerging and established broadband wireless market
applications. The Company is currently a volume supplier of both 900MHz and
2.4GHz RF transceivers to the digital cordless telephone segment of the
communications market, and expects the revenue contribution from wireless
products to continue to increase as a percentage of total revenues.

RESULTS OF OPERATIONS

   Net Revenues



                                                                          Page 9

<PAGE>   10
      Net revenues for the first quarter of 2001 were $3.4 million compared to
$11.4 million for the first quarter of 2000. The decrease in net revenue from
the comparable first quarter of 2000 was due to the loss of revenue from the
Company's power management, bus interface, and video product lines, which were
sold to Fairchild Semiconductor Corporation in September, 2000.

   Gross Margin

      Gross margin for the first quarter of 2001 was $2.0 million, down from
$6.0 million in the first quarter of 2000. As a percentage of sales, gross
margin increased to 57% of net revenue from 53% in the first quarter of last
year. The increase in the gross margin was due to lower operations and
manufacturing overhead spending, combined with high margins from the Company's
networking product sales.


   Research and Development Expenses

         Research and development expenses include costs associated with new
product definition, design, development, test development, and prototype
assembly costs. The Company expenses the cost of prototype wafers and new
production mask sets related to new products as research and development costs
until new designs are fully characterized and support published data sheets and
reliability tests. Research and development expenses such as mask and silicon
costs can fluctuate from quarter to quarter due to the timing of the product
design process.

         Research and development expenses were $3.5 million for the first
quarter of 2001, compared to $3.3 million for the first quarter of 2000. The
increase in research and development in the first quarter of 2001 compared to
the first quarter of 2000 is primarily attributable to increased engineering
headcount.

   Selling, General and Administrative Expenses

         Selling, general and administrative expenses were $2.4 million for the
first quarter of 2001, compared to $2.6 million in the first quarter of 2000.
The decrease from the first quarter of 2000 was due to lower sales commission
expense due to the decrease in revenue.

   Interest and Other Income and Interest Expense

         Interest and other income was $0.9 million for the first quarter of
2001, compared to $0.4 million for the first quarter of 2000. The higher
interest and other income in the first quarter of 2001 was due to income from
transition services in connection with the sale of several of the Company's
product lines to Fairchild Semiconductor Corporation in September of 2000.

   Provision for Income Taxes

         The Company's provision for taxes on income is based on estimates of
the levels of income and certain deductions expected for the year, which may be
subject to change. The Company's effective tax rate for the first quarter of
2001 was 0%, as compared to a rate of 35% for the same period in 2000. The 0%
effective rate for 2001 is due primarily to the recording of a valuation
allowance related to recent changes in the business, increases in expected
future development costs and the Company's inability to carryback the current
losses against taxable income in prior tax years.

LIQUIDITY AND CAPITAL RESOURCES



                                                                         Page 10

<PAGE>   11
         Net cash used in operating activities was $5.2 million in the first
quarter of 2001, compared to cash provided by operating activities of $0.8
million in the first quarter of 2000. The majority of the cash decrease was due
to the first quarter net operating loss of $3.2 million. Additional uses of cash
were an increase of inventories of $1.0 million as the Company increases
production to fill its higher backlog, an increase in receivables of $0.5
million, a decrease in accounts payable of $1.5 million and a decrease in
accrued liabilities of $1.9 million, offset by a decrease in other current
assets of $2.7 million.

         Net cash provided by investing activities was $2.7 million in the first
quarter of 2001 and $3.6 million in the comparable period last year. Cash
provided by investing activities for the first quarter of 2001 is attributable
to the net sale or maturity of short-term investments of $3.0 million and
payments received on notes receivable of $0.5 million offset by capital
expenditures of $0.8 million. The increase in capital expenditures was primarily
for purchases of internal use software and for equipment for the Salt Lake City
design center.

         Financing activities for the first quarter of 2001 were insignificant.

         Working capital amounted to $35.3 million as of March 31, 2001 compared
to $38.1 million as of December 31, 2000. Working capital at March 31, 2001
includes cash and cash equivalents of $15.1 million and short-term investments
of $15.1 million.

         The Company anticipates that its existing cash resources and cash
generated from operations will fund necessary purchases of capital equipment and
provide adequate working capital for at least the next twelve months.

