UNITED STATES
SECURITIES 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 ~~April~~ July 3, 2005


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. Employer
incorporation or organization)		Identification No.)

2050 Concourse Drive		95131
San 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 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 þ No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares of the Registrant’s Common Stock outstanding as of ~~May~~August 1710, 2005, net of shares held in treasury, was 12,~~529~~927,~~553~~321.

TABLE OF CONTENTS

	PAGE	~~PAGE~~
PART I FINANCIAL INFORMATION		3
Item 1. Financial Statements (Unaudited except for Condensed Consolidated Balance Sheet at December 31, 2004)		3
Condensed Consolidated Balance Sheets at March 31, 2005 and December 31, 2004		3
Condensed Consolidated Balance Sheets at June 30, 2005 and December 31, 2004		3
Condensed Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004		4
Condensed Consolidated Statements of Operations for the three months and six months ended June 30, 2005 and 2004		4
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004		5
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2005 and 2004		5
Notes to Unaudited Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		911
Item 3. Quantitative and Qualitative Disclosures about Market Risk		2528
Item 4. Controls and Procedures		2528
PART II OTHER INFORMATION		2628
Item 6. Exhibits		2628
SIGNATURES		2729
Index to Exhibits		28
EXHIBIT 3.(ii)
EXHIBIT 10.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MICRO LINEAR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands)

(IN THOUSANDS)


	June 30,			December 31,
	2005			2004
	(Unaudited)
Assets
Current Assets:
Cash and cash equivalents	$	8,571		$	10,920
Short-term investments		5,174			4,660
Accounts receivable, net of allowance for doubtful accounts of $129 at June 30, 2005 and $139 at December 31, 2004		3,675			2,878
Inventories		2,519			1,770
Other current assets		298			210

Total current assets		20,237			20,438
Property and equipment, net		531			459
Other assets		28			28

Total assets	$	20,796		$	20,925

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,503		$	1,500
Accrued compensation and benefits		1,221			988
Deferred revenue		308			494
Other accrued liabilities		1,154			1,121

Total current liabilities		5,186			4,103
Stockholders’ equity:
Common stock		16			15
Additional paid-in capital		62,514			61,368
Accumulated deficit		(26,682	)		(24,320	)
Accumulated other comprehensive loss		(5	)		(8	)
Treasury stock		(20,233	)		(20,233	)

Total stockholders’ equity		15,610			16,822

Total liabilities and stockholders’ equity	$	20,796		$	20,925

	March 31,			December 31,
	2005			2004
	(Unaudited)
Assets
Cash and cash equivalents	$	10,275		$	10,920
Short-term investments		4,930			4,660
Accounts receivable, net of allowance for doubtful accounts of $112 at March 31, 2005 and $203 at December 31, 2004		2,693			2,878
Inventories		1,869			1,770
Other current assets		362			210
Total current assets		20,129			20,438
Property and equipment, net		560			459
Other assets		27			28
Total assets	$	20,716		$	20,925
Liabilities and Stockholders’ Equity
Accounts payable	$	2,150		$	1,500
Accrued compensation and benefits		1,363			988
Deferred revenue		689			494
Other accrued liabilities		1,156			1,121
Total current liabilities		5,358			4,103
Stockholders’ equity:
Common stock		15			15
Additional paid-in capital		61,415			61,368
Accumulated deficit		(25,832	)		(24,320	)
Accumulated other comprehensive loss		(7	)		(8	)
Treasury stock		(20,233	)		(20,233	)
Total stockholders’ equity		15,358			16,822
Total liabilities and stockholders’ equity	$	20,716		$	20,925

See accompanying notes to unaudited condensed consolidated financial statements.

~~See accompanying notes to unaudited condensed consolidated financial statements.~~3

3 Table of Contents

~~Table~~MICRO ofLINEAR ~~Contents~~CORPORATION

~~MICRO~~CONDENSED ~~LINEAR~~CONSOLIDATED ~~CORPORATION~~STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) (Unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	THREE MONTHS ENDED						SIX MONTHS ENDED
	June 30,						June 30,
	2005			2004			2005			2004
Net revenue	$	5,964		$	6,508		$	10,210		$	10,348
Cost of goods sold		2,330			2,683			4,373			4,776

Gross margin		3,634			3,825			5,837			5,572

Operating expenses:
Research and development		2,467			2,612			4,663			5,253
Selling, general and administrative		2,112			1,856			3,718			3,702
Restructuring charges		—			166			—			166

Total operating expenses		4,579			4,634			8,381			9,121

Loss from operations		(945	)		(809	)		(2,544	)		(3,549	)
Interest and other income		103			47			196			109
Interest and other expense		(2	)		(49	)		(7	)		(86	)

Loss before income taxes		(844	)		(811	)		(2,355	)		(3,526	)
Provision for income taxes		6			6			7			10

Net 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

~~(IN~~See ~~THOUSANDS,~~accompanying ~~EXCEPT~~notes ~~PER~~to ~~SHARE~~unaudited ~~AMOUNTS)~~condensed ~~(UNAUDITED)~~consolidated financial statements.

	THREE MONTHS ENDED
	March 31,
	2005			2004
Net revenue	$	4,247		$	3,840
Cost of goods sold		2,044			2,093
Gross margin		2,203			1,747
Operating expenses:
Research and development		2,197			2,641
Selling, general and administrative		1,606			1,846
Total operating expenses		3,803			4,487
Loss from operations		(1,600	)		(2,740	)
Interest and other income		93			62
Interest and other expense		(4	)		(38	)
Loss before income taxes		(1,511	)		(2,716	)
Provision for income taxes		1			4
Net loss	$	(1,512	)	$	(2,720	)
Net loss per share (basic and diluted):
Net loss per share	$	(0.12	)	$	(0.22	)
Weighted average number of shares used in per share computation		12,459			12,334

SeeTable accompanyingof notes to unaudited condensed consolidated financial statements. Contents

4MICRO LINEAR CORPORATION

~~Table~~CONDENSED ofCONSOLIDATED ~~Contents~~STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)

MICRO LINEAR CORPORATION


	SIX MONTHS ENDED
	JUNE 30,
	2005			2004
Net 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			9,198

Net cash (used in) provided by investing activities		(732	)		3,927

Cash flows from financing activities:
Principal payments on debt		—			(139	)
Proceeds from issuance of common stock		1,005			465

Net cash provided by financing activities		1,005			326

Net decrease in cash and cash equivalents		(2,349	)		(14	)
Cash and cash equivalents at beginning of period		10,920			8,703

Cash and cash equivalents at end of period	$	8,571		$	8,689

~~CONDENSED~~See ~~CONSOLIDATED~~accompanying ~~STATEMENTS~~notes OFto ~~CASH~~unaudited ~~FLOWS~~condensed consolidated financial statements.

~~(IN THOUSANDS)~~5

(UNAUDITED)Table of Contents

	THREE MONTHS ENDED
	March 31,
	2005			2004
Net cash used in operating activities	$	(224	)	$	(2,508	)
Cash flows from investing activities:
Purchase of capital equipment		(173	)		(224	)
Purchases of short-term investments		(2,656	)		(2,732	)
Proceeds from sale and maturity of short-term investments		2,387			4,956
Net cash (used in) provided by investing activities		(442	)		2,000
Cash flows from financing activities:
Principal payments on debt		—			(69	)
Proceeds from issuance of common stock		21			360
Net cash provided by financing activities		21			291
Net decrease in cash and cash equivalents		(645	)		(217	)
Cash and cash equivalents at beginning of period		10,920			8,703
Cash and cash equivalents at end of period	$	10,275		$	8,486

MICRO LINEAR CORPORATION

~~See~~NOTES ~~accompanying~~TO ~~notes~~UNAUDITED toCONDENSED ~~unaudited~~CONSOLIDATED ~~condensed~~FINANCIAL ~~consolidated financial statements.~~STATEMENTS

51. Organization and Summary of Significant Accounting Policies

~~Table of Contents~~Organization

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

~~NOTES~~Fiscal ~~TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Year

1 We report results of operations on the basis of fifty-two or fifty-three week periods, ending on the Sunday closest to December 31. ~~Organization~~Fiscal year 2004 ended on January 2, 2005. The second quarter of 2005 ended on July 3, 2005 and ~~Summary~~the second quarter of ~~Significant~~2004 ~~Accounting~~ended ~~Policies~~on June 27, 2004. For presentation purposes, the accompanying financial statements refer to the calendar year end and month end of each respective period.

~~Organization~~Principles of Consolidation

~~Micro~~The ~~Linear~~consolidated ~~Corporation~~financial isstatements ainclude ~~fabless~~the ~~semiconductor~~accounts ~~company specializing in wireless integrated circuit solutions, which enable a variety~~ of ~~wireless~~Micro ~~products~~Linear ~~serving~~Corporation aand ~~global market.~~our ~~These~~wholly-owned ~~transceivers~~subsidiary ~~can be used~~ in ~~many~~the ~~streaming~~United ~~wireless~~Kingdom. ~~applications~~All ~~such~~significant asinter-company ~~cordless~~accounts ~~phones, PHS handsets, wireless speakers~~ and ~~headphones, security cameras, game controllers, cordless headsets~~ ~~and~~transactions ~~other~~have ~~personal~~been ~~electronic appliances~~eliminated. ~~Headquartered in San Jose, California, Micro Linear’s~~ ~~products are available through its authorized representatives and distributors worldwide.~~

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

WeBasis ~~report results~~ of ~~operations on the basis of fifty-two or fifty-three week periods, ending~~Presentation on the Sunday closest to December 31. Fiscal year 2004 ended on January 2, 2005. The first quarter of 2005 ended on April 3, 2005 and the first quarter of 2004 ended on March 28, 2004. For presentation purposes, the accompanying financial statements refer to the calendar year end and month end of each respective period.

~~Principles~~ The consolidated financial statements included herein have been prepared by us in accordance with accounting principles generally accepted in the United States of ~~Consolidation~~America and reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary to state fairly our financial position, results of operations, and cash flows for the periods presented.

The accompanying unaudited condensed consolidated financial statements ~~include~~have been prepared in accordance with the ~~accounts~~instructions to Form 10-Q, and therefore do not include all information and footnotes necessary for a fair presentation of ~~Micro~~financial ~~Linear~~position, ~~Corporation~~results of operations and ~~our~~cash ~~wholly-owned~~flows ~~subsidiary~~in conformity with generally accepted accounting principles. The unaudited condensed consolidated financial statements and notes should be read in conjunction with the ~~United~~consolidated financial ~~Kingdom.~~statements ~~All~~and ~~significant~~notes ~~inter~~in the Annual Report on Form 10-~~company~~K ~~accounts~~for ~~and~~the year ended January 2, ~~transactions~~2005, ~~have~~filed ~~been~~with ~~eliminated~~the Securities and Exchange Commission on April 4, 2005.

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

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

~~The~~Net ~~consolidated~~Loss ~~financial~~Per ~~statements included herein have been prepared by us in accordance~~Share with accounting principles generally accepted in the United States of America and reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary to state fairly our financial position, results of operations, and cash flows for the periods presented.

~~The~~Basic ~~accompanying~~loss ~~unaudited~~per ~~consolidated~~share ~~condensed~~is ~~financial~~computed ~~statements~~by ~~have~~dividing ~~been~~net ~~prepared~~loss ~~in accordance~~available ~~with the instructions~~ to ~~Form~~common ~~10-Q,~~stockholders ~~and~~by ~~therefore~~the weighted doaverage ~~not~~number ~~include~~of ~~all~~common ~~information~~shares ~~and footnotes~~outstanding ~~necessary~~during ~~for~~the aperiod. ~~fair~~Diluted ~~presentation~~net ofloss ~~financial~~per ~~position,~~share includes ~~results~~the effect of ~~operations~~all ~~and~~potentially ~~cash flows~~dilutive incommon ~~conformity~~stock ~~with~~outstanding ~~generally~~during ~~accepted~~the ~~accounting principles~~period. ~~The unaudited condensed~~Diluted ~~consolidated~~net ~~financial~~loss ~~statements~~per ~~and~~share ~~notes~~excludes ~~should~~potential becommon ~~read~~stock inif ~~conjunction with~~ the ~~consolidated financial~~effect ~~statements~~is ~~and notes in the Annual Report on Form 10~~anti-Kdilutive. ~~for~~We ~~the~~compute diluted ~~year~~loss ~~ended~~per ~~January 2, 2005,~~share ~~filed~~using ~~with~~ the ~~Securities~~treasury ~~and~~stock ~~Exchange~~method ~~Commission~~for onstock ~~April 4,~~options ~~2005~~outstanding.

~~Use of Estimates~~6

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

~~Net~~ A ~~Loss~~total ~~Per~~of ~~Share~~4,305,160 and 3,893,420 shares of potential common stock related to stock options were not included in the dilutive net loss per share calculations for the three and six months ending June 30, 2005 and 2004, respectively, because their effect would be anti-dilutive.

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

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

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

~~A total~~Pro ofForma ~~4,166,703~~Net ~~and 3,901,470 shares of potential common stock~~Loss related to stock options were not included in the dilutive net loss per share calculations for the three months ending March 31, 2005 and 2004, respectively, because their effect would be anti-dilutive.

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

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


	Employee Stock
	Purchase Plan												Stock Option Plans
	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 30						June 30						June 30						June 30
	2005			2004			2005			2004			2005			2004			2005			2004
Expected life (in years)		0.5			0.5			0.5			0.5			2.93			2.7			2.6			2.7
Risk-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		—			—			—			—			—			—			—			—

WeThe ~~account~~Black-Scholes ~~for~~option ~~stock~~valuation ~~issued~~model tois ~~non-employees~~intended infor ~~accordance~~use ~~with~~in estimating the ~~provisions~~fair value of ~~SFAS~~publicly ~~123.~~traded options that have no vesting restrictions and are fully transferable, which ~~Stock~~differs significantly from the terms of our stock option awards. ~~issued~~In toaddition, ~~non-employees~~option ~~are~~valuation models ~~accounted~~require ~~for~~the atinput of highly subjective assumptions, including the expected stock price volatility and the expected life of the options before exercise, which greatly affect the calculated grant date fair value. ~~using~~The weighted average estimated fair values of shares issued under the ~~Black-Scholes~~Employee Stock Purchase Plan granted during the six months ended June 30, 2005 and 2004 were ~~option-pricing~~$1.44 ~~model~~and $1.52 respectively. The weighted average fair ~~value~~values at the date of ~~each~~grant ~~non-~~of options granted under the employee and directors’ stock ~~award~~option isplans ~~remeasured~~during atthe ~~each~~three ~~period~~months ended June 30, ~~end~~2005 ~~until~~and a2004 ~~commitment~~were $1.59 and $2.74 respectively. The weighted average fair values at the date isof grant ~~reached,~~of ~~which~~options isgranted ~~generally~~under the ~~vesting~~employee ~~date~~and directors’ stock option plans during the six months ended June 30, 2005 and 2004 were $1.53 and $2.50 respectively.

~~Pro Forma Net Loss~~7

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

	Employee Stock
	Purchase Plan						Stock Option Plans
	Three Months Ended						Three Months Ended
	March 31						March 31
	2005			2004			2005			2004
Expected life (in years)		0.5			0.5			2.49			2.78
Risk-free interest rate		2.88	%		1.03	%		3.59	%		1.83	%
Volatility		51	%		49	%		47	%		46	%
Dividend yield		—			—			—			—

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

The Black-Scholes option valuation model is intended for use in estimating the fair value of publicly traded options that have no vesting restrictions and are fully transferable, which differs significantly from the terms of our stock option awards. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility and the expected life of the options before exercise, which greatly affect the calculated grant date fair value. The weighted average estimated fair values of shares issued under the Employee Stock Purchase Plan granted during the three months ended March 31, 2005 and 2004 were $1.44 and $1.52 respectively. The weighted average fair values at the date of grant of options granted under the employee and directors’ stock option plans during the three months ended March 31, 2005 and 2004 were $1.52 and $2.09 respectively.


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
	(In thousands, except						(In thousands, except
	per 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	)

~~The following table illustrates the effect on our net loss and net loss per share if we had recorded compensation costs based on the estimated grant date fair value as defined by SFAS No~~2. ~~123 for~~ ~~all~~Financial ~~granted~~Statement ~~stock-based awards.~~Details

	Three Months Ended
	March 31,
	2005			2004
	(In thousands, except
	per share amounts)
Net loss, as reported	$	(1,512	)	$	(2,720	)
Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects		—			—
Deduct: Stock-based compensation expense determined under fair value based method for employee awards, net of related tax effects		(226	)		(306	)
Pro forma net loss	$	(1,738	)	$	(3,026	)
Pro forma net loss per share:
Basic and diluted	$	(0.14	)	$	(0.25	)
Reported net loss per share:
Basic and diluted	$	(0.12	)	$	(0.22	)

Inventories consist of the following (in thousands):


	June 30,		December 31,
	2005		2004
Work-in-process	$	1,456	$	677
Finished goods		997		954
Inventory held by distributors		66		139

Total inventories	$	2,519	$	1,770

~~Table~~Provision offor ~~Contents~~Income Taxes

2 The provision for income taxes for the three months and six months ended June 30, 2005 consists mainly of state taxes and some minor taxes incurred by our branch office in Japan. ~~Financial~~The provision ~~Statement~~for ~~Details~~income taxes for the three months and six months ended June 30, 2004 consists mainly of state taxes. We did not record a benefit for income taxes related to our net losses in the U.S., as we believe that the available objective evidence creates sufficient uncertainty regarding the realization of the deferred tax assets such that we have recorded a full valuation allowance. The effective tax rate for the three months ended June 30, 2005 and 2004 was 0.7% and the effective tax rate for the six months ended June 30, 2005 and 2004 was 0.3%.

