##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 000-31635
(Commission file number)
 
 ENDWAVE CORPORATION
  Delaware
    
    95-4333817(State of incorporation)
    
    (I.R.S. Employer Identification No.)130 Baytech DriveSan Jose, CA
    
    95134(Address of principal executive offices)
    
    (Zip code)
 (408) 522-3100
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ




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##### 



ENDWAVE CORPORATION
 INDEX
 PagePART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    3Condensed Consolidated Balance Sheets as of September 30, 2008 (unaudited) and December 31, 2007
    
    3Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2008 and 2007
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    17Item 3.
    
    Qualitative and Quantitative Disclosure about Market Risk
    
    24Item 4.
    
    Controls and Procedures
    
    24PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    25Item 1A.
    
    Risk Factors
    
    25Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    36Item 6.
    
    Exhibits
    
    37SIGNATURES
    
    39EXHIBITS
    
    40EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 ENDWAVE CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and per share amounts)
 September 30,
    
    
    December 31,2008
    
    
    2007(unaudited)
    
    
    (1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    29,085
    
    
    $
    38,992Short-term investments
    
    
    14,976
    
    
    
    5,464Accounts receivable, net
    
    
    10,277
    
    
    
    9,362Inventories
    
    
    15,670
    
    
    
    12,434Other current assets
    
    
    1,413
    
    
    
    1,168Total current assets
    
    
    71,421
    
    
    
    67,420Long-term investments
    
    
    
    
    
    
    4,501Property and equipment, net
    
    
    3,751
    
    
    
    2,999Other assets, net
    
    
    239
    
    
    
    212Restricted cash
    
    
    625
    
    
    
    25Goodwill and intangible assets, net
    
    
    6,489
    
    
    
    7,432$
    82,525
    
    
    $
    82,589LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    4,264
    
    
    $
    3,422Accrued warranty
    
    
    2,672
    
    
    
    2,712Accrued compensation
    
    
    3,134
    
    
    
    2,240Other current liabilities
    
    
    762
    
    
    
    2,251Total current liabilities
    
    
    10,832
    
    
    
    10,625Other long-term liabilities
    
    
    24
    
    
    
    116Total liabilities
    
    
    10,856
    
    
    
    10,741Commitments and contingencies (Note 7)Stockholders equity:Convertible preferred stock, $0.001 par value; 5,000,000
shares authorized; 300,000 shares issued and outstanding
at September 30, 2008 and December 31, 2007, respectively
    
    
    
    
    
    
    Common stock, $0.001 par value; 50,000,000 shares
authorized; 9,216,760 and 9,174,622 shares issued and
outstanding at September 30, 2008 and December 31, 2007,
respectively
    
    
    9
    
    
    
    9Additional paid-in capital
    
    
    348,478
    
    
    
    345,038Treasury stock, at cost, 39,150 shares at December 31, 2007
    
    
    
    
    
    
    (79
    )Accumulated other comprehensive loss
    
    
    (9
    )
    
    
    (6
    )Accumulated deficit
    
    
    (276,809
    )
    
    
    (273,114
    )Total stockholders equity
    
    
    71,669
    
    
    
    71,848$
    82,525
    
    
    $
    82,589
 
 (1)
    
    Derived from the Companys audited consolidated financial statements as of December 31, 2007. The accompanying notes are an integral part of these condensed consolidated financial statements.
 3




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ENDWAVE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except share and per share amounts)
 (unaudited)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Product revenues
    
    $
    16,937
    
    
    $
    13,608
    
    
    $
    47,810
    
    
    $
    41,339Development fees
    
    
    42
    
    
    
    186
    
    
    
    630
    
    
    
    745Total revenues
    
    
    16,979
    
    
    
    13,794
    
    
    
    48,440
    
    
    
    42,084Costs and expenses:Cost of product revenues*
    
    
    11,798
    
    
    
    9,940
    
    
    
    33,529
    
    
    
    30,768Cost of product revenues, amortization of
intangible assets
    
    
    149
    
    
    
    149
    
    
    