OTHER FACTORS AFFECTING FUTURE OPERATING RESULTS

    In future periods, Micro Linear Corporation's business, financial condition
and results of operations may be affected by many factors, including, but not
limited to, the following:

The Company's operating results are likely to fluctuate significantly, and may
fail to meet or exceed the expectations of securities analysts or investors,
causing the Company's stock price to decline.

    The Company's operating results have fluctuated in the past and are likely
to continue to fluctuate in the future, on an annual and a quarterly basis, as a
result of several factors, many of which are outside of the Company's control.
Some of the factors that may cause these fluctuations include:

    -   the level and timing of capital spending of Micro Linear's customers,
        both in the U.S. and in foreign markets;

    -   changes in market demand, including seasonality and cyclicality;

    -   the timing, amount, cancellation or rescheduling delivery of customer
        orders;

    -   fluctuations in manufacturing yields;

    -   the timing of revenue from contracts which may span several quarters;

    -   competitive market conditions;

    -   new product introductions by competitors or by the Company;

    -   market acceptance of new or existing products;

    -   the cost and availability of wafers, other components and testing
        services;

    -   the mix of the Company's products sold;



                                                                         Page 11
<PAGE>   12

    -   economic conditions specific to the analog and mixed signal circuit
        industries, and general economic conditions;

    -   ability to hire and retain qualified technical and other personnel;

    -   development of new industry standard communication protocols; and

    -   availability and performance of advanced silicon process technologies
        from foundry sources.

    As a result of all these factors, the Company's operating results in one or
more future periods may fail to meet or exceed the expectations of securities
analysts or investors. In that event, the trading price of the Company's common
stock would likely decline.

The markets in which the Company operates are intensely competitive, and many
competitors are larger and more established.

    The markets for the Company's products are characterized by intense
competition and decreasing selling prices, rapid technological change, short
product life cycles, cyclical market patterns and heightened international and
domestic competition. Competitors include significantly larger corporations such
as National Semiconductor Corporation, Conexant, Broadcom Corporation and Level
One (a subsidiary of Intel Corporation). Additional competition could come from
new entrants in these markets. Most of the Company's competitors are
substantially larger and have greater financial, technical, marketing and other
resources than Micro Linear. 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 broadband wireless local area
network market for longer than the Company has and therefore have more
long-standing and established relationships with domestic and foreign customers.
The Company may not be able to compete successfully in the future and
competition may harm Micro Linear's business.

    The computer networking equipment market is characterized by intense
competition, relatively short product life cycles and rapid technological
change. In addition, the computer network equipment market has undergone a
period of rapid growth and experienced consolidation among the competitors in
the market in recent years. The Company expects its dependency on sales to
network equipment manufacturers to continue through 2001. The Company's business
and results of operations would be materially and adversely affected in the
event of a significant slowdown in the computer networking equipment market. In
addition, as a result of competitive pricing pressures, the Company has
experienced lower margins in certain of its existing products for computer
networking applications. There can be no assurance as to when or if such pricing
pressure will lessen. Such pricing pressures will have an adverse affect on the
Company's results of operations unless they can be offset by higher margins on
other products or reduced operating expenses.

    While foreign companies, particularly Japanese companies, have not
traditionally focused on the high performance analog and mixed signal markets,
they have the financial and technical resources to participate effectively in
these markets, and there can be no assurance that they will not do so in the
future. Because the Company does not currently manufacture its own semiconductor
wafers, it is also vulnerable to process technology advances utilized by
competitors to manufacture products offering higher performance and lower cost.
Accordingly, the Company believes it is disadvantaged in comparison to larger
companies with wafer manufacturing facilities, broader product lines, greater
technical and financial resources and greater service and support capabilities.
In addition, all of the Company's products are generally sole-sourced to its
customers, and the Company's operating results could be adversely affected if
its customers were to develop other sources for the Company's products. There
can be no assurance that the Company will compete successfully with new or
existing competitors in the future.

The market for broadband wireless local area network applications is relatively
immature and characterized by rapid technological change.