~~Inventories~~Comprehensive ~~consist of the following (in thousands):~~Loss

	March 31,		December 31,
	2005		2004
Work-in-process	$	1,005	$	677
Finished goods		673		954
Inventory held by distributors		191		139
Total inventories	$	1,869	$	1,770

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

Provision for Income Taxes


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
Net 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	)

~~The provision for income taxes for the three months ended March 31, 2005 consists mainly of~~8 minor taxes incurred by our branch office in Japan. The provision for the three months ended March 31, 2004 consists mainly of minimum state tax obligations and minor taxes incurred by our branch office in Japan. We did not record a benefit for income taxes related to our net losses in the U.S. as we believe that the available objective evidence creates sufficient uncertainty regarding the realization of the deferred tax assets such that we have recorded a full valuation allowance. The effective tax rate for the three months March 31, 2005 was 0.07%. The effective tax rate for the three months ended March 31, 2004 was 0.1%.

ComprehensiveTable Loss of Contents

~~For~~3. ~~the~~Recent ~~three~~Accounting ~~months March 31, 2005 and 2004, comprehensive loss, which consists of the net~~Pronouncements ~~loss for the periods and unrealized gain or loss on short-term marketable securities, was as follows (in thousands):~~

	Three Months Ended
	March 31,
	2005			2004
Net loss:	$	(1,512	)	$	(2,720	)
Unrealized gain on available for sale marketable securities, net		1			1
Comprehensive loss	$	(1,511	)	$	(2,719	)

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

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

In December 2004, the FASB issued Statement of Financial Accounting Standards No. ~~123R~~153 (“SFAS No. ~~123R~~153”), “~~Share-Based~~Exchange ~~Payment~~of Nonmonetary Assets,” an amendment ~~to Statement~~ of ~~Financial~~APB ~~Accounting~~Opinion ~~Standards~~ No. ~~123 (“SFAS No.~~ ~~123~~29”),. ~~“Accounting~~SFAS ~~for Stock-Based Compensation” and Statement on Financial Accounting Standards~~ No. ~~95, “Statement of Cash Flows.” The revised standard~~ 153 addresses the ~~accounting~~ ~~for~~measurement ~~share-based payment transactions in which a company receives employee services in exchange for either equity instruments~~ of ~~the~~exchanges ~~company or liabilities that are based on the fair value~~ of ~~the~~nonmonetary ~~company’s~~assets ~~equity~~and ~~instruments~~redefines ~~or that may be settled by~~ the ~~issuance~~scope of ~~such equity~~ ~~instruments.~~transactions ~~Under~~that ~~the~~should ~~new standard, companies will no longer~~ be ~~able~~measured ~~to account for share-~~based ~~compensation~~ ~~transactions~~on ~~using~~ the ~~intrinsic method in accordance with APB 25. Instead, companies will be required to account for such transactions using a~~ fair- value ~~method~~of ~~and recognize~~ the ~~expense~~ inassets ~~the consolidated statement of income~~exchanged. ~~In addition, the adoption of~~ SFAS ~~123R will require additional accounting related to the income tax effects and additional disclosure regarding the cash flow effects resulting from share-based payment arrangements~~No. ~~On March~~ ~~29, 2005, the~~153 ~~Securities~~will ~~and~~be ~~Exchange~~effective Commission (SEC) issued Staff Accounting Bulletin 107 (SAB 107). This Bulletin summarizes the views of the SEC staff regarding the interaction between SFAS 123R, Share-Based Payment, and certain SEC rules and regulations and provides the SEC staff’s views regarding the valuation of share-based payment arrangements for ~~public~~nonmonetary ~~companies.~~transactions Inin ~~April 2005, the SEC postponed the implementation date of SFAS 123R to the~~ fiscal ~~year~~years beginning after June 15, 2005. The ~~Company has not yet determined which fair-value method and transitional provision it will~~ ~~follow.~~adoption ~~Currently,~~of ~~we disclose the pro forma net income (loss) and related pro forma income (loss) per share information in accordance with~~ SFAS ~~123 and Statement on Financial Accounting Standards~~ No. ~~148,~~153 ~~“Accounting~~is ~~for~~not ~~Stock-Based~~expected ~~Compensation~~to ~~Costs — Transition and Disclosure.” We believe that adoption of the new standard will~~ have ana ~~adverse~~material ~~impact~~effect on our financial position or results of operations.

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

~~Table of Contents~~9

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

~~In December 2004, the FASB issued Statement of Financial Accounting Standards No~~4. ~~153~~ ~~(“SFAS No. 153”),~~Operations ~~“Exchange~~by ofGeographic ~~Nonmonetary Assets, an amendment of APB Opinion No. 29”. SFAS No. 153~~Regions addresses the measurement of exchanges of nonmonetary assets and redefines the scope of transactions that should be measured based on the fair value of the assets exchanged. SFAS No. 153 will be effective for nonmonetary transactions in fiscal years beginning after June 15, 2005. The adoption of SFAS No. 153 is not expected to have a material effect on our financial position or results of operations.

4.The ~~Operations~~following is a summary of revenue by ~~Geographic~~geographical ~~Regions~~regions (in thousands):

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


	Three Months Ended				Sis Months Ended
	June 30,				June 30,
	2005		2004		2005		2004
Net revenue:
United States	$	192	$	229	$	456	$	481
Japan		2,799		4,094		5,000		5,940
Hong Kong		2,126		1,291		3,420		2,018
Other Asia		530		269		587		521
Europe		317		625		661		1,388
Other		—		—		86		—

Consolidated	$	5,964	$	6,508	$	10,210	$	10,348

	Three Months Ended
	March 31,
	2005		2004
Net revenue:
United States	$	265	$	252
Japan		2,201		1,846
Hong Kong		1,294		727
Other Asia		58		251
Europe		343		764
Other		86		—
Consolidated	$	4,247	$	3,840

5. Restructuring Charges

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

In the second quarter of 2004 we provided $0.2 million for our remaining lease obligations, net of expected sublease payments, on our Utah facility which we vacated in the first quarter of 2004. As of March 31, 2005, the remaining balance of our restructuring reserve relates to our continuing charges for rent on certain facilities which we abandoned in 2004 and subleased to another company and obligations on leased equipment that were used in those facilities (in thousands).


	($in
	thousands)
	Excess
	Facilities
Balance, December 31, 2004	$	149
Cash payments		(30	)

Balance, June 30, 2005	$	119

	Excess
	Facilities
Balance, December 31, 2004	$	149
Cash payments		(11	)
Balance, March 31, 2005		138

ItemTable 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsContents

~~The~~Item 2. ~~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~~The ~~forward-looking~~ statements ~~include,~~in ~~but~~this ~~are~~report ~~not~~or ~~limited~~incorporated ~~to,~~by ~~statements~~reference ~~regarding:~~which ~~our expectation~~are ~~that~~not wehistorical ~~will continue to experience erosion in the sales of our legacy products and our~~are ~~anticipation~~forward-looking ofstatements ~~fluctuations in the selling prices~~ and ~~margins in such products~~include, ~~our~~without ~~beliefs regarding deferred tax assets~~limitation, ~~including~~statements ~~our~~under ~~beliefs that~~ the ~~available objective evidence creates~~caption, ~~sufficient~~“Management’s ~~uncertainty~~Discussion ~~regarding~~and ~~the~~Analysis ~~realization~~ of ~~the~~Financial ~~deferred~~Condition ~~tax~~and ~~assets~~Results ~~such~~of ~~that~~Operations.” weTerms ~~have~~such ~~recorded~~as a“may,” ~~full~~“will,” ~~valuation~~“could,” ~~allowance~~“should,” ~~our~~“project,” ~~expectation~~“believe,” ~~that~~“anticipate,” ~~international~~“expect,” ~~revenue~~“plan,” “estimate,” ~~will~~“forecast,” ~~account~~“potential,” ~~for the~~“intend,” ~~substantial~~“continue” ~~majority~~and variations of ~~our~~these ~~total~~words ~~net~~or ~~revenue~~similar expressions ~~for~~are ~~the~~intended ~~foreseeable~~to ~~future,~~identify ~~our~~forward-looking ~~expectation~~statements.

9 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.

~~Table~~ 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 ~~Contents~~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”.

~~that~~ These ~~research~~forward-looking ~~and~~statements ~~development~~are ~~costs~~made ~~will~~only ~~vary~~as ~~from~~of ~~quarter to quarter depending on~~ the ~~stage~~ date of ~~products~~this inreport. ~~development~~We ~~and~~do ~~our~~not undertake ~~intention~~ to ~~expend~~update ~~significant~~or ~~resources~~revise in the ~~development~~forward-looking ~~of new products~~statements, ~~our~~whether ~~expectation~~as ~~regarding~~a ~~trade~~result ~~variables~~of ~~and accrued liability balances~~new information, ~~our expectation~~future ~~that~~events ~~our~~or ~~capital~~otherwise. ~~expenditures~~We ~~will~~caution ~~stay~~you ~~near~~not ~~first~~to ~~quarter~~give ~~levels~~undue inweight ~~the coming quarter and that we will be able~~ to ~~provide for these expenditures without~~ any ~~additional sources~~ of the ~~financing~~forward-looking ~~and~~statements. ~~our~~You ~~belief~~should ~~that~~not ~~existing~~regard ~~cash~~the ~~resources~~inclusion ~~are~~of ~~sufficient~~forward-looking toinformation ~~fund~~as ~~any anticipated~~a ~~operating~~representation ~~losses~~by ~~and~~us ~~purchases~~or ofany ~~capital~~other ~~equipment~~person ~~and~~that ~~provide~~we ~~adequate~~will ~~working~~achieve ~~capital~~our ~~for~~objectives ~~the next~~or ~~12 months~~plans.

~~Forward-looking~~Critical ~~statements~~Accounting ~~are subject to risks and uncertainties that could cause actual~~Policies 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~~Management’s ~~forward-looking~~Discussion ~~statements~~and ~~are~~Analysis ~~made~~of ~~only~~Financial asCondition and Results of ~~the~~Operations ~~date~~are based ofupon ~~this~~our ~~report~~consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. WeThe dopreparation ~~not~~of these financial ~~undertake~~statements requires management to ~~update~~make orestimates ~~revise~~and assumptions that affect the ~~forward-looking~~reported ~~statements~~amounts of assets, ~~whether~~liabilities, asrevenue aand ~~result~~expenses, and related disclosure of ~~new~~contingent assets and ~~information,~~liabilities. ~~future~~Management ~~events~~bases orits ~~otherwise.~~estimates Weon ~~caution~~historical ~~you~~experience ~~not~~and toother ~~give~~assumptions ~~undue~~that ~~weight~~are believed to ~~any~~be ofreasonable under the ~~forward-looking~~ ~~statements~~circumstances. ~~You~~These ~~should~~results form the basis for making judgments about the carrying values of assets and liabilities that are not ~~regard~~readily apparent from other sources. Senior management has discussed the ~~inclusion~~development, selection and disclosure of ~~forward-looking~~these estimates ~~information~~with asthe aAudit Committee of Micro Linear’s Board of Directors. Actual results may differ ~~representation~~from bythese usestimates under different assumptions or ~~any~~conditions. ~~other~~Management ~~person~~believes ~~that~~the wefollowing critical ~~will~~accounting ~~achieve~~policies ~~our~~reflect ~~objectives~~its ormore ~~plans~~significant estimates and assumptions used in the preparation of its consolidated financial statements. They include those regarding (1) revenue recognition, (2) estimating accrued liabilities and allowance for doubtful accounts, (3) inventory and related allowance for obsolete and excess inventory, (4) accounting for income taxes, and (5) valuation of long-lived and intangible assets.

~~Critical Accounting Policies~~11

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

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

Overview

Micro Linear ~~Corporation~~was isfounded ain ~~fabless~~1983, ~~semiconductor~~and ~~company~~until ~~specializing~~2000, inwe ~~wireless~~were a supplier of advanced analog and mixed signal integrated ~~circuit~~circuits ~~solutions~~to the computer, ~~which~~communications, ~~enable~~telecommunications, aconsumer ~~variety~~and industrial ofmarkets. ~~wireless~~During ~~products~~2000, ~~serving~~we adivested ~~global~~our ~~market. These~~manufacturing ~~transceivers~~test ~~can~~operation beand ~~used~~our non-communication inproduct ~~many~~lines ~~streaming~~and ~~wireless~~focused ~~applications~~our ~~such~~marketing, asengineering ~~cordless~~and ~~phones,~~product ~~PHS~~development on ~~handsets~~new communications products, most notably wireless ~~speakers~~integrated ~~and~~circuits. ~~headphones~~During 2001, ~~security~~we ~~cameras,~~established ourselves ~~game~~as ~~controllers,~~a volume supplier of RF transceivers to the digital cordless ~~headsets and~~telephone ~~other~~segment ~~personal~~of ~~electronic~~the communications ~~appliances~~market. ~~Headquartered~~In in2005, ~~San~~we ~~Jose,~~completed ~~California,~~the ~~Micro~~development ~~Linear’s~~of a transceiver for use in Personal ~~products~~Handyphone ~~are~~Systems ~~available~~(PHS). ~~through~~We ~~its~~began ~~authorized~~shipping ~~representatives~~this ~~and~~transceiver ~~distributors~~in ~~worldwide~~production volumes in the second quarter of 2005.

WeCurrently, ~~were founded~~ in ~~1983,~~addition ~~and~~to ~~until~~our ~~2000,~~transceivers wedesigned ~~were~~for athe ~~supplier~~digital ofcordless ~~advanced~~telephone ~~analog and mixed~~PHS ~~signal integrated circuits to the computer~~products, ~~communications,~~we ~~telecommunications,~~offer ~~consumer~~a ~~and industrial~~full ~~markets.~~line ~~During~~of ~~2000,~~high wedata-rate ~~divested~~ISM-band ~~our~~transceivers ~~manufacturing~~for ~~test~~applications ~~operation~~such ~~and our~~as ~~non-communication~~wireless ~~product~~speakers ~~lines~~ and ~~focused~~headphones, ~~our~~game ~~marketing~~controllers, ~~engineering~~voice headsets and ~~product~~other ~~development~~electronic onappliances. ~~new~~Micro ~~communications~~Linear ~~products,~~offers ~~including~~a ~~some~~uniquely ~~wired~~broad ~~networking~~line ~~products,~~of ~~but~~transceivers that address the most ~~notably~~popular ~~wireless~~unlicensed ~~integrated~~bands: ~~circuits.~~900 ~~During~~MHz, ~~2001~~2.4 GHz, weand ~~established~~5.8 ~~ourselves~~GHz. asTo asimplify ~~volume~~system ~~supplier~~design ofand RFdecrease ~~transceivers~~ time to ~~the~~market, ~~digital~~we also ~~cordless~~offer ~~telephone~~starter ~~segment~~kits ofand ~~the~~reference ~~communications market~~designs.

Wireless product revenue represented 7484% of net revenue for the ~~first~~second quarter of 2005 ~~compared~~ compared to 5677% of net revenue for the ~~first~~second quarter of 2004. We expect that wireless product revenue will continue to increase as a percentage of our total revenues as our legacy networking products near end-of-life.

1012

Results of Operations

Three Months and Six Months Ended ~~March~~June 3130, 2005 Compared with Three Months ~~Ended~~and ~~March~~Six Months Ended June 3130, 2004

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

	For the Three Months Ended March 31
	For the Three Months Ended June 30
	2005						2004
	~~($ in thousands)~~			($ in thousands)
				% of Net						% of Net
				Revenue						Revenue
Net revenue
Wireless	$	34,~~145~~997			7483.18	%	$	25,~~149~~023			5677.02	%
Networking		~~1,102~~967			2516.92			1,~~691~~485			4422.08
Total net revenue		45,~~247~~964			100.0			36,~~840~~508			100.0
Cost of goods sold		2,~~044~~330			4839.1			2,~~093~~683			5441.52
Gross margin		23,~~203~~634			5160.9			13,~~747~~825			4558.58
Operating expenses:
Research and development		2,~~197~~467			5141.73			2,~~641~~612			6840.81
Selling, general and administrative		12,~~606~~112			3735.84			1,~~846~~856			4828.15
Total operating expenses		3,803			89.5			4,487			116.8
Restructuring charges		—			—			166			2.6
Loss from operations		(1,600	)		(37.7	)		(2,740	)		(71.4	)
Total operating expenses		4,579			76.7			4,634			71.2
Interest and other income		93			2.2			62			1.6
Loss from operations		(945	)		(15.8	)		(809	)		(12.4	)
Interest and other expense		(4	)		(0.9	)		(38	)		(1.0	)
Interest and other income		103			1.7			47			0.7
Loss before income taxes		(1,511	)		(35.6	)		(2,716	)		(70.7	)
Interest and other expense		(2	)		(0.1	)		(49	)		(0.8	)
Provision for taxes		1			0.2			4			0.1
Loss before income taxes		(844	)		(14.2	)		(811	)		(12.5	)
Net loss	$	(1,512	)		(35.6	)%	$	(2,720	)		(70.8	)%
Provision for taxes		6			0.1			6			0.1
Net loss	$	(850	)		(14.3	)%	$	(817	)		(12.6	)%


	For the Six Months Ended June 30
	2005						2004
				($ in thousands)
				% of Net						% of Net
				Revenue						Revenue
Net revenue
Wireless	$	8,142			79.7	%	$	7,172			69.3	%
Networking		2,068			20.3			3,176			30.7

Total net revenue		10,210			100.0			10,348			100.0
Cost of goods sold		4,373			42.8			4,776			46.2

Gross margin		5,837			57.2			5,572			53.8
Operating expenses:
Research and development		4,663			45.7			5,253			50.8
Selling, general and administrative		3,718			36.4			3,702			35.8
Restructuring		—			—			166			1.6

Total operating expenses		8,381			82.1			9,121			88.2

Loss from operations		(2,544	)		(24.9	)		(3,549	)		(34.4	)
Interest and other income		196			2.0			109			1.1
Interest 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			0.1

Net loss	$	(2,362	)		(23.1	)%	$	(3,536	)		(34.2	)%

~~Table of Contents~~13

NetTable Revenue of Contents

	Three months ended		% Change			Three months ended
	March 31, 2005		2004 to 2005			March 31, 2004
	($ in thousands)
Wireless	$	3,145		46.3	%	$	2,149
Networking		1,102		(34.8	)%		1,691
Total	$	4,247		10.6	%	$	3,840

Net Revenue

Net revenue during the first quarter of 2005 increased $0.4 million from the comparable first quarter of 2004. Our wireless product net revenue increased $1.0 million during the first quarter of 2005, a 46% increase from the first quarter of 2004, while our networking products net revenue decreased $0.6 million during the first quarter of 2005, a 35% decrease from the comparable first quarter of 2004.