    447
    
    
    
    399Research and development*
    
    
    2,943
    
    
    
    2,792
    
    
    
    8,715
    
    
    
    7,906Selling, general and administrative*
    
    
    3,200
    
    
    
    3,230
    
    
    
    9,927
    
    
    
    9,709Amortization of intangible assets
    
    
    179
    
    
    
    180
    
    
    
    537
    
    
    
    352Total costs and expenses
    
    
    18,269
    
    
    
    16,291
    
    
    
    53,155
    
    
    
    49,134Loss from operations
    
    
    (1,290
    )
    
    
    (2,497
    )
    
    
    (4,715
    )
    
    
    (7,050
    )Interest and other income, net
    
    
    291
    
    
    
    842
    
    
    
    1,042
    
    
    
    2,708Loss before provision for income taxes
    
    
    (999
    )
    
    
    (1,655
    )
    
    
    (3,673
    )
    
    
    (4,342
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    Net loss
    
    $
    (999
    )
    
    $
    (1,655
    )
    
    $
    (3,695
    )
    
    $
    (4,342
    )Basic and diluted net loss per share
    
    $
    (0.11
    )
    
    $
    (0.14
    )
    
    $
    (0.40
    )
    
    $
    (0.37
    )Shares used in computing basic and diluted
net loss per share
    
    
    9,216,760
    
    
    
    11,618,746
    
    
    
    9,182,041
    
    
    
    11,590,059
 
 *
    
    Includes the following amounts related to stock-based compensation: Cost of product revenues
    
    $
    188
    
    $
    200
    
    $
    554
    
    $
    495Research and development
    
    
    225
    
    
    230
    
    
    694
    
    
    612Selling, general and administrative
    
    
    592
    
    
    681
    
    
    1,842
    
    
    1,994
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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ENDWAVE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (unaudited)
 Nine months endedSeptember 30,2008
    
    
    2007Operating activities:Net loss
    
    $
    (3,695
    )
    
    $
    (4,342
    )Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:Depreciation
    
    
    871
    
    
    
    730Amortization of intangible assets
    
    
    984
    
    
    
    751Stock compensation expense
    
    
    3,090
    
    
    
    3,101Amortization of investments, net
    
    
    (25
    )
    
    
    (3
    )Gain on sale of investments
    
    
    (45
    )
    
    
    4Loss on sale of fixed assets
    
    
    3
    
    
    
    Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (915
    )
    
    
    (660
    )Inventories
    
    
    (3,243
    )
    
    
    5,209Other assets, net
    
    
    (272
    )
    
    
    (170
    )Accounts payable
    
    
    842
    
    
    
    (380
    )Accrued warranty
    
    
    (40
    )
    
    
    (111
    )Accrued compensation, other current liabilities and other
long-term liabilities
    
    
    316
    
    
    
    (590
    )Net cash provided by (used in) operating activities
    
    
    (2,129
    )
    
    
    3,539Investing activities:Purchase of ALC Microwave, Inc., net of cash acquired
    
    
    (1,027
    )
    
    
    (5,779
    )Change in restricted cash
    
    
    (600
    )
    
    
    236Proceeds on sale of property
    
    
    1
    
    
    
    11Purchases of property and equipment
    
    
    (1,627
    )
    
    
    (748
    )Proceeds on sales and maturities of investments
    
    
    11,102
    
    
    
    51,895Purchases of investments
    
    
    (16,058
    )
    
    
    (50,474
    )Net cash used in investing activities
    
    
    (8,209
    )
    
    
    (4,859
    )Financing activities:Payments on capital leases
    
    
    (17
    )
    
    
    (8
    )Proceeds from common stock issuance
    
    
    434
    
    
    
    368Proceeds from exercises of stock options, net of issuance costs
    
    
    2
    
    
    
    138Net cash provided by financing activities
    
    
    419
    
    
    
    498Effects of foreign exchange rate changes on cash and cash equivalents
    
    
    12
    
    
    
    (10
    )Net decrease in cash and cash equivalents
    
    
    (9,907
    )
    