                                                                         Page 12
<PAGE>   13

    The broadband wireless local area network market on which the Company is now
focused remains relatively immature, and is characterized by rapidly changing
technology, frequent product introductions and evolving industry standards,
making it difficult to accurately predict the market's future growth rates,
sizes or technological directions. In view of the evolving nature of this
market, it is possible that suppliers of broadband wireless local area
networking products will decide to adopt alternative standards or technologies
that are incompatible with the Company's current or future products. If the
Company is unable to design, develop, manufacture and sell products that
incorporate or are compatible with these new standards or technologies, future
business will suffer.

The Company needs to develop and introduce new and enhanced products in a timely
manner to remain competitive.

    Broadband wireless local area networking markets are characterized by
continuing technological advancement, changes in customer requirements and
evolving industry standards. To compete successfully, the Company must design,
develop, manufacture and sell new or enhanced products that provide increasingly
higher levels of performance and reliability. However, the Company may not be
able to successfully develop or introduce these products, if the Company's
products:

    -   do not meet performance or other objective specified parameters;

    -   are not cost effective;

    -   are not brought to market in a timely manner;

    -   are not in accordance with existing or evolving industry standards; or

    -   fail to achieve market acceptance.

    The development of these new circuits is highly complex, and from time to
time, the Company has experienced delays in completing the development of new
products. Successful product development and introduction depends on a number of
factors, including proper new product definition, timely completion and
introduction of new product designs, availability of foundry capacity, achieving
acceptable manufacturing yields and market acceptance of the Company's and its
customers' products. There can be no assurance that the Company will be able to
adjust to changing market conditions as quickly and cost-effectively as
necessary to compete successfully. Furthermore, there can be no assurance that
the Company will be able to introduce new products in a timely manner, or that
such products will achieve market acceptance. In addition, there can be no
assurance that the products manufactured by the Company's customers
incorporating the Company's products will be introduced in a timely manner or
that such products will achieve market acceptance. The Company's failure to
develop and introduce new products successfully would materially and adversely
affect its business and operating results.

    In addition, to successfully develop and market our planned broadband
wireless local area network products, the Company will be required to retain and
attract new personnel with engineering design experience and expertise.
Competition for qualified personnel is intense. The Company may not be
successful in retaining and attracting qualified personnel.

    Also, to successfully develop and market certain of our planned products,
the Company may be required to enter into technology development or licensing
agreements with third parties. The Company cannot be assured that it will be
able to enter into any necessary technology development or licensing agreements
on acceptable terms or at all. The failure to enter into technology development
or licensing agreements when necessary could limit he Company's ability to
develop and market new products and, accordingly, could materially and adversely
affect business and operating results.

    In addition, customers typically take a long time to evaluate the Company's
new products. It usually takes from 3 to 6 months or more to test new products,
and an additional 3 to 12 months or more before customers commence significant
production of products incorporating the Company's products. As a result



                                                                         Page 13
<PAGE>   14

of this lengthy sales cycle, the Company may experience a lengthy delay between
increased research and product development and the generation of higher
revenues, if any, from new products. Delays inherent in such a long sales cycle
raise additional risks of customer decisions to cancel or change their product
plans, which could result in the loss of anticipated sales. The Company's
business, financial condition, and results of operations could suffer if
customers reduce or delay orders, or choose not to release products
incorporating the Company's products.

The Company needs to effectively manage the realignment of its business.

    As a result of the sale of the Company's power management, bus interface,
and video product lines to Fairchild in September 2000, the Company's products
and markets have narrowed over previous years. This will have a material and
adverse effect on the Company's near-term future revenues. The change in the
focus of the Company's business to broadband wireless local area networks
following the sale of its test operations to Artest Corporation and its power
management, bus interface and video product lines to Fairchild Semiconductor
Corporation has placed, and is expected to continue to place, a significant
strain on personnel, management and other resources, including financial
reserves. While realigning the Company's business, revenue will be lower than in
prior years, and the Company anticipates it will operate at a loss. The
Company's ability to manage its business effectively in the future, including
any future growth, will require the successful attraction, training, motivation
and management of new employees, the integration of new employees into the
Company's overall operations, and the retention of key employees, as well as the
continual improvement in the Company's operational, financial and management
systems. If the Company fails to manage future growth effectively, its future
business could suffer.

The Company is currently operating at a loss, and consuming cash. Despite this,
the Company needs to continue to invest heavily in product development, and may
increase its spending.