	Three months ended		% Change			Three months ended		Six months ended		% Change			Six months ended
	June 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	%	$	7,172
Networking		967		(34.9	)%		1,485		2,068		(34.9	)%		3,176

Total	$	5,964		(8.4	)%	$	6,508	$	10,210		(1.3	)%	$	10,348

~~The~~Net ~~increase~~revenue induring ~~wireless~~the ~~product~~second ~~revenue~~quarter of 2005 decreased $0.5 million from the comparable second quarter of 2004. The decrease was ~~primarily~~almost entirely due to athe ~~combination~~expected ofdecline ain ~~23% increase~~revenue infrom ~~unit~~our ~~shipment~~legacy ~~volumes,~~networking inproducts ~~the~~as ~~first~~they ~~quarter~~neared end-of-life. ~~2005~~Unit volume shipments of our wireless products increased 54% over the ~~comparable~~second ~~first~~ quarter of 2004,. Unit shipments to Uniden Corporation and aGiant ~~16%~~Electronics, ~~increase~~Ltd. inwere ~~the~~at ~~average~~record ~~selling~~levels. ~~prices~~Demand offor ~~these~~our ~~products~~5.8 ~~The~~GHz ~~unit~~products, used ~~shipment~~in ~~volume increase~~digital ~~was~~cordless ~~primarily~~telephones, ~~due~~and toour ~~the~~900 ~~addition~~MHz ofproducts, aused ~~second~~mainly ~~major~~in ~~digital~~wireless ~~cordless~~headsets, were ~~telephone~~at ~~customer~~record levels. ~~The~~ However, the increase in ~~our~~unit volume shipments was offset by a decrease in the average selling prices ~~compared~~of toour wireless products. During the ~~year~~second ~~ago~~quarter ~~period~~of ~~was~~2005 ~~driven~~we ~~mainly~~began shipping byour ML1900, the ~~higher~~ ~~average~~first ~~selling~~product ~~price~~in our family of ~~our~~Personal 5Handyphone System (PHS) transceivers.~~8GHz~~ ~~product,~~Sales of the ~~ML5800,~~ML1900 asaccounted ~~compared~~for toless than 10% of total net revenue in the second quarter of 2005. Our average selling ~~price~~ ofprices ~~the~~will ~~ML2722,~~fluctuate ~~our~~from ~~900MHz~~quarter ~~product~~to ~~that~~quarter ~~was~~as ~~shipping~~we inintroduce new ~~volume~~products ~~during~~at higher selling prices and reduce the ~~first~~prices ~~quarter~~on ~~of 2004~~products that are maturing.

~~The~~Net ~~decrease~~revenue infor ~~networking~~the ~~product~~first ~~revenue~~six ~~was~~months ~~primarily~~of ~~due~~2005 decreased slightly as compared to athe ~~combination~~first six months of 2004. Our wireless product net revenue increased $1.0 million, a 2414% ~~decline~~increase over the incomparable ~~unit~~period ~~volume~~for ~~shipments~~2004, ofwhile ~~our~~net ~~legacy~~revenue from our networking products ~~and~~decreased $1.1 million, a 1435% ~~decrease~~decline. The increase in ~~average~~wireless ~~selling prices~~product ofnet ~~these~~revenue ~~products~~was due mainly to a ~~shift~~41% increase in unit ~~product~~volume ~~mix.~~shipments, Weoffset ~~expect~~by ~~continuing~~a ~~erosion~~20% decrease in the ~~sales of~~average ~~these~~selling ~~legacy~~prices ~~products~~for ~~and~~these ~~anticipate~~products. The ~~that~~decrease ~~the~~in ~~average~~networking ~~selling~~product ~~prices~~net ~~and~~revenue ~~margins~~during ~~will~~the ~~continue to~~first ~~fluctuate~~six ~~from~~months ~~period~~of to2005, ~~period~~as ~~due~~compared to the ~~changes~~first insix ~~customer~~months ~~demand~~of as2004, ~~well~~was asdue ~~product availability~~to ~~for~~the ~~those~~decline ~~products~~in ~~that~~shipments ~~have~~of ~~been~~our ~~declared~~legacy tonetworking beproducts as they neared end-of-life.

In the ~~first~~second quarter of 2005 and the comparable period for 2004, sales to Uniden Corporation and Giant Electronics, Ltd., (a ~~subcontractor~~ subcontract manufacturer for Plantronics ~~Corporation)~~Inc., each accounted for more than 10% of our net revenue. In ~~the first quarter of 2004, sales to Uniden Corporation accounted for more than 10% of our net revenue.~~

International revenue for the ~~first~~second quarter of 2005 totaled $45.08 million compared to $6.3 million for the second quarter of 2004. International revenue accounted for 97% of total net revenue in both these periods. International revenue for the first six months of 2005 totaled $9.8 million, or 9496% of net revenue compared to $39.69 million, or 9395% of net revenue for the first ~~quarter~~six months of 2004. Domestic revenue was approximately 63% of net revenue for the ~~first~~second quarter of 2005 and ~~compared~~for tothe 7comparable period of 2004. Domestic revenue was approximately 4% of net revenue for the first ~~quarter~~six months of 2005 and 5% of net revenue for the first six months of 2004. We expect that international revenue will account for the substantial majority of our total net revenue for the foreseeable future.

Gross Margin

	Three months ended			% Change			Three months ended			Six months ended			% Change			Six months ended
	March 31, 2005			2004 to 2005			March 31, 2004
	June 30, 2005			2004 to 2005			June 30, 2004			June 30, 2005			2004 to 2005			June 30, 2004
	($ in thousands)			~~($ in thousands)~~						($ in thousands)
Gross margin	$	2,203			26.1	%	$	1,747
Gross Margin	$	3,634			(5.0	)%	$	3,825		$	5,837			4.8	%	$	5,572
% of Net revenue		51.9	%					45.5	%
%		61	%					59	%		57	%					54	%

Gross margin is affected by the unit volume of product shipments, selling prices, product mix, manufacturing subcontract costs, manufacturing utilization, ~~and~~ product yields and manufacturing overhead costs. It is also periodically affected by costs incurred in connection with start-up and installation of new ~~process technologies at outside~~ manufacturing ~~foundries~~processes ~~and~~at ~~test~~our subcontractors.

Gross margin ~~during~~increased to 61% in the ~~first~~second quarter of 2005 ~~was 52%~~, as compared to 4659% in the ~~first quarter~~second quarter of 2004. ~~Wireless~~This ~~product~~increase ~~gross~~was ~~margin~~primarily ~~was~~due ~~45%~~to ~~during~~reductions in manufacturing overhead costs of $0.2 million in the ~~first~~second quarter of 2005 as compared to ~~32% in~~ the ~~first~~second quarter of 2004. ~~and~~The ~~networking~~reduction in ~~product~~manufacturing ~~gross~~overhead ~~margin~~stemmed ~~was~~mainly ~~70%~~from ~~during~~headcount ~~the~~reductions ~~first~~in ~~quarter of~~our ~~2005~~operations ~~compared~~group toand receipt ~~63%~~of inrebates ~~the~~from ~~first~~certain ~~quarter~~test ofand ~~2004~~assembly subcontractors. During the ~~first~~second quarter of 2005, we sold approximately $4165,000 of excess ~~networking product~~ inventory that was previously written ~~off~~down ~~and~~as compared to approximately $11,000 of excess inventory that was sold in the second quarter of 2004. We recognized charges ~~for~~of approximately $4654,000 tofor ~~provide~~ reserves for additional excess ~~wireless~~ products. ~~Sales~~in the ofsecond ~~previously~~quarter ~~reserved~~of ~~products~~2005 ~~and~~as ~~additions~~compared to ~~the~~approximately ~~provisions~~$23,000 ~~for~~in ~~excess inventories~~additional ~~were~~reserves ~~not~~for excess ~~significant~~products in the ~~first~~second quarter of 2004.

1214

~~The~~Wireless ~~increase in wireless~~ product gross margin inwas 57% during the ~~first~~second quarter of 2005, asessentially ~~compared~~flat ~~to the~~with ~~same~~the ~~period~~comparable inyear ~~2004~~ago ~~was~~quarter. ~~primarily~~The ~~due to a 16% increase in~~ average selling prices ~~and~~of aour 7%wireless ~~decrease~~products declined induring ~~direct~~the ~~unit~~second ~~product~~quarter ~~costs.~~of ~~The~~2005 ~~increase~~due into ~~our~~a ~~average~~combination ~~selling~~of ~~prices~~price ~~was~~reductions ~~driven~~on ~~primarily by sales of~~ our ~~ML5800~~maturing ~~product, which was shipping in~~ high volume ~~during~~wireless ~~the~~products ~~first quarter of 2005~~ and ~~which~~ ~~had~~ a ~~significantly~~shift ~~higher~~in ~~average~~product ~~selling~~mix. ~~price~~The ~~than~~decline ~~the~~in average selling ~~price~~prices ~~of our ML2722~~was ~~product,~~offset ~~which~~by ~~was~~reductions in the ~~highest~~average ~~volume~~direct ~~wireless~~unit ~~product~~costs ~~that~~for ~~was~~our ~~shipping~~wireless ~~during~~products ~~the~~as ~~first~~well ~~quarter~~as ofreductions ~~2004~~in manufacturing overhead.

Networking product gross margin increased to 7082% in the ~~first~~second quarter of 2005 from 6364% for ~~the~~ the comparable ~~first~~second quarter of 2004. The increase in gross margin is ~~mainly~~ due to a shift in product mix in sales of our legacy networking products as well as a reduction in manufacturing overhead costs. We expect that the gross margin realized from these legacy products will continue to fluctuate from period to period due to changes in product mix resulting from changes in customer demand as well as product availability for those products that have been declared to be end-of-life.

~~Research~~ Gross margin for the first six months of 2005 increased to 57% from 54% in the first six months of 2004. This increase was mainly due to a decrease in manufacturing overhead costs of $0.3 million due to receipt of rebates from certain of our test and ~~Development~~assembly ~~Expenses~~subcontractors ~~(R&D)~~in the first six months of 2005 and a decrease in other outside services costs related to the introduction of new products. We expect manufacturing overhead costs to increase in the future as we continue to prepare for the introduction of new products. During the first six months of 2005, we sold approximately $105,000 of excess product inventory that was previously written down as compared to approximately $50,000 of excess inventory that was sold in the comparable year ago period. We recognized charges of approximately $100,000 to provide additional reserves for excess inventory in the first six months of 2005 as compared to approximately $162,000 in the first six months of 2004.

	Three months ended		% Change			Three months ended
	March 31, 2005		2004 to 2005			March 31, 2004
	($ in thousands)
R&D	$	2,197		(16.8	)%	$	2,641

Wireless product gross margin increased to 52% for the first six months of 2005 from 49% for the first six months of 2004. Networking product gross margin increased to 76% for the first six months of 2005 as compared to 64% for the first six months of 2004.

Research and ~~development~~Development ~~expenses~~Expenses ~~include costs associated with the definition, design and~~(R&D) ~~development of new products. In addition, research and development expenses include test development and prototype costs associated with new product development.~~

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


	Three months ended		% Change			Three months ended		Six months ended		% Change			Six months ended
	June 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

Research and development ~~costs~~expenses ~~will~~include ~~vary~~costs ~~from~~associated ~~quarter~~with ~~to quarter depending on~~ the ~~stage~~definition, ofdesign ~~products in development. Research~~ and development ~~expenses~~of ~~decreased~~new $0products.~~4 million,~~ ~~during~~In ~~the first quarter of 2005 from the comparable first quarter of 2004~~addition, ~~mainly~~research ~~due~~and todevelopment ~~decreases~~expenses ininclude ~~outside~~test ~~services,~~development ~~prototype~~ and ~~equipment~~prototype costs ~~and other costs~~ associated with ~~the development and introduction of~~ new products. Weprior ~~intend~~ to ~~expend~~their ~~significant~~release ~~resources in the development of new~~to ~~products during the foreseeable future~~manufacturing.

~~Selling,~~ We ~~General~~expense wafers and ~~Administrative~~production ~~Expenses~~mask ~~(SG&A)~~sets related to new products as research and development costs until products based on new designs are fully characterized, support published data sheets and satisfy reliability tests.

	Three months ended		% Change			Three months ended
	March 31, 2005		2004 to 2005			March 31, 2004
	($ in thousands)
SG&A	$	1,606		(13.0	)%	$	1,846

Research and development costs will vary from quarter to quarter depending on the stage of products in development. Research and development expenses decreased $0.1 million and $0.6 million, during the second quarter and first half of 2005 from the comparable second quarter and first half of 2004.

~~The~~Increases ~~decrease~~ in ~~selling,~~employee ~~general~~related ~~and~~costs ~~administrative~~of ~~expenses~~approximately ~~for~~$0.3 million in the ~~first~~second quarter of 2005, ~~as compared~~over to the ~~first~~comparable quarter ofin 2004, ~~was~~were ~~primarily~~offset ~~due~~by todecreases ~~headcount~~in outside services costs of ~~reductions~~approximately in$0.2 million ~~our~~and ~~sales~~prototype and ~~marketing~~equipment ~~functions~~costs ~~which~~and ~~was~~other ~~achieved~~costs associated with the ~~from~~development aand ~~realignment~~introduction of ~~our~~new ~~sales~~products ~~and~~of ~~marketing~~approximately ~~efforts~~$0.2 million.

~~Interest~~ Increases in employee related costs of approximately $0.5 million in the first six months of 2005 over the first six months of 2004, were offset by decreases in outside services costs of approximately $0.4 million, prototype, equipment and ~~Other~~other ~~Income~~costs associated with the development and ~~Interest~~introduction of new products of approximately $0.6 million and ~~Other~~a ~~Expense~~reduction of facility costs of approximately $0.1 million.

	Three months ended			% Change			Three months ended
	March 31, 2005			2004 to 2005			March 31, 2004
	($ in thousands)
Interest and other income	$	93			50.0	%	$	62
Interest and other expense	$	(4	)		89.5	%	$	(38	)

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

13 We intend to expend significant resources in the development of new products during the foreseeable future and expect that our research and development costs may increase in the coming quarters as we near the completion of development efforts for several of our new products.