    
    (832
    )Cash and cash equivalents at beginning of period
    
    
    38,992
    
    
    
    26,176Cash and cash equivalents at end of period
    
    $
    29,085
    
    
    $
    25,344
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 5




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ENDWAVE CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 1. Business and Basis of Presentation
  
    
    integrated transceivers  combinations of electronic devices that combine both
the transmit and receive functions necessary for a bi-directional radio link;
    
    amplifiers  electronic devices used to increase the amplitude and power of an
electronic signal;
    
    synthesizers  electronic devices that can be used to generate several
different radio frequency signals from a single source;
    
    oscillators  electronic devices that generate radio frequency signals at a
fixed frequency;
    
    up and down converters  electronic devices that shift the center frequency of
a radio signal without altering the signals data modulation;
    
    frequency multipliers  electronic devices that increase the frequency of a
radio signal in integer multiples; and
    
    microwave switch arrays  electronic devices that can switch the routing of a
radio signal.
  2. Restricted Cash
   6




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3. Investments
  September 30, 2008Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Cash equivalents:Money market funds
    
    $
    9,396
    
    
    $
    
    
    
    $
    
    
    
    $
    9,396Commercial paper
    
    
    10,583
    
    
    
    
    
    
    
    
    
    
    
    10,583United States
government agency
    
    
    8,981
    
    
    
    
    
    
    
    
    
    
    
    8,981Total
    
    $
    28,960
    
    
    $
    
    
    
    $
    
    
    
    $
    28,960Investments:United
States government agency
    
    $
    7,985
    
    
    $
    9
    
    
    $
    (3
    )
    
    $
    7,991Corporate securities
    
    
    7,000
    
    
    
    1
    
    
    
    (16
    )
    
    
    6,985Total
    
    $
    14,985
    
    
    $
    10
    
    
    $
    (19
    )
    
    $
    14,976
 December 31, 2007Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Cash equivalents:Commercial paper
    
    $
    7,195
    
    
    $
    
    
    
    $
    
    
    
    $
    7,195Investments:United States government agency
    
    $
    1,496
    
    
    $
    4
    
    
    $
    
    
    
    $
    1,500Corporate securities
    
    
    8,463
    
    
    
    8
    
    
    
    (6
    )
    
    
    8,465Total
    
    $
    9,959
    
    
    $
    12
    
    
    $
    (6
    )
    
    $
    9,965
    Fair Value Measurement
  7




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Quoted Prices inActive Markets of
    
    
    Significant OtherBalance as of
    
    
    Identical Assets
    
    
    Observable InputsSeptember 30, 2008
    
    
    (Level 1)
    
    
    (Level 2)Assets:Cash equivalents:Money market funds
    
    $
    9,396
    
    
    $
    9,396
    
    
    $
    Commercial paper
    
    
    10,583
    
    
    
    
    
    
    
    10,583United States government agency
    
    
    8,981
    
    
    
    
    
    
    
    8,981Short-term investments:United States government agency
    
    
    7,991
    
    
    
    
    
    
    
    7,991Corporate securities
    
    
    6,985
    
    
    
    
    
    
    
    6,985Total
    
    $
    43,936
    
    
    $
    9,396
    
    
    $
    34,540Liabilities:
    
    $
    
    
    
    $
    
    
    
    $
    
  4. Inventories
  September 30,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    9,698
    
    
    $
    9,630Work in process
    
    
    2,230
    
    
    
    1,365Finished goods
    
    
    3,742
    
    
    
    1,439$
    15,670
    
    
    $
    12,434
 5. Goodwill and Intangible Assets
 Goodwill
  8




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##### Table of Contents



Intangible Assets
    Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    AmountDeveloped technology
    
    $
    3,130
    
    
    $
    (2,083
    )
    
    $
    1,047Tradename
    
    
    1,290
    
    
    
    (54
    )
    
    
    1,236Customer relationships
    
    
    1,680
    
    
    
    (863
    )
    
    
    817Customer backlog
    
    
    700
    
    
    