    Successful engineering development and market penetration in the product
areas the Company has chosen will require continued high levels of engineering
and product development expense. The Company is currently operating below
break-even, and is consuming cash for operations, capital spending and working
capital. The Company's networking products are reaching maturity and revenue
from this product line is expected to decline, adversely affecting the Company's
operating results. While the Company anticipates that its existing cash
resources will fund any anticipated operating losses, purchases of capital
equipment, and provide adequate working capital for at least the next twelve
months, and there can be no assurance that the Company will achieve its goal of
revenue growth, profits, and positive cash flow.

The Company depends on local area network and telecommunications spending for a
majority of its revenue and any decrease or delay in spending in these
industries would negatively impact future resources, operating results and
financial condition.

    Demand for the Company's products in the future will depend on the magnitude
and timing of spending by local area network providers and telecommunications
equipment suppliers. Spending in these areas is dependent upon a variety of
factors, including competitive pressures, discretionary consumer spending
patterns, and general economic conditions.

    Recent developments in the general economy and capital markets could result
in a slowdown in new orders, cancellations of or holds on existing orders, and
reductions in orders received by the Company over prior periods. Because the
majority of the Company's revenues have resulted from sales to a relatively few
customers, a delay in orders from any one customer could have a material adverse
effect on future revenues in a particular quarter.

    Furthermore, in view of the relatively short product life cycles in the
computer network equipment and digital cordless telephone markets, the Company's
operating results would be materially and adversely affected if one or more of
its significant customers were to select circuits manufactured by one of the
Company's competitors for inclusion in future product generations. There can be
no assurance that the Company's current customers will continue to place orders
with the Company, that orders by existing customers will continue at the levels
of previous periods or that the Company will be able to obtain orders



                                                                         Page 14
<PAGE>   15

from new customers. Loss of one or more of the Company's current customers or a
disruption in the Company's sales and distribution channels could materially and
adversely affect the Company's business and operating results.

The Company's customer base is concentrated and the loss of one or more key
customers or distributors would harm future business.

    Historically, a significant majority of the Company's revenues have been
attributable to sales to a relatively few customers. Sales to the ten largest
customers, excluding domestic distributors in 2000, 1999 and 1998 accounted for
approximately 51%, 51% and 40% of net revenues, respectively. Sales to domestic
distributors in 2000, 1999 and 1998 accounted for approximately 29%, 29% and 22%
of net revenues, respectively, and sales to international distributors in 2000,
1999 and 1998 accounted for approximately 47%, 42% and 42% of net revenues,
respectively. The Company anticipates that it will continue to be dependent on a
limited number of key customers and distributors for a significant portion of
its net revenues. The reduction, delay or cancellation of orders from one or
more significant customers for any reason could materially and adversely affect
the Company's operating results. In addition, since the Company's products are
all sole-sourced to its customers, the Company's operating results could be
materially and adversely affected if one or more of its major customers were to
develop other sources of supply.

    Although the Company's contract terms vary from customer to customer,
customers for standard products may generally cancel or reschedule orders to
purchase standard products without significant penalty to the customer. As a
result, the quantities of the Company's products to be delivered and delivery
schedules are frequently revised by customers to reflect changes in such
customers' needs. Since backlog can be canceled or rescheduled, the Company's
backlog at any time is not necessarily indicative of future revenue.

The Company depends on international sales and is subject to the risks
associated with international operations, which may negatively affect
profitability.

    Sales to distributors outside of the United States in 2000, 1999 and 1998
represented 47%, 42% and 42% of net revenues, respectively, and the Company
expects that international sales will continue to generate a substantial portion
of net revenues for the foreseeable future. The Company's international
operations are subject to a number of risks, including:

    -   changes in foreign government regulations and telecommunications
        standards;

    -   import and export legislation and license requirements, tariffs, taxes,
        quotas and other trade barriers;

    -   delays resulting from difficulty in obtaining export licenses for
        certain technology;

    -   fluctuations in currency exchange rates;

    -   difficulty in collecting accounts receivable;

    -   the burden of complying with a wide variety of foreign laws, treaties
        and technical standards;

    -   difficulty in staffing and managing foreign operations; and

    -   geo-political risks, changes in diplomatic and trade relationships and
        economic instability.