~~Table~~Selling, ofGeneral ~~Contents~~and Administrative Expenses (SG&A)

Provision for Income Taxes


	Three months ended		% Change			Three months ended		Six months ended		% Change			Six months ended
	June 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

	Three months ended		% Change			Three months ended
	March 31, 2005		2004 to 2005			March 31, 2004
	($ in thousands)
Provision for income taxes	$	1		(75.0	)%	$	4

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

~~The~~During ~~provision~~the ~~for~~second ~~income~~quarter ~~taxes~~of ~~for~~2005, ~~the~~we ~~three~~incurred ~~months~~approximately ~~ended March~~$0.3 ~~31,~~million ~~2005~~in ~~consists mainly of~~employee ~~minor~~termination ~~taxes~~costs, ~~incurred~~including byapproximately ~~our~~$88,000 ~~branch office~~ in ~~Japan.~~non-cash ~~The~~charges ~~provision~~related ~~for~~to the ~~three~~modification of ~~months~~certain ~~ended~~employee ~~March 31~~option grants, ~~2004~~due ~~consists~~to ~~mainly~~our realignment of ~~minimum~~sales ~~state~~and ~~tax~~marketing ~~obligations~~activities. ~~and~~We also ~~minor~~incurred ~~taxes~~approximately ~~incurred~~$0.1 million byin ~~our~~increased ~~branch office~~costs in ~~Japan.~~the Wesecond ~~did~~quarter ~~not~~of ~~record~~2005, aas compared ~~benefit~~to ~~for~~the ~~income~~second ~~taxes~~quarter of 2004, related to our ~~net~~efforts ~~losses~~to inimplement ~~the~~controls required by ~~U.S.~~Section 404 asof weThe ~~believe~~Sarbanes ~~that~~Oxley ~~the~~Act. ~~available~~However, ~~objective~~selling, ~~evidence~~general ~~creates~~and ~~sufficient~~administrative ~~uncertainty~~expenses ~~regarding~~for the ~~realization~~first ofsix ~~the~~months ~~deferred~~of ~~tax~~2005 ~~assets~~remained ~~such~~essentially ~~that~~flat wewith ~~have~~the ~~recorded~~comparable aperiod ~~full~~of ~~valuation~~2004, ~~allowance.~~as the ~~The~~additional ~~effective~~costs ~~tax~~incurred ~~rate~~during ~~for~~ the ~~three~~second ~~months~~quarter ~~March 31,~~of 2005 ~~was~~were ~~0.07%.~~offset ~~The~~by ~~effective~~the ~~tax~~reduced ~~rate~~expenses ~~for~~in ~~the~~employee ~~three~~related ~~months~~costs ~~ended~~and ~~March 31,~~consulting ~~2004~~expenses ~~was~~related 0to our realignment efforts during the first quarter of 2005.~~1%.~~

~~Liquidity~~Interest and ~~Capital~~Other ~~Resources~~Income and Interest and Other Expense

	For the Three Months Ended
	Three months ended			% Change			Three months ended			Six months ended			% Change			Six months ended
	March 31,
	June 30, 2005			2004 to 2005			June 30, 2004			June 30, 2005			2004 to 2005			June 30, 2004
	2005			2004
	($ in thousands)									($ in thousands)
	(in thousands)
Interest and other income	$	103			119	%	$	47		$	196			79.8	%	$	109
Net cash used in operating activities	$	(224	)	$	(2,508	)
Interest and other expense	$	(2	)		95.9	%	$	(49	)	$	(7	)		91.9	%	$	(86	)
Net cash (used in) provided by investing activities		(442	)		2,000
Net cash provided by financing activities		21			291
Net decrease in cash and cash equivalents	$	(645	)	$	(217	)

~~Net~~The ~~cash~~increase ~~used~~in byinterest ~~operating~~and ~~activities~~other ~~during~~income for the first ~~three~~six months of 2005, ~~was~~as ~~mainly due to~~compared ~~our~~to ~~net operating loss of $1.5 million. Our major uses of cash during~~ the ~~quarter were operating expenses and cost of product manufactured. During the~~ first ~~quarter~~six ofmonths ~~2005 other sources~~ of ~~cash~~2004, ~~provided~~was ~~were~~primarily due to anhigher ~~increase~~short-term ofinterest ~~$0.7 million~~rates in ~~our accounts payable balances~~2005. Interest and another ~~increase~~expense inincurred ~~our~~during ~~accrued~~2004 ~~liabilities~~consisted primarily of ~~$0.4 million.~~interest ~~We expect trade payables and our~~payments ~~accrued~~attributable ~~liability balances~~ to ~~continue~~the tomortgage ~~fluctuate~~on ~~from~~our ~~period~~San toJose ~~period~~facility. ~~due~~The todecrease ~~variations~~ in ~~our production~~interest ~~cycle~~ and ~~timing of~~ other ~~operating~~ expenses~~. In addition, non-cash depreciation and~~ ~~amortization charges were $0.1 million~~ for the first ~~three~~ six months of 2005, ~~versus~~as ~~$0.2 million~~compared ~~for~~to the ~~three~~first six months of ~~2004.~~ ~~The higher depreciation in~~ 2004, was mainly due to the ~~depreciation associated~~repayment ~~with~~of ~~our property~~ that ~~was~~mortgage ~~sold~~ in July 2004. ~~Net~~when ~~cash used by operating activities during~~ the ~~first~~property ~~three months of 2004~~ was ~~mainly due to our net operating loss of $2~~sold.~~7 million.~~

~~Net~~Provision cash used in investing activities during the first three months of 2005 was primarily due to net purchases of short-term investments of $0.3 million and purchases of capital equipment of $0.2 million. The capital equipment purchased consists mainly of engineering equipment and software design tools used in research development projects. Capital expenditures for ~~this~~Income ~~type of equipment~~Taxes are expected to stay near the first quarter levels in the coming quarter and we anticipate that we will be able to provide for these expenditures without any additional sources of financing. Net cash provided by investing activities during the first three months of 2004 was primarily due to net sales of short-term investments and maturities of $2.2 million. This was partially offset by capital expenditures of $0.2 million.

Net cash provided by financing activities consists mainly of proceeds from the issuance of common stock in connection with the exercise of employee stock options. Proceeds from common stock issuances were $21,000 for the first three months of 2005 and $0.4 million for the comparable period of 2004. Principal mortgage payments on our debt were $0.1 million during the first three months of 2004. The mortgage on our San Jose facilities was paid off when the buildings were sold during the third quarter of 2004.


	Three months ended		% Change			Three months ended		Six months ended		% Change			Six months ended
	June 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

~~Working~~The ~~capital~~provision ~~was~~for ~~$14.8 million~~income astaxes offor ~~March~~the three months and six months ended June 3130, 2005, consists ~~compared~~mainly toof ~~$16~~state taxes and some minor taxes incurred by our branch office in Japan.~~3 million~~ asThe provision offor income taxes for the three months and six months ended June ~~December 31~~30, 2004 consists mainly of state taxes. ~~Working~~We ~~capital~~did atnot ~~March 31~~record a benefit for income taxes related to our net losses in the U.S., ~~2005~~as ~~includes~~we ~~cash~~believe ~~and~~that ~~cash~~the ~~equivalents~~available objective evidence creates sufficient uncertainty regarding the realization of ~~$10~~the deferred tax assets such that we have recorded a full valuation allowance.3 The effective tax rate for the three months ended June 30, ~~million~~2005 and ~~short-term~~2004 ~~investments~~was of0.7% $4and the effective tax rate for the six months ended 2005 and 2004 was 0.~~9 million~~3%.

~~We anticipate that existing cash resources are sufficient to fund any anticipated operating~~16 losses, purchases of capital equipment, and provide adequate working capital for at least the next 12 months. Our liquidity is affected by many factors, including, among others, the extent to which we pursue additional wafer fabrication capacity from existing foundry suppliers or new suppliers, capital expenditures, the level of our product development efforts, and other factors related to the uncertainties of the industry and global economies. Accordingly, there can be no assurance that events in the future will not require us to seek additional capital sooner or, if so required, that such capital will be available on terms acceptable to us.

14 Table of Contents

~~Table~~Liquidity ofand ~~Contents~~Capital Resources

Recent Accounting Pronouncements


	For the Six Months Ended
	June 30,
	2005			2004
	(in thousands)
Net cash used in operating activities	$	(2,622	)	$	(4,267	)
Net cash (used in) provided by investing activities		(732	)		3,927
Net cash provided by financing activities		1,005			326

Net decrease in cash and cash equivalents	$	(2,349	)	$	(14	)

InNet ~~December 2004,~~cash ~~the~~used ~~FASB~~by ~~issued~~operating ~~Statement~~activities ofduring ~~Financial~~the ~~Accounting~~first ~~Standards~~six ~~No. 123R~~months ~~(“SFAS No. 123R”),~~of ~~“Share-Based~~2005 ~~Payment,”~~was anmainly ~~amendment~~due to our ~~Statement~~net ofoperating ~~Financial~~loss ~~Accounting~~of ~~Standards No~~$2. ~~123~~4 million. ~~(“SFAS~~Our ~~No. 123”),~~major ~~“Accounting~~uses ~~for~~of ~~Stock-Based~~cash ~~Compensation”~~during ~~and~~the ~~Statement~~quarter onwere ~~Financial~~operating ~~Accounting~~expenses ~~Standards~~and ~~No. 95,~~our ~~“Statement~~cost of ~~Cash~~manufacturing ~~Flows~~products.” ~~The~~Our ~~revised~~inventory ~~standard~~balances ~~addresses~~increased ~~the accounting~~by ~~for share-based payment transactions~~ $0.7 million in ~~which~~anticipation ~~a company receives employee services in exchange for either equity instruments~~ of the ~~company~~seasonally orstrong ~~liabilities~~third ~~that~~quarter ~~are~~in ~~based on~~ the ~~fair value~~digital ofcordless ~~the~~phone ~~company’s~~market ~~equity~~and ~~instruments~~an initial orproduction ~~that~~ramp ~~may be settled by the issuance~~ of ~~such~~our ~~equity instruments~~PHS products. ~~Under~~In ~~the new standard~~addition, ~~companies~~our ~~will~~accounts noreceivable ~~longer be able to account for share-based~~balance ~~compensation~~increased ~~transactions~~by ~~using the intrinsic method in accordance with APB 25~~$0.8 million ~~Instead,~~because ~~companies will~~of ~~be required to account for such transactions using~~ a ~~fair-value~~heavy ~~method~~sales ~~and~~volume ~~recognize the expense~~ in the ~~consolidated~~third ~~statement~~month of ~~income. In addition,~~ the ~~adoption~~second quarter of ~~SFAS~~2005. ~~123R~~Other ~~will require~~major ~~additional~~sources ~~accounting~~of ~~related~~cash toduring the ~~income~~second ~~tax~~quarter ~~effects~~of ~~and~~2005 ~~additional~~included ~~disclosure~~$1.0 million ~~regarding~~from ~~the~~an ~~cash~~increase ~~flow~~in ~~effects~~our ~~resulting~~accounts ~~from~~payable ~~share-based~~balance ~~payment~~and ~~arrangements~~$0. ~~On March~~3 ~~29,~~million ~~2005,~~from ~~the Securities~~an ~~and~~increase ~~Exchange~~in ~~Commission~~our ~~(SEC) issued Staff Accounting Bulletin 107 (SAB 107)~~accrued liabilities. ~~This Bulletin~~We ~~summarizes~~expect ~~the~~trade ~~views~~payables ofand ~~the~~our ~~SEC~~accrued ~~staff~~liability ~~regarding~~balances ~~the~~to ~~interaction~~continue ~~between~~to ~~SFAS 123R,~~fluctuate ~~Share-Based~~from ~~Payment,~~period ~~and~~to ~~certain~~period ~~SEC~~due ~~rules~~to ~~and~~variations ~~regulations~~in ~~and~~our ~~provides~~production ~~the~~cycle ~~SEC~~and ~~staff’s~~timing ~~views regarding the valuation~~ of ~~share-based~~other ~~payment arrangements for public companies~~operating expenses. In ~~April 2005~~addition, ~~the~~ ~~SEC~~non-cash ~~postponed~~depreciation ~~the~~and ~~implementation~~amortization ~~date~~charges ofwere ~~SFAS~~$0.1 million ~~123R~~for to the first ~~fiscal~~six ~~year~~months ~~beginning~~of ~~after June 15,~~ 2005., ~~The~~as ~~Company~~compared ~~has~~to ~~not~~$0.3 million ~~yet~~for ~~determined~~the ~~which~~six ~~fair-value~~months ~~method~~of ~~and~~2004. ~~transitional~~The ~~provision~~higher depreciation itin ~~will follow.~~2004 ~~Currently,~~was wedue ~~disclose~~to the ~~pro~~depreciation ~~forma~~associated ~~net~~with ~~income~~our ~~(loss) and~~San ~~related~~Jose ~~pro~~property ~~forma~~that ~~income (loss)~~was ~~per~~sold ~~share information~~ in ~~accordance with SFAS 123 and Statement on Financial Accounting Standards No.~~July ~~148,~~2004. ~~“Accounting~~Net ~~for~~cash ~~Stock-Based~~used ~~Compensation~~by ~~Costs~~operating —activities ~~Transition~~during ~~and~~the ~~Disclosure.”~~first Wesix ~~believe that~~months ~~adoption~~ of ~~the~~2004 ~~new~~was mainly ~~standard~~due ~~will~~to ~~have~~our annet ~~adverse~~operating ~~impact~~loss ~~on our results~~ of ~~operations~~$3.5 million.

InNet ~~November 2004,~~cash used in investing activities during the ~~FASB~~first ~~issued~~six ~~Statement~~months of ~~Financial~~2005 ~~Accounting~~was ~~Standards~~primarily ~~No. 151~~due ~~(“SFAS~~to ~~No. 151”),~~net ~~“Inventory~~purchases ~~Costs,~~of anshort-term ~~amendment~~investments of ~~ARB No~~$0.5 ~~43,~~million ~~Chapter 4”,~~and ~~SFAS~~purchases ~~No. 151~~of ~~clarifies~~capital ~~that~~equipment of $0.2 ~~abnormal~~million. ~~inventory~~The ~~costs~~capital ~~such~~equipment aspurchased ~~costs~~consisted mainly of ~~idle~~engineering ~~facilities,~~equipment ~~excess~~and ~~freight~~software design ~~and~~tools ~~handling~~used ~~costs,~~in ~~and wasted~~research ~~materials~~development ~~(spoilage)~~ projects. Capital expenditures for this type of equipment are ~~required~~expected to bestay ~~recognized~~at asor ~~current~~near ~~period~~the ~~charges.~~second ~~SFAS~~quarter ~~No. 151~~levels in the coming quarter and we anticipate that we will be ~~effective~~able into ~~fiscal~~provide ~~years~~for ~~beginning~~these ~~after~~expenditures ~~June 15,~~without ~~2005~~any additional sources of financing. Net ~~The~~cash ~~adoption~~provided by investing activities during the first six months of ~~SFAS~~2004 ~~No. 151~~was ~~is not~~primarily ~~expected~~due to net ~~have~~sales aof ~~material~~short-term ~~effect~~investments onand ~~our~~maturities ~~financial~~of ~~position~~$4.3 million. orThis ~~results~~was partially offset by capital expenditures of ~~operations~~$0.4 million.

InNet ~~December 2004,~~cash ~~the~~provided ~~FASB~~by ~~issued~~financing ~~Statement~~activities consists mainly of ~~Financial~~proceeds ~~Accounting~~from ~~Standards~~the ~~No. 153~~issuance ~~(“SFAS~~of ~~No. 153”),~~common ~~“Exchange~~stock ofin ~~Nonmonetary~~connection ~~Assets,~~with anthe ~~amendment~~exercise of ~~APB~~employee ~~Opinion~~stock Nooptions. ~~29”.~~ ~~SFAS~~Proceeds Nofrom common stock issuances were $1.0 ~~153 addresses~~million for the ~~measurement~~first ofsix ~~exchanges~~months of ~~nonmonetary~~2005 ~~assets~~ and ~~redefines~~$0.5 million for the ~~scope~~comparable period of ~~transactions~~ ~~that~~2004. ~~should~~In ~~be measured based on~~ the ~~fair~~first ~~value~~six months of ~~the~~2004 ~~assets~~principal ~~exchanged.~~payments ~~SFAS~~on ~~No. 153 will~~the bemortgage ~~effective~~ for ~~nonmonetary~~our ~~transactions~~San inJose property ~~fiscal~~was ~~years beginning after June~~$0.1 ~~15, 2005~~million. The ~~adoption~~ ofmortgage ~~SFAS~~was ~~No. 153~~fully isrepaid ~~not~~when ~~expected~~the toproperty ~~have~~was asold ~~material~~during ~~effect on our financial position or~~the ~~results~~third quarter of ~~operations~~2004.

~~Factors~~ Working ~~That~~capital ~~May~~was ~~Affect~~$15.1 million ~~Future~~as ~~Operating~~of ~~Results~~June 30, 2005, compared to $16.3 million as of December 31, 2004. Working capital at June 30, 2005 includes cash and cash equivalents of $8.6 million and short-term investments of $5.2 million.

~~The~~We ~~risks~~anticipate ~~and~~that ~~uncertainties~~existing ~~described~~cash ~~below~~resources are ~~not~~sufficient ~~the~~to ~~only~~fund ~~ones~~any weanticipated ~~face.~~operating losses, Ifpurchases ~~any~~ of capital equipment, and provide adequate working capital for at least the next ~~following~~12 months. ~~risks~~Our ~~actually~~liquidity ~~occurs~~is affected by many factors, ~~our~~including, ~~business~~among others, ~~financial~~the ~~condition~~extent to which we pursue additional wafer fabrication capacity from existing foundry suppliers or ~~results~~new suppliers, capital expenditures, the level of ~~operations~~our ~~could~~product development efforts, and other factors related to bethe ~~materially~~uncertainties of the industry and ~~adversely~~global ~~affected:~~economies. Accordingly, there can be no assurance that events in the future will not require us to seek additional capital sooner or, if so required, that such capital will be available on terms acceptable to us.

~~Our operating results are difficult to predict and are likely to fluctuate significantly. They may~~17 ~~fail to meet or exceed the expectations of securities analysts or investors, causing our stock price to decline.~~

OurTable operating results are difficult to predict and have fluctuated significantly in the past. They are likely to continue to fluctuate in the future as a result of many factors, some of which are outside of our control. Some of the factors that may cause these fluctuations include: Contents

•Recent ~~the~~Accounting 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;Pronouncements

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

• In December 2004, the ~~announcement~~FASB orissued ~~introduction~~Statement of ~~new~~Financial orAccounting ~~enhanced~~Standards ~~products~~No. 153 ~~by us~~(“SFAS No. 153”), or“Exchange ~~competitors,~~of orNonmonetary ~~both;~~Assets, •an ~~any~~amendment ~~delay in the introduction~~ of ~~new~~APB orOpinion ~~enhanced~~No. 29”. ~~products~~SFAS byNo. 153 addresses ~~us;~~the •measurement ~~market~~of ~~acceptance~~exchanges of ~~our~~nonmonetary ~~new~~assets ~~products~~ and ~~continuing~~redefines ~~demand~~the ~~for~~scope ~~our existing products; • cost and availability~~ of transactions ~~wafers,~~that ~~other~~should ~~components~~be ~~and~~measured ~~testing~~based ~~services;~~on •the ~~mix~~fair value of ~~products~~the ~~sold;~~assets •exchanged. ~~fluctuations~~SFAS inNo. 153 will ~~end~~be ~~user~~effective ~~demand~~ for ~~wireless~~nonmonetary ~~products~~transactions ~~manufactured~~in byfiscal ~~our~~years ~~customers~~beginning ~~which~~after ~~incorporate our technology; • economic conditions specific to the networking and wireless industries and markets~~June 15, as2005. ~~well~~The adoption asof ~~general~~SFAS ~~economic~~No. 153 ~~conditions;~~is •not ~~ability~~expected to ~~hire~~have ~~and~~a ~~retain~~material ~~qualified~~effect ~~technical~~on ~~and~~our ~~other~~financial ~~personnel;~~position •or results ~~development~~ of ~~new industry standard communication protocols; and • availability and performance of advanced silicon process technologies from foundry sources~~operations.