    (537
    )
    
    
    163Non-compete agreement
    
    
    370
    
    
    
    (131
    )
    
    
    239Total intangible assets
    
    $
    7,170
    
    
    $
    (3,668
    )
    
    $
    3,502
  Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    AmountDeveloped technology
    
    $
    3,130
    
    
    $
    (1,636
    )
    
    $
    1,494Tradename
    
    
    1,290
    
    
    
    (27
    )
    
    
    1,263Customer relationships
    
    
    1,680
    
    
    
    (633
    )
    
    
    1,047Customer backlog
    
    
    700
    
    
    
    (327
    )
    
    
    373Non-compete agreement
    
    
    370
    
    
    
    (61
    )
    
    
    309Total intangible assets
    
    $
    7,170
    
    
    $
    (2,684
    )
    
    $
    4,486
   9




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Years Ending December 31,2008 (October 1 through December 31)
    
    $
    3282009
    
    
    8742010
    
    
    4282011
    
    
    3662012
    
    
    335Thereafter
    
    
    111Total
    
    $
    2,442
 6. Warranty
   Nine months ended September 30,2008
    
    
    2007Balance at January 1
    
    $
    2,712
    
    
    $
    2,928Warranties accrued
    
    
    543
    
    
    
    660Warranties settled or reversed
    
    
    (583
    )
    
    
    (613
    )Balance at September 30
    
    $
    2,672
    
    
    $
    2,975
 7. Commitments and Contingencies
   Years Ending December 312008 (October 1 through December 31)
    
    $
    2342009
    
    
    1,0912010
    
    
    9922011
    
    
    8752012
    
    
    628Thereafter
    
    
    593Total
    
    $
    4,413
 10




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##### Table of Contents



8. Stockholders Equity
 Stock Option Exchange
   Stock Based Compensation
   Three Months Ended September 30,2008
    
    
    2007Stock-based compensation expense by type of award:Employee stock options
    
    $
    859
    
    
    $
    987Employee stock purchase plan
    
    
    133
    
    
    
    124Amounts capitalized into inventory during the three month period
    
    
    (6
    )
    
    
    (17
    )Amounts previously capitalized into inventory and expensed
    
    
    19
    
    
    
    17Total stock-based compensation
    
    
    1,005
    
    
    
    1,111Tax effect on stock-based compensation
    
    
    
    
    
    
    Total stock-based compensation expense
    
    $
    1,005
    
    
    $
    1,111Impact on net loss per share  basic and diluted
    
    $
    (0.11
    )
    
    $
    (0.10
    )
 11




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##### Table of Contents



Nine Months Ended September 30,2008
    
    
    2007Stock-based compensation expense by type of award:Employee stock options
    
    $
    2,657
    
    
    $
    2,825Employee stock purchase plan
    
    
    426
    
    
    
    304Amounts capitalized into inventory during the
nine month period
    
    
    (47
    )
    
    
    (45
    )Amounts previously capitalized into inventory
and expensed
    
    
    54
    
    
    
    17Total stock-based compensation
    
    
    3,090
    
    
    
    3,101Tax effect on stock-based
compensation
    
    
    
    
    
    
    Total stock-based compensation
expense
    
    $
    3,090
    
    
    $
    3,101Impact on net loss per share  basic and
diluted
    
    $
    (0.34
    )
    
    $
    (0.27
    )
     Valuation Assumptions
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Risk-free interest rate
    
    
    2.65%-3.39
    %
    
    
    4.53%-4.60
    %
    
    
    1.93%-3.39
    %
    
    
    4.53%-4.80
    %Expected life of options
    
    3.5 years

    
    3.4 years

    
    3.5 years

    
    3.6 yearsExpected dividends
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Volatility
    
    
    70
    %
    
    
    70
    %
    
    
    70
    %
    
    
    70
    %
 12




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##### Table of Contents



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Risk-free interest rate
    
    
    2.05% - 4.74
    %
    
    
    4.67% - 5.07
    %
    
    
    2.05% - 4.74
    %
    
    
    4.67% - 5.07
    %Expected life of options
    
    1.2 years

    
    1.1 years

    
    1.2 years

    
    1.2 yearsExpected dividends
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Volatility
    