    While the Company's international sales are typically denominated in U.S.
dollars, fluctuations in currency exchange rates could cause products to become
relatively more expensive to customers in a particular country, and competitors'
products denominated in local currencies less expensive, leading to a reduction
in sales or profitability in that country. Gains and losses on the conversion to
U.S. dollars of accounts receivable, accounts payable and other monetary assets
and liabilities arising from international



                                                                         Page 15
<PAGE>   16

operations may contribute to fluctuations in operating results. Furthermore,
payment cycles for international customers are typically longer than those for
customers in the United States. Unpredictable sales cycles could cause the
Company to fail to meet the expectations of security analysts and investors for
any given period. Further, foreign markets may not continue to develop.
Substantially all of the Company's international sales must be licensed by the
Office of Export Administration of the U.S. Department of Commerce. The Company
has not experienced any material difficulties in obtaining export licenses;
however, there can be no assurance that such export licenses will be available
in the future.

Selling prices typically decrease.

    Average selling prices in the networking and 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, product maturity and obsolescence, and
other reasons. The decline in the average selling prices of the Company's
products may cause substantial fluctuations in our operating results. The
Company continues to develop and market new products that incorporate features
which add value and sell at higher prices. Failure to deliver new products with
increased value would result in a decline in both revenues and margins, harming
the Company's business, financial condition, and results of operations.

The Company faces product return, product liability, and product defect risks.

    Complex products such as those designed by the Company frequently contain
errors, defects, and bugs when first introduced or as new versions are released.
These errors, defects and bugs could be discovered after the Company begins to
ship products, despite thorough testing by the Company, contracted test houses,
and customers. The Company has discovered such errors, defects, and bugs in the
past. The Company would have to expend significant resources to remedy these
problems. Delivery of products with these defects, or with reliability, quality
or compatibility problems could adversely affect market acceptance of the
Company's products. This could damage the Company's reputation and harm its
ability to attract and retain customers. Product defects could also cause
interruptions, delays or cancellations of sales to customers, as well as claims
against the Company by its customers or others.

The cyclicality of the semiconductor industry may harm the company's business.

    The semiconductor industry has experienced significant downturns and wide
fluctuations in supply and demand in the past. The industry has also experienced
significant fluctuations in anticipation of changes in general economic
conditions. This has caused significant variances in product demand, production
capacity, and aggravated selling price declines. This cyclicality in the future
could harm the Company's business, financial condition, and results of
operations.

The Company must be able to manage expenses and inventory risks associated with
meeting the demand of customers.

    From time to time, the Company receives indications from customers as to
their future plans and requirements to ensure that the Company will be prepared
to meet production demand for its products. However, after receiving such
indications, there is no guaranty that the Company will ultimately receive
purchase orders for its products. The Company must be able to effectively manage
expenses and inventory risks associated with meeting potential demand for its
products. In addition, failure to meet customers' supply expectations may result
in lost business from such customers. If the Company expends resources and
purchase materials, or enters into purchase commitments to acquire materials,
and manufacture products and such products are not purchased by customers,
business and operating results could suffer.

    Design wins, which can often require significant expenditures by the Company
without any assurance of success, often precede the generation of volume sales
by a year or more. Moreover, 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 the
Company's



                                                                         Page 16
<PAGE>   17

competitors. No assurance can be given that the Company will achieve design wins
or that any design win, particularly with regard to application specific
products, will result in significant future revenues.

The Company relies on a limited number of outside foundries and test
subcontractors in the manufacturing process.

    The Company utilizes outside foundries for all wafer requirements. While the
Company believes that utilizing outside foundries enables it to focus on its
design strengths, minimize fixed costs and capital expenditures and access
diverse manufacturing technologies, there are significant risks associated with
the reliance on outside foundries, including the lack of both assured wafer
supply and control over delivery schedules, the unavailability of or delays in
obtaining access to key process technologies and limited control over
manufacturing yields and production costs. In addition, the manufacture of
integrated circuits is a highly complex and technically demanding process.
Although the Company has undertaken to diversify its sources of wafer supply and
has worked closely with its foundries to minimize the likelihood of reduced
manufacturing yields, foundries have from time to time experienced lower than
anticipated manufacturing yields, particularly in connection with the
introduction of new products and the installation and start-up of new processes.
Such reduced yields have at times materially adversely affected the Company's
operating results, and in the future, foundries may experience lower than
expected manufacturing yields, which could materially and adversely affect the
Company's business and operating results. In addition, dependence on foundries
located outside of the United States subjects the Company to numerous risks,
including exchange rate fluctuations, export and import restrictions, trade
sanctions, political instability and tariff increases. In particular, the
Company depends on foundries in Taiwan and Singapore, which could increase risks
associated with political instability in that region.