WeIn ~~believe~~May 2005, ~~that~~as ~~period-~~part of a broader attempt to~~-period~~ ~~comparisons~~eliminate ofdifferences ~~our~~with ~~operating~~the ~~results~~International Accounting ~~will~~Standards ~~not~~Board, ~~necessarily~~the beFASB issued Statement of Financial Accounting Standards No. 154 ~~meaningful~~(“SFAS No. 154”), ~~You~~Accounting ~~should~~Changes ~~not~~and ~~rely~~Error onCorrections,” ~~these~~which ~~comparisons~~replaces asAccounting anPrinciples Board ~~indication~~Opinion No. 20 (“APB No. 20”), “Accounting Changes,” and FASB Statement of ~~our~~Financial Accounting ~~future~~Standards ~~performance~~No. 3, ~~If our~~“Reporting ~~operating~~Accounting ~~results~~Changes in ~~one~~Interim orFinancial ~~more~~Statements.” ~~future~~Opinion No. 20 ~~periods~~had ~~fail~~required tothat ~~meet~~changes orin ~~exceed~~accounting principles be recognized by including the ~~expectations~~cumulative effect of the change in the period in which the new accounting principle was adopted. SFAS No. 154 ~~securities~~requires ~~analysts~~retrospective orapplication ~~investors~~of the change to prior periods’ financial statements, unless it is impracticable to determine the ~~trading~~period-specific ~~price~~effects of ~~our~~the ~~common~~change. ~~stock~~The ~~may~~Statement ~~fluctuate~~is effective for fiscal years beginning after December 15, ~~possibly~~2005. byThe adoption of this statement is not expected to have a ~~significant~~material ~~amount~~effect on the Company’s financial statements.

~~The~~Factors ~~markets~~That inMay ~~which~~Affect weFuture ~~operate~~Operating ~~are intensely competitive, and many competitors are larger and more~~Results ~~established. If we do not compete successfully, our business could be harmed.~~

~~Intense~~The ~~international~~risks and ~~domestic~~uncertainties ~~competition,~~described ~~decreasing~~below ~~selling~~are ~~prices,~~not ~~rapid technological change, short product life cycles and cyclical patterns characterize~~ the ~~markets~~only ~~for~~ones ~~our~~we ~~products~~face. ~~Competitors~~ ~~include~~If ~~significantly~~any ~~larger~~of ~~corporations. New entrants in these markets could provide~~the ~~additional~~following ~~competition.~~risks ~~Most~~actually ofoccurs, our ~~competitors~~business, ~~are substantially larger and have greater~~ financial, ~~technical,~~condition ~~marketing~~or ~~and~~results ~~other resources than we do. Many~~ of ~~these~~operations ~~large organizations~~could ~~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~~materially ~~to downturns in a particular market. In addition, many competitors have focused on the wireless market for longer than we have,~~ and ~~therefore~~adversely ~~have more long-standing and established~~affected: ~~relationships with domestic and foreign customers.~~

~~The computer networking equipment and wireless markets have undergone a period of rapid growth~~18 and consolidation in recent years. We expect our dependence on sales to digital cordless phone and network equipment manufacturers to continue. Our business and results of operations would be harmed in the event of a significant slowdown in the digital cordless phone or computer networking equipment market. In addition, as a result of competitive pricing pressures, we have experienced lower margins on some of our products. Such pricing pressures will continue to have an adverse effect on our results of operations, and our business could suffer unless they can be offset by higher margins on other products or lower operating expenses.

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

InOur ~~addition,~~operating ~~our~~results ~~products~~ are ~~generally~~difficult ~~sole-sourced~~ to ~~our~~predict ~~customers.~~and Ifare ~~our~~likely ~~customers~~to ~~were~~fluctuate significantly. They may fail to ~~develop~~meet ~~other~~or ~~sources~~exceed ~~for~~the ~~our~~expectations ~~products,~~of ~~our~~securities ~~operating~~analysts ~~results~~or ~~would~~investors, becausing ~~harmed~~our stock price to decline.

~~The~~ Our ~~market~~operating ~~for~~results ~~wireless~~are ~~applications~~difficult isto ~~characterized~~predict byand ~~rapid~~have ~~technological~~fluctuated ~~change~~significantly in the past. They ~~Our~~are likely to continue to fluctuate in the future as a result of many factors, some of which ~~success~~are ~~depends~~outside onof our ~~ability~~control. toSome ~~respond~~of tothe factors that may cause these ~~changes.~~fluctuations include:

16 • 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.

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

~~Rapidly~~The ~~changing~~markets ~~technology,~~in ~~frequent~~which ~~product~~we ~~introductions~~operate ~~and~~are ~~evolving~~intensely ~~industry standards make it difficult to accurately predict the market’s future growth rate~~competitive, ~~size~~and ormany ~~technological direction.~~competitors ~~In view of the evolving nature of this market, suppliers of wireless products may decide to adopt alternative standards or technologies that~~ are ~~incompatible~~larger ~~with~~and ~~our products~~more established. If we ~~are unable~~do tonot ~~design,~~compete ~~develop~~successfully, ~~manufacture and sell products that are compatible with these new standards or technologies,~~ our business ~~and~~could ~~operating results would~~ be harmed.

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

~~Continuing technological advancement, changes in customer requirements and evolving industry~~19 ~~standards characterize the wireless and computer equipment networking markets. To compete successfully, we must design, develop, manufacture and sell new or enhanced products that:~~

•Table 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.Contents

The ~~development~~computer networking equipment and wireless markets have undergone a period of ~~these~~rapid ~~new~~growth and ~~circuits~~consolidation isin ~~highly~~recent ~~complex~~years. We ~~have~~expect ~~sometimes~~our ~~experienced~~dependence ~~delays~~on sales to digital cordless phone and network equipment manufacturers to continue. Our business and results of operations would be harmed in ~~completing~~the event of a significant slowdown in the ~~development~~digital cordless phone or computer networking equipment market. In addition, as a result of ~~new~~competitive pricing pressures, we have experienced lower margins on some of our products. ~~Successful~~Such ~~product~~pricing ~~development~~pressures ~~and~~will ~~introduction~~continue to have an adverse ~~depends~~effect on ~~many~~our ~~factors~~results of operations, ~~including:~~and our business could suffer unless they can be offset by higher margins on other products or lower operating expenses.

• We ~~proper~~do ~~new~~not ~~product~~currently ~~definition;~~manufacture •our ~~timely~~own ~~completion~~semiconductor ~~and~~wafers. ~~introduction~~As ofa ~~new~~result, ~~product~~we ~~designs;~~are •vulnerable to ~~availability~~process oftechnology ~~foundry~~advances ~~capacity;~~competitors •use ~~acceptable~~to ~~manufacturing~~manufacture ~~yields;~~products offering higher performance and •lower ~~market~~cost. ~~acceptance~~Larger ofcompanies ~~our~~with ~~products~~wafer manufacturing facilities, broader product lines, greater technical and ~~our~~financial ~~customers’~~resources ~~products~~and greater service and support capabilities have an advantage in this market.

We must be able to adjust to changing market conditions quickly and cost-effectively to compete successfully. Furthermore, we must introduce new products in a timely manner, and achieve market acceptance for these products. In addition, our ~~customers’~~ products ~~which~~are ~~incorporate~~generally ~~our products~~sole-sourced ~~must~~to beour ~~introduced in a timely manner and achieve market acceptance~~customers. If ~~we, or~~ our customers, ~~fail~~ were to develop ~~and~~other ~~introduce~~sources ~~new~~for ~~products~~our ~~successfully~~products, our ~~business and~~ operating results would ~~suffer~~be harmed.

ToThe ~~successfully develop and~~ market ~~certain~~for ofwireless ~~our~~applications ~~planned~~is ~~products,~~characterized weby ~~may~~rapid ~~need~~technological ~~to enter into technology development or licensing agreements with third parties~~change. IfOur ~~we cannot enter into such~~future ~~agreements~~success depends on ~~acceptable terms,~~ our ability to ~~develop~~respond ~~and~~to ~~market~~these ~~new products could suffer, and our business and operating results would be adversely affected~~changes.

~~Customers~~Rapidly ~~typically~~changing ~~take~~technology, afrequent ~~long~~product ~~time~~introductions toand ~~evaluate~~evolving ~~our~~industry ~~new~~standards make ~~products.~~it Itdifficult ~~takes three~~ to ~~six months~~accurately orpredict ~~more~~the ~~for~~market’s ~~customers~~future togrowth ~~test new products~~rate, ~~and~~size ator ~~least~~technological direction. anIn ~~additional~~view ~~three~~of tothe ~~12 months until~~evolving ~~customers~~nature ~~begin~~of ~~significant~~this ~~production~~market, suppliers of ~~products~~wireless ~~incorporating our~~ products. We may decide ~~therefore~~to ~~experience~~adopt aalternative ~~lengthy~~standards ~~delay~~or ~~between~~technologies ~~product~~that ~~development~~are ~~and~~incompatible ~~the~~with ~~generation~~our ~~of revenue from new~~ products. ~~Delays~~If ~~inherent~~we ~~in such a long sales cycle raise additional risks that customers may~~are ~~decide~~unable to ~~cancel~~design, ordevelop, ~~change~~manufacture ~~their~~and ~~product~~sell ~~plans.~~products ~~Such~~that ~~changes~~are ~~could~~compatible ~~result~~with inthese ~~the loss of~~new ~~anticipated~~standards ~~sales.~~or ~~Our business~~technologies, ~~financial~~our ~~condition,~~business and operating results ~~of operations~~ would ~~suffer~~be ~~if customers reduce or delay orders, or choose not to release products incorporating our products~~harmed.

We ~~have~~need ato ~~history~~develop ~~of losses~~ and, ~~because~~introduce ofnew ~~continued~~and ~~investment~~enhanced products in ~~product~~a ~~development,~~timely ~~expect~~manner to successfully ~~incur~~compete ~~losses~~ in ~~the~~our ~~future~~industry. ~~We may not become profitable.~~

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

~~Table~~• provide increasingly higher levels of ~~Contents~~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.

WeThe ~~have~~development ~~incurred~~of ~~quarterly~~these ~~net~~new ~~losses~~circuits ~~from~~is ~~June 2000~~highly ~~through~~complex. ~~March 2005,~~We ~~except~~have ~~for~~sometimes aexperienced ~~profit~~delays in ~~the~~completing ~~third quarter of 2002, which was attributable to an income tax refund, and a net profit for~~ the ~~third~~development ~~quarter~~ of ~~2004~~new ~~which~~products. ~~occurred~~Successful ~~from~~product ~~the~~development ~~sale of our land~~ and ~~buildings. Because of those~~introduction ~~losses,~~depends weon ~~had~~many ~~an accumulated deficit of $25.8 million as of March 31~~factors, ~~2005.~~including:

~~Successful~~• ~~engineering~~proper ~~development~~new ~~and market penetration in the~~ product ~~areas~~definition; we• ~~have~~timely ~~chosen to~~completion ~~compete~~and inintroduction ~~require high levels~~ of ~~engineering and product development expense. We intend to continue to spend significant amounts on~~ new product ~~and~~designs; ~~technology~~• ~~development.~~availability ~~Our~~of ~~networking products~~foundry ~~are~~capacity; ~~reaching~~• ~~maturity,~~acceptable ~~and~~manufacturing ~~revenue~~yields; ~~from this product line has declined~~ and is• ~~expected~~market ~~to decline~~acceptance ~~further~~of ~~over~~our ~~the~~products ~~next 12 months. We expect to incur losses in the future~~ and ~~may not achieve~~ our ~~goals~~customers’ ~~of positive net income and cash flow~~products.

~~To the extent that our existing resources and cash generated from operations are insufficient to~~20 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.

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

We ~~depend~~must onbe ~~networking~~able to adjust to changing market conditions quickly and cost-effectively to compete successfully. Furthermore, ~~wireless~~we must introduce new products in a timely manner, and ~~telecommunications~~achieve market ~~spending~~acceptance for ~~our~~these ~~revenue~~products. ~~Any~~In ~~decrease~~addition, orour customers’ products which incorporate our ~~delay~~products inmust ~~spending~~be introduced in ~~these~~a ~~industries~~timely ~~would~~manner ~~negatively~~and ~~impact~~achieve ~~future~~market ~~operating~~acceptance. ~~results~~If we, or our customers, fail to develop and introduce new products successfully, our business and operating ~~financial~~results ~~condition~~would suffer.

~~Demand~~To ~~for~~successfully develop and market certain of our planned products, inwe ~~the~~may ~~future~~need ~~will~~to ~~depend~~enter oninto technology ~~the~~development ~~amount~~or ~~and~~licensing ~~timing~~agreements ofwith ~~spending~~third ~~by network~~parties. ~~providers,~~If ~~manufacturers~~we ofcannot ~~wireless~~enter ~~consumer~~into ~~products,~~such agreements ~~and~~on ~~telecommunications~~acceptable ~~equipment suppliers.~~terms, ~~Spending~~our inability ~~these~~to ~~areas~~develop ~~depends~~and ~~upon~~market anew ~~variety~~products ofcould ~~factors~~suffer, ~~including competitive~~and ~~pressures,~~our ~~discretionary~~business ~~consumer~~and ~~spending~~operating ~~patterns,~~results ~~and~~would ~~general~~be ~~economic~~adversely ~~conditions~~affected.

~~During~~Customers ~~certain~~typically ~~periods,~~take a long time to evaluate our new ~~orders~~products. ~~slowed,~~It ~~customers~~takes ~~cancelled~~three to six months or ~~placed~~more ~~holds~~for oncustomers ~~existing orders~~to test new products, and ~~new~~at ~~order~~least ~~levels~~an ~~fluctuated,~~additional ~~due~~three to ~~developments~~12 months until incustomers ~~the~~begin ~~general~~significant ~~economy~~production ~~and~~of ~~capital markets~~products incorporating our products. ~~This~~We ~~situation~~may therefore ~~could~~experience ~~recur~~a inlengthy ~~the~~delay ~~future.~~between ~~Because~~product development and the ~~majority~~generation of ~~our~~ revenue ~~comes~~ from ~~sales~~new toproducts. Delays inherent in such a ~~few~~long sales cycle raise additional risks that customers, amay decide ~~delay~~to incancel ~~orders~~or ~~from~~change ~~one~~their ~~customer~~product plans. Such changes could ~~have~~result ain ~~significant~~the ~~negative~~loss of ~~effect~~anticipated onsales. ~~future~~Our ~~revenue~~business, financial condition, and results of operations would suffer if customers reduce or delay orders, or choose not to release products incorporating our products.

~~Relatively~~We ~~short~~have ~~product~~a ~~life~~history ~~cycles characterize the computer network equipment and digital cordless telephone markets. If one or more~~ of ~~our~~losses ~~significant customers were to select circuits manufactured by a competitor for future products~~and, ~~our~~because ~~business would suffer. The loss~~ of ~~one~~continued ~~or more~~investment ofin ~~our~~product ~~current customers~~development, ~~failure~~expect to ~~attract new customers, or disruption of our sales and~~ ~~distribution~~incur ~~channels~~losses ~~could~~in ~~harm~~the ~~our~~future. ~~business~~We ~~and~~may ~~operating~~not ~~results~~become profitable.

~~Our~~ We ~~customer~~have ~~base~~incurred isquarterly ~~concentrated.~~net ~~The~~losses ~~loss~~from June 2000 through June 2005, except for a profit in the third quarter of ~~one~~2002, orwhich ~~more~~was ~~key~~attributable ~~customers~~to oran ~~distributors~~income ~~would~~tax ~~harm~~refund, and a net profit for the third quarter of 2004 which occurred from the sale of our ~~business~~land and buildings. Because of those losses, we had an accumulated deficit of $26.7 million as of June 30, 2005.

ASuccessful ~~significant~~engineering ~~majority~~development ofand ~~our~~market ~~net~~penetration ~~revenue~~in ~~comes~~the ~~from~~product ~~sales~~areas towe ~~relatively~~have ~~few customers. Sales~~chosen to ~~our~~compete ~~ten~~in ~~largest~~require ~~customers,~~high ~~excluding~~levels ~~domestic distributors, accounted for approximately 88%~~ of ~~net~~ ~~revenue~~engineering ~~for the three months ended March 31, 2005~~ and ~~82%~~product ofdevelopment ~~net~~expense. ~~revenue~~We ~~for~~intend ~~the~~to continue ~~same~~to ~~period~~spend ~~in 2004.~~significant ~~Two~~amounts ~~customers,~~on ~~Uniden~~new ~~Corporation~~product and ~~Giant~~technology ~~Electronics Ltd~~development. (aOur ~~subcontractor for~~networking ~~Plantronics),~~products ~~together~~are ~~accounted~~reaching ~~for~~maturity, ~~61%~~and ofrevenue ~~our~~from ~~net~~this ~~revenue~~product ~~for~~line ~~the~~has ~~first~~declined ~~quarter~~and ofis ~~2005.~~expected ~~Sales~~ to ~~domestic~~decline ~~distributors~~further ~~accounted~~over ~~for approximately 3% of net revenue for~~ the ~~three~~next ~~months ended March~~12 ~~31, 2005, and approximately 6% for the same period in 2004~~months. We ~~anticipate~~expect ~~that a limited number of key customers and distributors will continue~~ to ~~provide~~incur alosses ~~significant~~in ~~portion of our net revenue for~~ the ~~foreseeable~~ future. ~~Our future success depends on our ability to retain our current customers~~ and ~~attract~~may ~~new customers. A reduction, delay or cancellation of orders from one or more~~not ~~significant~~achieve ~~customers could materially harm~~ our ~~operating~~goals ~~results. In addition, our operating results could be adversely affected if one or more~~ of ~~our~~net ~~major~~income ~~customers~~and ~~were~~cash ~~to develop other sources for the products we now supply them~~flow.

~~Generally,~~To ~~customers~~the ~~may~~extent ~~cancel~~that orour ~~reschedule~~existing ~~orders~~resources toand ~~purchase~~cash ~~standard~~generated ~~products~~from ~~without~~operations are insufficient to ~~significant~~fund ~~penalty~~our ~~until~~future ~~30 days~~activities, ~~prior~~we may need to ~~requested~~raise ~~shipment~~additional capital. ~~Customers~~If ~~frequently~~funds ~~revise~~are ~~delivery~~not available on ~~schedules~~acceptable terms, ~~and~~we ~~the~~may ~~quantities~~not ofbe ~~products~~able to behire ~~delivered~~or retain employees, tofund ~~reflect~~our operations or compete effectively.

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

~~Table~~We ofdepend ~~Contents~~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.

~~changes~~ Demand for our products in ~~their~~the ~~needs.~~future ~~Since~~will ~~backlog~~depend ~~can~~on bethe ~~canceled~~amount orand ~~rescheduled~~timing of spending by network providers, ~~our~~manufacturers ~~backlog~~of atwireless ~~any~~consumer ~~time~~products, and telecommunications equipment issuppliers. ~~not~~Spending ~~necessarily~~in ~~indicative~~these areas depends upon a variety of ~~future~~factors, ~~revenue~~including competitive pressures, discretionary consumer spending patterns, and general economic conditions.

We During ~~depend~~certain onperiods, ~~international~~new ~~sales~~orders slowed, customers cancelled or placed holds on existing orders, and ~~are~~new ~~subject~~order levels fluctuated, due to developments in the ~~risks~~general ~~associated~~economy ~~with~~and ~~international~~capital ~~operations,~~markets. ~~which~~This ~~may~~situation ~~negatively~~could ~~affect~~recur ~~our~~in ~~business~~the future. Because the majority of our revenue comes from sales to a few customers, a delay in orders from one customer could have a significant negative effect on future revenue.

~~Sales to customers outside of the United States represented 94% of net revenue for the three~~21 months ended March 31, 2005, and 93% of net revenue for the comparable period in 2004. We expect that international sales will continue to generate a substantial proportion of net revenue for the foreseeable future. Our international operations are subject to a number of risks, including:

•Table 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.Contents

~~Substantially~~Relatively ~~all~~short product life cycles characterize the computer network equipment and digital cordless telephone markets. If one or more of our ~~international~~significant ~~sales~~customers ~~must~~were beto ~~licensed~~select circuits manufactured by ~~the~~a ~~Office~~competitor for future products, our business would suffer. The loss of ~~Export~~one or ~~Administration~~more of ~~the~~our ~~U.S.~~current ~~Department~~customers, offailure ~~Commerce.~~to Toattract ~~date~~new customers, weor ~~have~~disruption ~~not~~of ~~experienced~~our ~~any~~sales ~~material~~and ~~difficulties~~distribution inchannels ~~obtaining~~could ~~export~~harm ~~licenses~~our business and operating results.

Our ~~international~~customer ~~sales~~base ~~are~~is ~~typically denominated in U~~concentrated.S. ~~dollars.~~The ~~Fluctuations~~loss inof ~~currency exchange~~one ~~rates~~or ~~could cause our products to become relatively~~ more ~~expensive~~key to customers ~~in a particular country, while competitors’ products denominated in local currencies become less expensive. This may lead to a reduction in sales~~ or ~~profitability~~distributors inwould ~~that country, which could~~harm ~~adversely affect~~ our business.

~~Gains~~A ~~and~~significant ~~losses~~majority onof ~~the~~our ~~conversion~~net revenue comes from sales to Urelatively few customers.S. ~~dollars~~Sales to ofour ~~accounts~~ten ~~receivable~~largest customers, ~~accounts~~excluding ~~payable~~domestic distributors, accounted for approximately 93% and 89% of net revenue for the three months and ~~other~~six ~~international~~months ~~assets~~ended June 30, 2005, respectively, and approximately ~~liabilities~~91% ~~may~~and ~~contribute~~87% toof ~~fluctuations~~net inrevenue ~~operating~~for ~~results~~the comparable periods in 2004. Two customers, Uniden InCorporation ~~addition~~and Giant Electronics, ~~international~~Ltd. ~~customers~~(a ~~typically~~subcontract ~~take~~manufacturer ~~longer~~for Plantronics, Inc), together accounted for 67% of our net revenue for the second quarter of 2005. Sales to ~~pay~~domestic distributors accounted for ~~purchases~~approximately ~~than~~3% ~~customers~~and in4% of net revenue for the three months and six months ended June 30, 2005, respectively, and for both of the ~~United~~comparable ~~States~~periods in 2004. IfWe ~~foreign~~anticipate ~~markets~~that doa limited ~~not~~number of key customers and distributors will continue to ~~develop~~provide a significant portion of our net revenue for the foreseeable future. Our future success depends on our ability to retain our current customers and attract new customers. A reduction, delay or ~~foreign~~cancellation ~~sales~~of ~~cycles~~orders ~~prove~~from one ~~unpredictable,~~or more significant customers could materially harm our ~~revenue~~operating ~~and~~results. ~~business~~In ~~would~~addition, our operating results could be adversely affected if one or more of our major customers were to develop other sources for the products we now supply them.

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

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

~~Selling~~ Sales ~~prices~~to customers outside of the United States represented 97% and 96% of net revenue for ~~wireless~~the three ~~products~~months ~~typically~~and ~~decrease~~six months ended June 30, ~~which~~2005, ~~could~~respectively, ~~lead~~and toapproximately ~~lower~~97% ~~operating~~and 95% of net ~~results~~revenue for the comparable periods in 2004. We expect that international sales will continue to generate a substantial proportion of net revenue for the foreseeable future. Our international operations are subject to a number of risks, including:

~~Average~~• ~~selling~~changes ~~prices~~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 ~~products~~certain technology; • fluctuations in ~~the~~currency ~~wireless~~exchange ~~markets~~rates; ~~have~~• ~~rapidly~~difficulty ~~declined~~in ~~due~~collecting toaccounts ~~many factors~~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.

• Substantially ~~rapidly~~all ~~changing~~of ~~technologies;~~our •international ~~price-performance~~sales ~~enhancements;~~must •be ~~product~~licensed ~~introductions~~ by ~~competitors;~~the •Office ~~price~~of ~~pressure~~Export Administration ~~from~~of ~~significant~~the U.S. Department of Commerce. To date, we have not experienced any material difficulties in obtaining export licenses. In the future, if we have difficulties or delays in obtaining expert licenses, we may be unable to sell our products to international customers; ~~and~~which •could ~~product~~harm ~~maturity~~our ~~and~~operating ~~obsolescence~~results.

~~The decline in the average selling prices of our products may cause substantial fluctuations~~22 in our operating results. We continue to develop and market new products that incorporate valued new features and sell at higher prices. Failure to deliver new products offering increased value would result in a decline in both revenue and margins, harming our business, financial condition, and results of operations.

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

~~Complex~~Our ~~products~~international ~~such~~sales asare ~~ours~~typically ~~frequently~~denominated ~~contain~~in ~~errors,~~U.S. ~~defects,~~dollars. ~~and~~Fluctuations ~~bugs~~in ~~upon release.~~currency ~~Despite~~exchange ~~thorough~~rates ~~testing~~could bycause ~~Micro Linear,~~ our ~~test~~products ~~houses~~to ~~and~~become ~~customers,~~relatively ~~these~~more ~~errors,~~expensive ~~defects and bugs are sometimes discovered after we begin~~ to ~~ship~~customers ~~products.~~in ~~We expend significant resources to~~a ~~remedy~~particular ~~these problems~~country, ~~but~~while ~~occasionally~~competitors’ ~~have~~products ~~faced~~denominated ~~legal~~in ~~claims~~local bycurrencies ~~customers~~become ~~and others~~less expensive. ~~Product defects~~This ~~can~~may ~~also~~lead ~~cause~~to ~~interruptions,~~a ~~delays~~reduction orin ~~cancellations of~~ sales toor ~~customers,~~profitability in ~~addition~~that ~~to claims against us~~country, ~~all of~~ which could adversely affect our ~~operating results~~business.

We Gains ~~depend~~and losses on the ~~health~~conversion ofto ~~the~~U.S. ~~semiconductor~~dollars ~~industry~~of accounts receivable, ~~which~~accounts ispayable and ~~highly~~other ~~cyclical.~~international ~~The~~assets ~~decline~~and liabilities may contribute to fluctuations in operating results. ~~demand~~In inaddition, international customers typically take longer to pay for purchases than customers in the ~~semiconductor~~United ~~industry~~States. ~~could~~If ~~affect~~foreign ~~our~~markets ~~financial~~do ~~condition~~not ~~and~~continue ~~results~~to ofdevelop, or foreign sales cycles prove ~~operations~~unpredictable, our revenue and business would be adversely affected.

~~The~~Selling ~~semiconductor~~prices ~~industry~~for ~~experiences~~wireless ~~significant~~products ~~downturns~~typically and wide fluctuations in supply and demand. The industry also experiences significant fluctuations in anticipation of changes in general economic conditions. This causes significant variances in product demand and production capacitydecrease, ~~and aggravates both our manufacturing costs and product selling prices. These cyclical patterns,~~ which wecould ~~expect~~lead to ~~continue,~~lower ~~may substantially harm our business, financial condition,~~operating ~~and~~ results ~~of operations~~.

If Average weselling ~~fail~~prices tofor ~~adequately~~products ~~forecast~~in ~~demand~~the ~~for~~wireless ~~our~~markets ~~products,~~have werapidly ~~may~~declined ~~incur~~due ~~product~~to ~~shortages or excess~~many ~~product~~factors, ~~inventory.~~including:

We• ~~regularly~~rapidly ~~request~~changing ~~indications~~technologies; ~~from~~• ~~customers~~price-performance asenhancements; to• ~~their~~product ~~future~~introductions ~~plans~~by ~~and~~competitors; ~~requirements,~~• ~~to ensure~~price ~~that~~pressure we will be prepared to meet production demand for our products. However, we may not receive anticipated purchase orders for our products. We must be able to effectively manage the expenses and inventory risks associated with meeting potential demand. If we fail to meet customers’ supply expectations, we may lose business from ~~such~~significant customers.; ~~If we expend resources~~ and ~~purchase~~• ~~materials,~~product ormaturity ~~enter into commitments to acquire materials~~ and ~~manufacture products, and customers do not purchase these products, our business and operating results would suffer~~obsolescence.

~~Design~~The ~~wins,~~decline ~~which~~in ~~require~~the ~~significant~~average ~~expenditures,~~selling ~~often~~prices ~~precede~~of ~~the~~our ~~generation~~products ofmay ~~volume sales~~cause bysubstantial afluctuations in ~~year~~our oroperating ~~more~~results. ~~The~~We ~~value~~continue ofto ~~any~~develop ~~design~~and ~~win~~market ~~will~~new ~~largely~~products ~~depend~~that ~~upon~~incorporate ~~the commercial~~valued ~~success~~new offeatures ~~the~~and ~~customer’s~~sell ~~product,~~at ~~and~~higher onprices. ~~the~~Failure ~~extent~~ to ~~which~~deliver ~~the~~new ~~design~~products ofoffering ~~the~~increased ~~customer’s product~~value ~~accommodates~~would ~~components~~result ~~manufactured~~in bya ~~our~~decline ~~competitors.~~in Weboth ~~cannot~~revenue ~~assure~~and ~~that~~margins, weharming ~~will~~our ~~achieve design wins~~business, orfinancial ~~that~~condition, and ~~any~~results ~~design~~of ~~win will result in significant future revenue~~operations.

WeDefects ~~depend on a limited number of outside foundries and test subcontractors~~ in ~~the~~our ~~manufacturing process~~products, ~~and~~product ~~any~~returns ~~failure~~and toproduct ~~obtain~~liability ~~sufficient~~could ~~foundry~~result orin ~~testing~~a ~~capacity~~decrease ~~could significantly delay~~in ~~our~~customers ~~ability~~and ~~to ship our products~~revenue, ~~damage~~unexpected ~~our~~expenses ~~customer relationships,~~ and ~~result~~loss inof ~~reduced~~market ~~revenue~~share.

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

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

WeThe ~~utilize~~semiconductor ~~outside~~industry ~~foundries~~experiences ~~for~~significant ~~all~~downturns ~~wafer~~and ~~production.~~wide Wefluctuations ~~believe~~in ~~that utilizing outside~~supply ~~foundries enable us to focus on our design strengths, minimize fixed costs~~ and ~~capital~~demand. ~~expenditures and~~The ~~access~~industry ~~diverse~~also ~~manufacturing~~experiences ~~technologies.~~significant Wefluctuations ~~currently~~in ~~intend~~anticipation toof ~~continue~~changes ~~to rely exclusively~~in ~~upon~~general ~~our~~economic ~~outside foundries for our wafer fabrication requirements~~conditions. ~~However,~~This ~~there~~causes ~~are~~ significant ~~risks~~ ~~associated~~variances ~~with~~in ~~the~~product ~~reliance~~demand onand ~~outside foundries~~production capacity, ~~including~~and ~~the~~aggravates ~~lack~~both ofour ~~assured~~manufacturing ~~wafer~~costs ~~supply~~ and ~~control~~product ~~over~~selling ~~delivery~~prices. ~~schedules~~These cyclical patterns, ~~delays~~which inwe ~~obtaining~~expect ~~access~~ to ~~key process technologies~~continue, ~~and limited~~may ~~control~~substantially ~~over~~harm ~~manufacturing~~our ~~yields~~business, financial condition, and ~~production~~results ~~costs~~of operations.

~~The~~Because ~~manufacture~~we ofdo ~~integrated~~not ~~circuits is a highly complex and technically demanding process. We~~ have ~~diversified~~long-term ~~our~~commitments ~~sources~~from ~~of wafer supply and have worked closely with~~ our ~~foundries~~distributors ~~to minimize~~or ~~the likelihood of reduced manufacturing yields. However~~customers, ~~our~~we ~~foundries~~must ~~have sometimes~~estimate ~~experienced~~customer ~~lower than anticipated manufacturing yields~~demand, ~~particularly in connection with the introduction of new products~~ and ~~the~~errors ~~installation~~in ~~and~~our ~~start-up~~estimates ofcan ~~new processes. Reduced yields~~ have, atnegative ~~times,~~effects ~~negatively~~on ~~affected~~ our ~~operating~~inventory ~~results~~levels, sales aand ~~situation~~operating ~~which may recur in the future~~results.

~~Dependence~~Our onsales ~~foundries~~are ~~located~~made ~~outside~~on the basis of ~~the~~individual ~~United~~purchase ~~States~~orders ~~subjects~~rather usthan long-term purchase commitments. We regularly request indications from customers as to ~~numerous~~their ~~risks,~~future plans and ~~including~~requirements, ~~exchange~~to ~~rate~~ensure ~~fluctuations~~that we will be prepared to meet production demand for our products. However, ~~export~~we may not receive anticipated purchase orders for our products. We must be able to effectively manage the expenses and ~~import~~inventory ~~restrictions,~~risks ~~trade~~associated ~~sanctions~~with meeting potential demand. If we fail to meet customers’ supply expectations, ~~political~~we may lose business from such customers. If we expend ~~instability~~resources and ~~tariff~~purchase ~~increases.~~materials, ~~One~~or ofenter ~~our~~into ~~main~~commitments ~~foundries~~to isacquire ~~located~~materials inand manufacture ~~Singapore~~products, ~~which~~and ~~presents~~customers do not purchase these products, we may end up with excess ~~specific~~inventory ~~risks~~and ~~due~~our tobusiness ~~political~~and ~~instability~~operating inresults ~~that~~would ~~region~~suffer.