    The Company purchases wafers from outside foundries pursuant to purchase
orders and generally does not have a guaranteed level of wafer capacity or wafer
costs at such foundries. Therefore, wafer suppliers could choose to prioritize
capacity for other uses or reduce or eliminate deliveries to the Company on
short notice. Foundries may not allocate sufficient wafer capacity to the
Company to satisfy its total requirements. In addition, the Company is
particularly dependent upon a limited number of foundries for its total wafer
requirements. Any sudden demand for an increased amount of wafers or sudden
reduction or elimination of any existing source or sources of wafers could
result in a material delay in the shipment of products. Material disruptions in
supply, which have occurred periodically in the past, may occur in the future,
and any such disruption could have a material adverse effect on operating
results. If such a disruption occurred and the Company was unable to qualify
alternative manufacturing sources for existing or new products in a timely
manner, or if such sources were unable to produce wafers with acceptable
manufacturing yields, the Company's business and operating results would be
materially and adversely affected.

    The Company relies almost solely on one outside test service subcontractor
to test its products. The Company generally does not have a guaranteed level of
test capacity at this subcontractor. Therefore, the test service supplier could
choose to prioritize capacity for other uses or reduce or eliminate deliveries
to the Company on short notice. Any sudden demand for an increased amount of
testing or sudden reduction or elimination of any existing source of test
capacity could result in a material delay in the shipment of the Company's
products. Material disruptions in supply, which have occurred periodically in
the past, may occur in the future. Any such disruption could have a material
adverse effect on operating results. If such a disruption occurs and the Company
is unable to qualify alternative testing sources for existing or new products in
a timely manner, the Company's business and operating results would be
materially and adversely affected.

    The markets for the Company's products are characterized by rapid
technological change and frequent new product introductions. To remain
competitive, the Company 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. Semiconductor design
and process methodologies are subject to rapid technological change, requiring
large expenditures for research and development. If the Company is unable to
obtain access to advanced wafer processing technologies as they become needed,
or is unable to define, design, develop and introduce competitive new products
on a timely basis, its future



                                                                         Page 17
<PAGE>   18

operating results will be materially and adversely affected. In addition, if the
Company is unable to transfer and install such new process technologies to one
or more of its wafer foundries in a timely manner, its business and results of
operations could be materially and adversely affected.

    The manufacture of integrated circuits is a highly complex and precise
process. Minute levels of contaminants in the manufacturing environment, defects
in the masks used to print circuits on a wafer, difficulties in the fabrication
process or other factors can cause a substantial percentage of wafers to be
rejected or a significant number of die on each wafer to be nonfunctional. In
addition, yields can be affected by minute impurities in the environment or
other problems that occur in the complex manufacturing process. Many of these
problems are difficult to diagnose and time consuming or expensive to remedy. At
various times in the past, the Company has experienced lower than anticipated
yields that have adversely affected production and, consequently, operating
results. The manufacturing processes utilized by the Company are continuously
being improved in an effort to increase yield and product performance. Process
changes can result in interruptions in production or significantly reduced
yields. In particular, new process technologies or new products can be subject
to especially wide variations in manufacturing yields and efficiency. There can
be no assurance that the Company will not experience irregularities, adverse
yield fluctuations or other manufacturing problems in its manufacturing
processes, any of which could result in production interruption or delivery
delays and materially and adversely affect the Company's business and results of
operations. The Company currently intends to continue to rely exclusively upon
its outside foundries for its wafer fabrication requirements.

    The Company has granted nontransferable, limited process licenses to some of
its foundries to utilize the Company's processes to manufacture and sell wafers
to other customers. Although the Company seeks to protect its proprietary
technology, particularly its design methodology, there can be no assurance that
certain of the Company's foundries will not attempt to reverse engineer the
Company's products and manufacture and sell products which compete with those
manufactured and sold by the Company.