~~We purchase wafers from outside foundries pursuant to customers’ purchase orders. We generally~~23 do not have a guaranteed level of wafer capacity or wafer costs at our foundries. Our wafer suppliers could prioritize capacity for other uses, or reduce or eliminate deliveries to us on short notice. In addition, we depend upon a limited number of foundries for our wafer requirements. Any sudden demand for an increased amount of wafers, or sudden reduction or elimination of any source of wafers, could result in a material delay in the shipment of products. Disruptions in supply, which have occurred in the past, may occur in the future. If such a disruption occurred, and we were unable to qualify alternative manufacturing sources for our products in a timely manner, or if such sources were unable to produce wafers with acceptable manufacturing yields, our business and operating results would be materially and adversely affected.

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

~~Rapid~~Design ~~technological~~wins, ~~change~~which ~~and~~require ~~frequent~~significant ~~new~~expenditures, ~~product~~often ~~introductions~~precede ~~characterize~~ the ~~markets~~generation ~~for~~of volume ~~our~~sales ~~products.~~by Toa ~~remain~~year ~~competitive, we must develop~~ or ~~obtain~~more. ~~access~~The tovalue ~~new~~of ~~semiconductor~~any ~~process technologies~~design inwin ~~order~~will tolargely ~~reduce~~depend ~~die~~upon ~~size,~~the ~~increase~~commercial success ~~die~~of ~~performance~~the ~~and~~customer’s ~~functional complexity~~product, and ~~improve~~ ~~manufacturing~~on ~~yields.~~the Ifextent weto ~~are~~which ~~unable~~the todesign ~~obtain~~of ~~access~~the tocustomer’s ~~advanced~~product accommodates ~~wafer~~components ~~processing technologies,~~manufactured ~~limiting~~by our ~~ability~~competitors. toWe ~~introduce~~cannot ~~competitive~~assure ~~products~~that onwe awill ~~timely~~achieve design ~~basis~~wins, ~~our~~or ~~future operating~~that ~~results~~any ~~would~~design bewin ~~harmed~~will result in significant future revenue.

~~Minute~~We ~~levels~~depend ofon ~~contaminants~~a inlimited ~~the~~number ~~semiconductor~~of ~~manufacturing~~outside ~~environment,~~foundries ~~defects~~and intest ~~the masks~~subcontractors ~~used to print circuits on a wafer, difficulties~~ in the ~~fabrication~~ manufacturing process, and ~~other~~any ~~factors can~~failure ~~cause a substantial percentage of wafers~~ to beobtain ~~rejected~~sufficient foundry or atesting ~~significant~~capacity ~~number~~could ofsignificantly ~~die on each~~delay ~~wafer~~our toability ~~be nonfunctional. Many of these manufacturing problems are difficult~~ to ~~diagnose~~ship ~~and~~our ~~time consuming and expensive to remedy. Our foundries have~~products, atdamage ~~times,~~our ~~experienced~~customer ~~lower than anticipated yields~~relationships, ~~which~~and ~~have~~result ~~adversely~~in ~~affected~~reduced ~~production and operating results~~revenue.

~~The~~We ~~manufacturing~~utilize ~~processes~~outside ~~utilized~~foundries byfor ~~our~~all ~~foundries~~wafer ~~are~~production. ~~continuously~~We ~~being~~believe ~~improved~~that inutilizing ~~order~~outside tofoundries ~~increase~~enable ~~yield~~us ~~and~~to ~~product~~focus ~~performance.~~on ~~Process~~our ~~changes~~design ~~can~~strengths, ~~however,~~minimize ~~result~~fixed incosts ~~interruptions~~and incapital expenditures ~~production~~and oraccess ~~significantly~~diverse ~~reduced~~manufacturing ~~yields~~technologies. ~~New~~We ~~process~~currently ~~technologies~~intend ~~and~~to ~~new~~continue ~~products~~to ~~are~~rely exclusively ~~especially~~upon ~~susceptible~~our tooutside ~~wide~~foundries ~~variations~~for inour ~~manufacturing~~wafer ~~yields~~fabrication ~~and efficiency~~requirements. ~~Irregularities~~However, ~~adverse~~ ~~yield~~there ~~fluctuations~~are orsignificant risks ~~other~~associated ~~manufacturing~~with ~~problems~~the atreliance ~~our~~on outside foundries, ~~could~~including ~~result~~the inlack of assured wafer supply ~~production~~and ~~interruption~~control orover delivery schedules, delays in obtaining access to key process technologies, ~~which~~and limited ~~would~~control ~~harm~~over ~~our~~manufacturing ~~business~~yields and ~~results~~production ~~of operations~~costs.

WeThe ~~have~~manufacture ~~granted~~of ~~nontransferable,~~integrated ~~limited~~circuits ~~process~~is ~~licenses~~a tohighly ~~some~~complex ofand ~~our~~technically ~~foundries~~demanding ~~to utilize~~process. We have diversified our ~~processes~~sources toof ~~manufacture~~wafer supply and ~~sell~~have ~~wafers~~worked closely with our foundries to minimize ~~other~~the ~~customers.~~likelihood Weof ~~protect~~reduced manufacturing yields. However, our ~~proprietary~~foundries have sometimes ~~technology~~experienced lower than anticipated manufacturing yields, particularly ~~our~~in ~~design~~connection ~~methodology,~~with ~~but~~the introduction ~~may~~of ~~not~~new beproducts ~~able~~and tothe ~~prevent~~installation ~~its~~and start-up of new processes. Reduced yields ~~misappropriation~~have, byat times, negatively affected our ~~foundries~~operating orresults, ~~others~~a situation which may recur in the future.

We Dependence ~~and~~on ~~the~~foundries ~~independent~~located ~~foundries~~outside ~~and~~of ~~subcontractors~~the weUnited ~~use~~States subjects us to ~~manufacture~~numerous risks, including exchange rate fluctuations, export and ~~test~~import ~~our~~restrictions, ~~products~~trade ~~are~~sanctions, political ~~subject~~instability toand ~~environmental~~tariff ~~laws~~increases. ~~Failure~~One toof ~~comply~~our ~~with~~main ~~these~~foundries ~~laws~~is ~~could~~located ~~delay~~in ~~manufacturing~~Singapore, ofwhich ~~our~~presents ~~products~~specific ~~and~~risks ~~result~~due to political instability in ~~unexpected~~that ~~expenses~~region.

~~Our~~We purchase wafers from outside foundries pursuant to customers’ purchase orders. We generally do not have a guaranteed level of wafer capacity or wafer costs at our foundries. Our wafer suppliers ~~and~~could ~~test~~prioritize ~~and~~capacity ~~assembly~~for ~~subcontractors~~other ~~are~~uses, ~~subject~~or reduce or eliminate deliveries to us on short notice. In addition, we depend upon a ~~variety~~limited number of ~~U.S.~~foundries ~~and~~for our wafer requirements. ~~foreign~~Any ~~government~~sudden ~~regulations~~demand ~~related~~for toan ~~the~~increased ~~discharge~~amount of wafers, or ~~disposal~~sudden reduction or elimination of ~~toxic~~any source of wafers, ~~volatile~~could orresult ~~otherwise~~in a material delay in the shipment of products. Disruptions in ~~hazardous~~supply, ~~chemicals~~which ~~used~~have occurred in ~~their~~the ~~manufacturing~~past, ~~processes~~may occur in the future. ~~Failure~~If such a disruption occurred, and we were unable to qualify alternative manufacturing sources for our products in a timely manner, or if such sources were unable to produce wafers with acceptable manufacturing yields, our business and operating results would be materially and adversely affected.

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

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

by Minute ~~our~~levels ~~suppliers~~of orcontaminants ~~subcontractors~~in tothe ~~comply~~semiconductor ~~with~~manufacturing ~~environmental~~environment, ~~regulations~~defects ~~could result~~ in the ~~fines,~~masks ~~suspension~~used ofto ~~production~~print orcircuits ~~cessation~~on ofa ~~operations.~~wafer, ~~Environmental~~difficulties ~~regulations~~in ~~could~~the ~~also~~fabrication process and other factors ~~require~~can ~~our~~cause ~~suppliers~~a orsubstantial ~~subcontractors~~percentage of wafers to ~~acquire~~be ~~equipment~~rejected or ~~incur~~a ~~other~~significant ~~expenses~~number toof ~~comply~~die ~~with~~on each ~~environmental~~wafer ~~regulations~~to be nonfunctional. IfMany ~~our~~of ~~suppliers~~these ormanufacturing ~~subcontractors~~problems ~~incur~~are ~~substantial~~difficult ~~additional~~to diagnose and time ~~expenses~~consuming and expensive to remedy. Our foundries have, ~~product~~at ~~costs~~times, ~~could~~experienced ~~significantly~~lower ~~increase~~than anticipated yields, which have adversely ~~affecting~~affected ~~our~~production ~~results~~and ~~of operations~~operating results.

WeThe ~~are~~manufacturing ~~also~~processes ~~subject~~utilized toby aour ~~variety~~foundries ofare ~~environmental~~continuously ~~regulations~~being ~~relating~~improved toin ~~our operations. If~~order weto ~~fail~~increase toyield ~~comply~~and ~~with~~product ~~present~~performance. ~~and~~Process ~~future~~changes ~~regulations~~can, ~~the~~however, ~~government~~result ~~could~~in ~~impose~~interruptions ~~fines~~in production onor ~~us,~~significantly ~~or compel~~reduced usyields. toNew ~~suspend~~process ortechnologies ~~cease~~and ~~operations.~~new Ifproducts weare especially orsusceptible ~~our~~to ~~suppliers~~wide orvariations ~~subcontractors~~in ~~fail~~manufacturing toyields ~~control~~and efficiency. Irregularities, ~~the~~adverse ~~use~~yield fluctuations or ~~discharge~~other ofmanufacturing ~~hazardous~~problems ~~substances,~~at weour foundries could beresult ~~subject~~in production tointerruption ~~civil~~ or ~~criminal~~delivery ~~liabilities~~delays, which ~~could~~would harm our business and ~~operating~~ results of operations.

~~Because competition for qualified personnel is intense, we may not be successful in attracting and~~24 ~~retaining personnel, which could have an impact upon the development or sales of our products.~~

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

~~Competitors~~We ~~may~~have ~~attempt~~granted tonontransferable, ~~recruit~~limited ~~our~~process ~~employees.~~licenses ~~While employees are required~~ to ~~sign standard~~some ~~agreements concerning confidentiality and ownership~~ of ~~inventions,~~our wefoundries doto ~~not have~~utilize ~~employment contracts or non-competition agreements with most of~~ our ~~personnel.~~processes ~~The~~to ~~loss~~manufacture ofand ~~the services~~sell ofwafers ~~key employees, the inability~~ to ~~attract~~other orcustomers. ~~retain~~We ~~qualified~~protect ~~personnel,~~our ~~or delays in~~proprietary ~~hiring personnel~~technology, particularly ~~engineers~~our ~~and~~design ~~other~~methodology, ~~technical~~but ~~personnel~~may ~~could~~not ~~negatively~~be ~~affect~~able ~~our business~~to ~~and~~ prevent usits misappropriation ~~from~~by ~~achieving~~ our ~~business~~foundries ~~goals~~or others.

~~Our~~We ~~success~~and ~~depends~~the onindependent ~~our~~foundries ~~ability~~and subcontractors we use to ~~protect~~manufacture and test our ~~intellectual~~products ~~property~~are subject to environmental laws. Failure to comply with these laws could delay manufacturing of our products and ~~proprietary~~result ~~rights~~in unexpected expenses.

WeOur ~~attempt~~wafer tosuppliers ~~protect~~and ~~our~~test ~~intellectual~~and ~~property~~assembly ~~rights~~subcontractors ~~through~~are ~~patents,~~subject ~~trademarks, copyrights,~~to ~~licensing~~a ~~arrangements,~~variety ~~maintaining~~of ~~certain~~U.S. ~~technology as trade secrets~~ and ~~other~~ ~~measures.~~foreign ~~However,~~government ~~any~~regulations ~~patent,~~related ~~trademark,~~to ~~copyright~~the discharge or ~~other~~disposal ~~intellectual~~of ~~property~~toxic, ~~rights~~volatile weor ~~own~~otherwise ~~may~~hazardous bechemicals ~~invalidated,~~used ~~circumvented~~in ortheir ~~challenged~~manufacturing processes. WeFailure ~~cannot~~by ~~be certain that~~ our ~~intellectual~~suppliers ~~property~~or ~~rights~~subcontractors ~~will~~to ~~provide~~comply ~~competitive~~with ~~advantages,~~environmental orregulations ~~that~~could ~~any~~result ~~pending~~in orfines, ~~future~~suspension ~~patent applications will~~of beproduction ~~issued~~or ~~with~~cessation ~~the scope~~ of ~~the claims sought by us~~operations. ~~Competitors~~Environmental ~~may~~regulations ~~develop~~could ~~technologies~~also ~~that~~require ~~are similar~~our suppliers or ~~superior~~subcontractors to ~~our~~acquire ~~technology,~~equipment ~~duplicate~~or ~~our~~incur ~~technology~~other orexpenses ~~design~~to ~~around~~comply ~~the~~with ~~patents that~~environmental ~~we own~~regulations. InIf ~~addition,~~our ~~effective~~suppliers ~~patent,~~or ~~copyright~~subcontractors ~~and~~incur ~~trade~~substantial ~~secret~~additional ~~protection~~expenses, ~~may be unavailable or~~product ~~limited~~costs incould ~~certain~~significantly ~~foreign~~increase, ~~countries~~adversely inaffecting ~~which~~our weresults doof ~~business~~operations.

We ~~believe~~are ~~that~~also ~~the~~subject ~~future~~to ~~success~~a variety of ~~our~~environmental ~~business~~regulations ~~will~~relating ~~depend~~to on our ~~ability~~operations. If we fail to ~~translate technological~~comply ~~expertise~~with present and ~~innovation~~future ~~into~~regulations, ~~new~~the ~~and~~government ~~enhanced~~could ~~products.~~impose Wefines ~~enter~~on ~~into~~us, or ~~confidentiality~~compel us to suspend or ~~license~~cease ~~agreements~~operations. ~~with~~If we or our ~~employees,~~suppliers ~~consultants,~~or ~~vendors~~subcontractors ~~and~~fail ~~customers,~~to ~~and~~control ~~limit~~the ~~access~~use toor ~~and~~discharge ~~distribution~~ of ~~our~~hazardous ~~proprietary information. Nevertheless~~substances, we ~~may~~could ~~not~~ be ~~able~~ subject to ~~prevent~~civil ~~the~~or ~~misappropriation~~criminal ofliabilities, which could harm our ~~technology~~business and operating results.

InBecause ~~addition,~~competition wefor ~~have~~qualified ~~taken~~personnel ~~legal~~is ~~action to enforce our patents and other intellectual property rights~~intense, ~~protect~~we ~~our~~may ~~trade~~not ~~secrets,~~be ~~determine~~successful ~~the~~in ~~validity~~attracting and ~~scope of the proprietary rights of~~ ~~others,~~retaining ~~and defend against claims of infringement or invalidity. If a third party makes a valid claim~~personnel, ~~and~~which wecould ~~cannot~~have ~~obtain~~an aimpact ~~license~~upon to the ~~technology~~development onor ~~reasonable~~sales ~~terms,~~of our ~~operations could be harmed~~products.

WeOur ~~may~~future besuccess ~~subject~~will depend to ~~legal~~a ~~proceedings~~significant ~~and~~extent ~~claims~~on ~~from~~our ~~time~~ability to ~~time~~attract, inretain ~~the ordinary course of~~and ~~our~~motivate ~~business~~qualified personnel, ~~including~~especially ~~claims~~those ofwith ~~alleged~~engineering ~~infringement~~design ofexperience ~~the proprietary rights~~ and ~~other intellectual property rights of third parties~~expertise. ~~Intellectual~~We may ~~property~~not ~~litigation~~be issuccessful ~~expensive~~in ~~and time-consuming,~~attracting and ~~could~~retaining ~~divert~~such ~~our~~qualified ~~management’s attention away from running our business~~personnel.

We Competitors ~~have~~may inattempt ~~the~~to ~~past,~~recruit our employees. While employees are required to sign standard agreements concerning confidentiality and ~~may~~ownership inof inventions, we do not have employment contracts or non-competition agreements with most of our personnel. The loss of the services ~~future~~of key employees, bethe ~~parties~~inability to ~~legal~~attract ~~proceedings~~or ~~that~~retain ~~could~~qualified ~~have~~personnel, aor delays in ~~negative~~hiring ~~financial~~personnel, ~~impact~~particularly onengineers and other technical personnel could negatively affect our business and prevent us from achieving our business goals.

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

~~Our~~ We ~~stock~~attempt ~~price~~to ~~has~~protect ~~been~~our intellectual property rights through patents, trademarks, copyrights, licensing arrangements, maintaining certain technology as trade secrets and ~~will~~other measures. ~~likely~~However, ~~continue~~any topatent, trademark, copyright or other intellectual property rights we own may be ~~volatile~~invalidated, ~~because~~circumvented ofor ~~stock~~challenged. ~~market~~We cannot be certain that our intellectual property ~~fluctuations~~rights will provide competitive advantages, or that ~~affect~~any pending or future patent applications will be issued with the ~~price~~scope of ~~technology~~the ~~stocks~~claims sought by us. ACompetitors ~~decline~~may indevelop technologies that are similar or superior to our ~~stock~~technology, ~~price~~duplicate ~~could~~our ~~result in~~technology ~~securities~~or ~~class~~design ~~action~~around ~~litigation~~the ~~against~~patents ~~us,~~that we ~~which~~own. ~~could~~In ~~divert~~addition, ~~management’s~~effective ~~attention~~patent, copyright and trade secret protection may be unavailable or ~~harm~~limited ~~our~~in certain foreign countries in which we do business.

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

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

~~Our~~We ~~stock~~may ~~price~~be ~~has~~subject ~~been~~to ~~and~~legal isproceedings ~~likely~~and toclaims ~~continue~~from time to betime ~~highly~~in ~~volatile.~~the ~~Between~~ordinary ~~January 1,~~course of ~~2005~~our ~~and March 31~~business, ~~2005~~including ~~our~~claims ~~stock~~of ~~price~~alleged ~~has~~infringement ~~traded~~of asthe ~~high~~proprietary asrights ~~$5.43~~and onother intellectual ~~March 31,~~property ~~2005~~rights ~~and~~of asthird ~~low as $4~~parties.33 onIntellectual ~~January 25,~~property ~~2005.~~litigation ~~Our~~is ~~stock~~expensive ~~price~~and time-consuming, and could ~~fluctuate~~divert ~~significantly~~our ~~due~~management’s toattention aaway ~~number~~from ~~of factors,~~running ~~including:~~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.25

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

~~Our~~We ~~Certificate~~have ofin ~~Incorporation~~the ~~and Bylaws~~past, ~~Stockholder Rights Plan~~ and ~~Delaware~~may ~~law contain provisions that could discourage a change~~ in ~~control~~the future, ~~even~~be ifparties ~~the~~to ~~change~~legal inproceedings ~~control~~that ~~would~~could behave a ~~beneficial~~negative tofinancial ~~our~~impact ~~stockholders~~on us.

~~Provisions~~From oftime ~~our~~to ~~Amended~~time ~~and~~we ~~Restated~~have ~~Certificate~~received ofcorrespondence ~~Incorporation~~from vendors, ~~Bylaws~~distributors, ~~the~~customers ~~1998~~or ~~Shareholder~~end-users ~~Rights~~of ~~Plan~~our products regarding disputes with respect to contract rights, ~~our~~product ~~stock~~performance or ~~option~~other ~~plans~~matters ~~and~~that ~~Delaware~~occur ~~law~~in ~~could~~the ~~make~~ordinary itcourse ~~more~~of ~~difficult~~business. ~~for~~Some ~~a third~~of ~~party~~these todisputes ~~acquire~~may involve us in costly litigation or other actions, ~~even~~the ifoutcome ~~doing~~of sowhich ~~would~~cannot be ~~beneficial~~determined toin advance and may adversely affect our ~~stockholders~~business. ~~These provisions~~The defense of lawsuits or other actions could ~~limit~~divert ~~the~~our management’s ~~price~~attention ~~that~~away ~~investors~~from ~~might~~running beour ~~willing~~business. toIn ~~pay~~addition, innegative ~~the~~developments ~~future~~with respect ~~for~~to ~~shares~~litigation could cause the price of our common stock to decline significantly.

~~Under~~Our ~~the~~stock ~~Shareholder~~price ~~Rights~~has ~~Plan,~~been ~~adopted~~and inwill ~~August 1998,~~likely ~~each~~continue ~~share of our outstanding common stock carries one Right~~ to ~~purchase~~be ~~1/1000~~volatile ofbecause ~~a share~~ of ~~Series A~~stock ~~Participating Preferred~~market ~~Stock~~fluctuations atthat anaffect ~~exercise~~the price of ~~$30.00~~technology ~~per Right~~stocks. IfA ~~someone~~decline ~~acquires~~in ~~15% or more of~~ our ~~common~~ stock, ~~each~~price ~~Right~~could ~~not owned by a holder of 15% or more of our common stock entitles the holder,~~result ~~upon~~in ~~payment~~securities ofclass ~~the~~action ~~$30.00~~litigation ~~exercise~~against ~~price~~us, towhich ~~receive~~could ~~common~~divert ~~stock~~management’s ~~having~~attention ~~a current market value of~~and ~~$60.00.~~harm ~~This~~our ~~issuance of additional common stock would significantly reduce the percentage of common stock held by a potential acquirer~~business. ~~The Rights expire in August 2008.~~

InOur ~~addition,~~stock ~~Section 203~~price ofhas ~~the~~been ~~Delaware General Corporation Law~~ and ~~the~~is ~~terms~~likely ofto ~~our~~continue ~~stock option~~to ~~plans~~be ~~may~~highly ~~discourage, delay or prevent a change in control of Micro Linear~~volatile. ~~Specifically~~Between January 1, ~~Section 203~~2005 ~~prohibits~~and a Delaware corporation from engaging in any business combination with an interested stockholder for three years after the date the stockholder became an interested stockholder unless specific conditions are met. AlsoJune 30, in2005 ~~the event outstanding options granted pursuant to certain of~~ our stock ~~option~~price ~~plans~~has ~~are~~traded ~~not~~as ~~assumed~~high byas an$6.24 ~~acquiring~~on ~~corporation~~June 2, ~~the unvested~~2005 ~~portion~~and ofas ~~such~~low ~~options may be accelerated upon a change of control~~as $4.20 Inon ~~addition~~April 25, ~~some individual~~2005. Our stock ~~option~~price ~~grants~~could ~~provide~~fluctuate ~~for~~significantly ~~the~~due ~~partial~~to ora ~~complete~~number ~~acceleration~~ of ~~vesting upon a~~factors, ~~change of control.~~including:

23 • 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.

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

~~Recently~~Our ~~enacted~~Certificate ~~regulatory~~of ~~changes~~Incorporation ~~may~~and ~~cause~~Bylaws, usStockholder toRights ~~incur~~Plan ~~increased~~and ~~costs.~~Delaware law contain provisions that could discourage a change in control, even if the change in control would be beneficial to our stockholders.

~~Recently~~Provisions ~~enacted~~of ~~and~~our ~~proposed~~Amended ~~changes in the laws~~ and ~~regulations~~Restated ~~affecting~~Certificate ~~public~~of ~~companies~~Incorporation, ~~including~~ ~~the~~Bylaws, ~~provisions of~~ the ~~Sarbanes-Oxley~~1998 Shareholder ~~Act~~Rights ~~of 2002 and rules adopted by the SEC and NASDAQ~~Plan, ~~could~~ ~~cause~~our usstock tooption ~~incur~~plans ~~increased costs as we evaluate the implications of new rules~~ and ~~respond~~Delaware ~~to new~~law ~~requirements. The new rules~~ could make it more difficult for usa third party to ~~obtain~~acquire ~~certain types of insurance~~us, ~~including~~even ~~director~~if ~~and~~doing ~~officer~~so ~~liability~~would ~~insurance, and we may~~ be ~~forced~~beneficial to ~~accept reduced~~our ~~policy~~stockholders. ~~limits~~These provisions ~~and~~could ~~coverage~~limit ~~or incur substantially higher costs to obtain~~ the ~~same~~price ~~or similar~~that ~~coverage.~~investors ~~The~~might ~~impact~~be ofwilling ~~these~~to ~~events~~pay ~~could~~in ~~also~~the ~~make~~future ~~it more difficult~~ for usshares ~~to attract~~of ~~and retain qualified persons to serve on~~ our ~~board~~common ~~of directors, or as executive officers~~stock. ~~We are~~ presently evaluating and monitoring developments with respect to these new and proposed rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

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

~~We prepare our financial statements to conform with generally accepted accounting principles,~~26 or GAAP, in the United States. These accounting principles are subject to interpretation by the American Institute of Certified Public Accountants, the Securities and Exchange Commission and various bodies formed to interpret and create appropriate accounting policies. A change in those policies can have a significant effect on our reported results and may affect our reporting of transactions completed before a change is announced. Changes to those rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business. For example, accounting policies affecting many aspects of our business, including rules relating to employee stock option grants, have recently been revised or are under review. The Financial Accounting Standards Board and other agencies have finalized changes to U.S. generally accepted accounting principles that will require us, starting in our first quarter of 2006, to record a charge to earnings for employee stock option grants and other equity incentives. We may have significant and ongoing accounting charges resulting from option grant and other equity incentive expensing that could reduce our overall net income. In addition, since we historically have used equity-related compensation as a component of our total employee compensation program, the accounting change could make the use of equity-related compensation less attractive to us and therefore make it more difficult to attract and retain employees.

WhileTable 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. Contents

WeIn ~~are evaluating our internal controls systems in order to allow management to report on~~addition, ~~and our independent public accountants to attest to, our internal controls, as required by~~ Section ~~404~~ 203 of the ~~Sarbanes-Oxley~~Delaware ~~Act.~~General WeCorporation ~~are~~Law ~~performing~~and the ~~system~~terms ~~and~~of ~~process~~our ~~evaluation and testing required~~stock inoption anplans ~~effort~~may todiscourage, ~~comply~~delay ~~with~~or ~~the~~prevent ~~management~~a ~~certification~~change ~~and~~in ~~auditor~~control ~~attestation~~of ~~requirements~~Micro ofLinear. Specifically, Section ~~404.~~203 Asprohibits a ~~result,~~Delaware wecorporation ~~are~~from ~~incurring~~engaging ~~additional~~in ~~expenses~~any ~~and~~business acombination ~~diversion~~with ~~of management’s~~an ~~time.~~interested ~~While~~stockholder wefor ~~believe~~three ~~that~~years ~~our~~after ~~internal~~the ~~control~~date ~~procedures~~the ~~are~~stockholder ~~adequate~~became ~~and~~an ~~we anticipate being~~interested ~~able~~stockholder tounless ~~fully~~specific ~~implement~~conditions ~~the~~are ~~requirements~~met. ~~relating~~Also, ~~to internal controls and all other aspects of Section 404~~ in ~~a timely fashion, we cannot be certain as to~~ the ~~timing~~event ofoutstanding ~~completion~~options ~~of our~~granted ~~evaluation,~~pursuant ~~testing~~to ~~and~~certain ~~remediation actions or the impact~~ of ~~the same on~~ our ~~operations~~stock ~~since~~option ~~there is~~plans noare ~~precedent~~not ~~available~~assumed by ~~which~~an toacquiring ~~measure~~corporation, ~~compliance~~the unvested ~~adequacy.~~portion Ifof wesuch ~~are~~options ~~not~~may ~~able~~be toaccelerated ~~implement the~~upon ~~requirements of Section 404 in~~ a ~~timely~~change ~~manner~~of orcontrol. ~~with~~In ~~adequate compliance~~addition, ~~we might be subject~~some toindividual ~~sanctions~~stock oroption ~~investigation~~grants byprovide ~~regulatory~~for ~~authorities, such as~~ the ~~SEC~~partial or ~~The~~complete ~~Nasdaq~~acceleration ~~National Market.~~of ~~Any~~vesting ~~such~~upon ~~action~~a change ~~could adversely affect our financial results and the market price~~ of ~~our common stock~~control.

24Recently enacted regulatory changes may cause us to incur increased costs.

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

~~Item~~Changes 3.to ~~Quantitative~~financial accounting standards may affect our results of operations and ~~Qualitative~~cause ~~Disclosures~~us ~~about~~to change ~~Market~~our ~~Risk~~business practices.

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

AsWhile ofwe ~~March 31,~~believe ~~2005,~~that ~~our~~we ~~investment~~currently ~~portfolio~~have ~~consisted~~adequate ofinternal ~~U.S.~~control ~~government~~procedures ~~obligations, commercial~~in ~~paper and money market funds~~place, ~~typically~~we ~~with~~are ~~maturities of less than 12 months. Some of~~still ~~these~~exposed ~~securities are subject~~ to ~~interest~~potential ~~rate~~risks ~~risk,~~from ~~and~~recent ~~will~~legislation ~~decline~~requiring incompanies ~~value if market interest rates increase. If market interest rates were~~ to ~~increase~~evaluate ~~immediately~~controls ~~and uniformly by 10% as of~~under ~~March~~Section ~~31,~~404 ~~2005,~~of the ~~decline~~Sarbanes-Oxley inAct ~~the fair value~~ of ~~the portfolio would not be material~~2002.

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

~~We have international facilities and are, therefore, subject to foreign currency rate~~27 exposure. We limit our foreign currency risks principally by maintaining minimal foreign currency balances. Since our exposure related to exchange rate volatility has not been significant, we do not currently hedge this exposure.

ItemTable 4.of Controls and ProceduresContents

~~(a)~~Item ~~Evaluation of disclosure controls and procedures~~3. WeQuantitative ~~maintain “disclosure controls~~ and ~~procedures,”~~ asQualitative ~~such~~Disclosures term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls are designed to meet, and management believes that they meet, reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about ~~the likelihood~~Market ~~of future events, and there can be no assurance that any design will succeed in~~Risk ~~achieving its stated goals under all potential future conditions.~~

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

~~(b) Changes~~As inof ~~internal~~June 30, ~~control~~2005, ~~over~~our ~~financial~~investment ~~reporting.~~portfolio ~~There~~consisted ~~was~~of noU.S. ~~change~~government ~~in our internal~~obligations, ~~control~~commercial ~~over~~paper ~~financial~~and ~~reporting~~money ~~(as~~market ~~defined~~funds, intypically ~~Rule 13a-15(f) under the Exchange Act) identified in connection~~ with ~~the~~maturities ~~evaluation~~of ~~described~~less inthan ~~Item~~12 months. ~~4(a)~~Some ~~above that occurred during our last fiscal~~of ~~quarter~~these ~~that~~securities ~~has~~are ~~materially~~subject ~~affected, or is reasonably likely~~ to ~~materially~~interest ~~affect~~rate risk, ~~our~~and ~~internal control~~will ~~over~~decline ~~financial reporting.~~in

25 value if market interest rates increase. If market interest rates were to increase immediately and uniformly by 10% as of June 30, 2005, the decline in the fair value of the portfolio would not be material.

~~Table~~Foreign ofCurrency ~~Contents~~Exchange Risk

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

Item 6 4. ~~Exhibits~~Controls and Procedures

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

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

* Based Inon ~~accordance~~their ~~with~~evaluation ~~Item 601(b)(32)(ii)~~as of ~~Regulation S-K~~the ~~and~~end ~~SEC~~of ~~Release~~the ~~Nos.~~period ~~33-8238~~covered ~~and 34-47986,~~by ~~Final~~this ~~Rule:~~Quarterly ~~Management’s~~Report ~~Reports~~ on ~~Internal~~Form 10-Q, ~~Control~~our ~~Over~~Chief ~~Financial~~Executive ~~Reporting~~Officer and ~~Certification~~ ofChief ~~Disclosure~~Financial inOfficer ~~Exchange~~have ~~Act~~concluded ~~Periodic Reports~~that, ~~the~~subject ~~certifications~~to ~~furnished in~~the ~~Exhibit 32.1~~limitations ~~and~~noted ~~Exhibit 32.2~~above, ~~are~~our ~~deemed~~disclosure tocontrols ~~accompany this Form 10-Q~~ and ~~will~~procedures ~~not~~were beeffective ~~deemed~~to ~~“filed”~~ensure that ~~for~~material ~~purpose~~information ofrelating ~~Section 18~~to ofus, ~~the~~including ~~Exchange~~our ~~Act.~~consolidated ~~Such~~subsidiaries, ~~certifications~~is ~~will~~made ~~not~~known ~~be deemed~~ to bethem ~~incorporated~~ by ~~reference~~others ~~into~~within ~~any~~those ~~filing~~entities, ~~under~~particularly during the ~~Securities~~period ~~Act~~in orwhich ~~the~~this ~~Exchange~~Quarterly ~~Act,~~Report ~~except to~~on ~~the~~Form ~~extent~~10-Q ~~that~~was ~~the~~being ~~registrant specifically incorporates it by reference~~prepared.

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

~~Table~~PART ofII. ~~Contents~~OTHER INFORMATION

~~SIGNATURES~~Item 6. Exhibits

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.


Exhibit
Number		Description of Document
3(ii)		Amended and Restated Bylaws of the Registrant

10.1		Amendment to 1994 Director Option Plan

31.1		Rule 13a-14(a) Certification by the Chief Executive Officer

31.2		Rule 13a-14(a) Certification by the Chief Financial Officer

32.1*		Section 1350 Certification by the Chief Executive Officer

32.2*		Section 1350 Certification by the Chief Financial Officer.

	MICRO LINEAR CORPORATION
Date: May 18, 2005	By	/s/ TIMOTHY A. RICHARDSON
		Timothy A. Richardson
		President and Chief Executive Officer (Principal Executive Officer)
Date: May 18, 2005	By	/s/ MICHAEL W. SCHRADLE
		Michael W. Schradle
		Chief Financial Officer (Principal Financial and Accounting 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.

2728

~~INDEX TO EXHIBITS~~SIGNATURES

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

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.

* 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.


	MICRO LINEAR CORPORATION
Date: August 17, 2005	By	/s/ TIMOTHY A. RICHARDSON
		Timothy A. Richardson
		President and Chief Executive Officer (Principal Executive Officer)


Date: August 17, 2005	By	/s/ MICHAEL W. SCHRADLE
		Michael W. Schradle
		Chief Financial Officer (Principal Financial and Accounting Officer)

2829

INDEX TO EXHIBITS


Exhibit
Number		Description of Document
3(ii)		Amended and Restated Bylaws of the Registrant

10.1		Amendment to 1994 Director Option Plan

31.1		Rule 13a-14(a) Certification by the Chief Executive Officer

31.2		Rule 13a-14(a) Certification by the Chief Financial Officer

32.1*		Section 1350 Certification by the Chief Executive Officer

32.2*		Section 1350 Certification by the Chief Financial Officer.


*		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.

Filing Compare · MICRO LINEAR CORP /CA/