The manufacturing processes the Company's foundries and subcontractors employ
use hazardous chemicals.

    Certain of the Company's wafer suppliers, and its test and assembly
contractors, 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 process. The failure by the Company's
suppliers or subcontractors to comply with present or future environmental
regulations could result in fines, suspension of production or cessation of
operations. Such regulations could also require the Company's suppliers or
subcontractors to acquire equipment or to incur other substantial expenses to
comply with environmental regulations. If substantial additional expenses were
incurred by the Company's suppliers or subcontractors, product costs could
significantly increase, thus materially and adversely affecting the Company's
results of operations. Additionally, the Company is subject to a variety of
governmental regulations relating to its operations, such as environmental,
labor and export control regulations. While the Company believes it has obtained
all permits necessary to conduct its business, the failure to comply with
present and future regulations could result in fines being imposed on the
Company or suspension or cessation of operations. Any failure by the Company or
its suppliers or subcontractors to control the use of, or adequately restrict
the discharge of, hazardous substances could subject the Company to future
liabilities, and could have a material adverse effect on the Company's business
and operating results.

Competition for qualified personnel is intense, and the company may not be
successful in attracting and retaining personnel.

    The Company's future success will depend, to a significant extent, on the
ability of management to operate effectively, both individually and as a group.
The Company depends on its ability to retain and motivate high caliber
personnel, in addition to attracting new personnel. Competition for qualified
technical and other personnel is intense, particularly in the San Francisco Bay
Area, and the Company may not be successful in attracting and retaining such
personnel.

    Competitors and others have in the past and may in the future attempt to
recruit the Company's employees. While employees are required to sign standard
agreements concerning confidentiality and



                                                                         Page 18
<PAGE>   19

ownership of inventions, the Company generally does not have employment
contracts or non-competition agreements with any of its personnel. The loss of
the services of any of key personnel, the inability to attract or retain
qualified personnel in the future or delays in hiring required personnel,
particularly engineers and other technical personnel could negatively affect the
Company's business.

The Company's failure to adequately protect proprietary rights may adversely
affect future business.

    The Company owns two U.S. patents, has two U.S. patent applications that are
allowed but not yet issued and has an additional ten patent applications pending
in the U.S. Patent and Trademark Office. For nine of the pending U.S. patent
applications, the Company has filed treaty-based applications to preserve its
foreign patent rights. The Company's issued patents will expire in July 2015 and
March 2016. Through a sale of a portion of its assets, the Company maintains a
royalty free license to forty-eight U.S. patents, two U.S. patent applications
that are allowed but not yet issued and five U.S. patent applications. The
license also extends to three foreign patents and one foreign patent
application.

    The Company intends to continue to seek patents on new products. Although
the Company attempts to protect its intellectual property rights through
patents, trademarks, copyrights, licensing arrangements, maintaining certain
technology as trade secrets and other measures, there can be no assurance that
any patent, trademark, copyright or other intellectual property rights owned by
the Company will not be invalidated, circumvented or challenged, or that such
intellectual property rights owned by the Company will not be invalidated,
circumvented or challenged, that such 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 the Company. There is no
assurance that others will not develop technologies that are similar or superior
to the Company's technology, duplicate the Company's technology or design around
the patents that the Company owns. In addition, effective patent, copyright and
trade secret protection may be unavailable or limited in certain foreign
countries in which the Company does business or may do business in the future.

    The Company believes that the future success of its business will depend on
its ability to translate the technological expertise and innovation of personnel
into new and enhanced products. The Company generally enters into
confidentiality or license agreements with its employees, consultants, vendors
and customers as needed, and generally limits access to and distribution of its
proprietary information. Nevertheless, the Company cannot provide assurance that
the steps taken will prevent misappropriation of its technology. In addition,
the Company has taken in the past, and may take in the future, legal action to
enforce its patents and other intellectual property rights, to protect its trade
secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. The Company
is presently involved in litigation with a party that has claimed infringement
of their patent. The financial impact of this litigation is not expected to have
a material impact on financial results, however, a third party could make a
valid claim and if a license were not available on commercially reasonable
terms, future operating results could be materially and adversely affected. The
failure to obtain necessary licenses or the occurrence of litigation relating to
patent infringement or other intellectual property matters could have a material
adverse affect on future business and operating results.

The Company could be the target for costly disputes and litigation.

    From time to time, the Company has received, and in the future it may
receive, correspondence from certain vendors, distributors, customers or
end-users of its products regarding disputes with respect to contract rights,
product performance or other matters that occur in the ordinary course of
business. There can be no assurance that any of such disputes will not
eventually result in litigation or other actions involving the Company or as to
the outcome of such disputes.

The Company's stock price may be volatile.

    The market price of the Company's common stock has fluctuated significantly
in the past, particularly in recent years, and is likely to fluctuate in the
future. In addition, the securities markets have experienced significant price
and volume fluctuations and the market prices of the securities of technology
companies have been especially volatile. Such fluctuations can result from
quarterly variations in operating results,



                                                                         Page 19
<PAGE>   20

announcements of new products by the Company or competitors, the gain or loss of
significant customers, changes in analysts' estimates, short-selling of the
Company's common stock, and events affecting other companies that investors deem
to be comparable to the Company. Investors may be unable to resell their shares
of the Company's common stock at or above their purchase price. In the past,
companies that have experienced volatility in the market price of their stock
have been the object of securities class action litigation.

The Company's Certificate of Incorporation and Bylaws, Stockholder Rights Plan
and Delaware Law contain provisions that could discourage a takeover.

    Provisions of the Company's Amended and Restated Certificate of
Incorporation, Bylaws, the 1998 Stockholder Rights Plan and Delaware law could
make it more difficult for a third party to acquire the Company, even if doing
so would be beneficial to the Company's stockholders.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

         The Company's investment portfolio consisted of U.S. government
obligations and commercial paper typically with maturities of less than 18
months. These securities are subject to interest rate risk and will decline in
value if market interest rates increase. The Company has the ability to hold its
fixed income investments until maturity and, therefore, the Company would not
expect to recognize such an adverse impact in income or cash flows.

FOREIGN CURRENCY EXCHANGE RATE RISK

         The Company has international sales and research and development
facilities and is, therefore, subject to foreign currency rate exposure. The
Company's foreign currency risks are mitigated principally by maintaining only
minimal foreign currency balances. To date, the exposure to the Company related
to exchange rate volatility has not been significant. However, there can be no
assurance that there will not be a material impact in the future.


                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

    In December 1995, Pioneer Magnetics, Inc. ("Pioneer") filed a complaint in
the Federal District Court for the Central District of California alleging that
certain of the Company's integrated circuits violate a Pioneer patent. Pioneer
sought monetary damages and an injunction against such alleged patent violation.
The Company denied any infringement and filed a counter-claim seeking invalidity
of the patent. The court held a patent claim construction hearing on November 9,
1998, and a final claim construction on July 19, 1999. The court issued a claim
construction order favorable to Micro Linear, conceding that under the Court's
construction, Micro Linear did not infringe. The parties filed a Stipulated
Judgment of Non-Infringement, which resulted in a favorable termination of the
district court action. Pioneer then appealed the Court's claim construction to
the Court of Appeals for the Federal Circuit. The hearing on appeal took place
on October 5, 2000 and on January 23, 2001 the Court of Appeals issued an
opinion affirming the District Court's Judgment. Pioneer has filed a motion
with the Supreme Court requesting an extension until May 23, 2001 to file a
petition for certiorari to effectively appeal the decision of the Court of
Appeals. That motion has been granted.


                                                                         Page 20
<PAGE>   21

    From time to time, the Company has received, and in the future it may
receive, correspondence from certain vendors, distributors, customers or
end-users of its products regarding disputes with respect to contract rights,
product performance or other matters that occur in the ordinary course of
business. There can be no assurance that any of such disputes will not
eventually result in litigation or other actions involving the Company or as to
the outcome of such disputes.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

   (a) Exhibits

       None

   (b) Reports on Form 8-K

       None


                                   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: May 15, 2001              By: /s/ David L. Gellatly
                                    --------------------------------------------
                                    David L. Gellatly
                                    Chairman, Chief Executive Officer
                                    and President
                                    (Principal Executive Officer)

                                 By: /s/ Michael Schradle
                                    --------------------------------------------
                                    Michael Schradle
                                    Chief Financial Officer
                                    (Principal Financial and Accounting Officer)




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