    
    51
    %
    
    
    51
    %
    
    
    51
    %
    
    
    51
    %
   Equity Incentive Program
   Weighted-Weighted-
    
    Average
    
    AggregateAverage
    
    Remaining
    
    IntrinsicNumber of
    
    Exercise
    
    Contractual
    
    ValueShares
    
    Price
    
    Term (Years)
    
    (In thousands)Outstanding at December 31, 2007
    
    
    2,465,436
    
    
    
    13.19Options granted
    
    
    987,221
    
    
    
    6.57Options exercised
    
    
    (1,075
    )
    
    
    1.92Options cancelled
    
    
    (473,214
    )
    
    
    23.85Outstanding at September 30, 2008
    
    
    2,978,368
    
    
    $
    9.30
    
    
    
    7.88
    
    
    $
    582Options vested and exercisable
and expected to be exercisable
at September 30, 2008
    
    
    2,673,818
    
    
    $
    9.40
    
    
    
    7.76
    
    
    $
    582Options vested and exercisable
at September 30, 2008
    
    
    1,423,306
    
    
    $
    9.79
    
    
    
    6.87
    
    
    $
    582
  13




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##### Table of Contents



Options Vested and ExercisableOptions Outstanding at September 30, 2008
    
    At September 30, 2008Weighted-AverageWeighted-Average
    
    Remaining
    
    
    
    
    
    Weighted-AverageRange of Exercise Price
    
    Shares
    
    Exercise Price
    
    Contractual Life
    
    Shares
    
    Exercise Price$0.76 - $6.37
    
    
    255,207
    
    
    $
    3.29
    
    
    
    6.12
    
    
    
    188,722
    
    
    $
    2.22$6.59 - $6.59
    
    
    896,171
    
    
    $
    6.59
    
    
    
    9.37
    
    
    
    112,240
    
    
    $
    6.59$6.60 - $9.75
    
    
    199,160
    
    
    $
    9.07
    
    
    
    7.47
    
    
    
    119,178
    
    
    $
    9.09$9.77 - $9.77
    
    
    328,822
    
    
    $
    9.77
    
    
    
    7.36
    
    
    
    203,600
    
    
    $
    9.77$9.90 - $10.22
    
    
    441,328
    
    
    $
    10.11
    
    
    
    6.59
    
    
    
    343,090
    
    
    $
    10.17$10.23 - $12.90
    
    
    227,155
    
    
    $
    11.97
    
    
    
    7.17
    
    
    
    157,419
    
    
    $
    11.94$13.23 - $13.23
    
    
    512,750
    
    
    $
    13.23
    
    
    
    8.38
    
    
    
    193,144
    
    
    $
    13.23$15.14 - $19.30
    
    
    113,622
    
    
    $
    16.65
    
    
    
    6.59
    
    
    
    101,760
    
    
    $
    16.61$20.32 - $20.32
    
    
    124
    
    
    $
    20.32
    
    
    
    1.49
    
    
    
    124
    
    
    $
    20.32$21.47 - $21.47
    
    
    4,029
    
    
    $
    21.47
    
    
    
    6.36
    
    
    
    4,029
    
    
    $
    21.472,978,368
    
    
    $
    9.30
    
    
    
    7.88
    
    
    
    1,423,306
    
    
    $
    9.79
 Employee Stock Purchase Plan
  9. Net Loss Per Share
    14




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##### Table of Contents



10. Comprehensive Income (Loss)
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (999
    )
    
    $
    (1,655
    )
    
    $
    (3,695
    )
    
    $
    (4,342
    )Foreign currency
translation
adjustments
    
    
    
    
    
    
    (10
    )
    
    
    12
    
    
    
    (10
    )Change in unrealized
gain (loss) on
investments
    
    
    (10
    )
    
    
    39
    
    
    
    (15
    )
    
    
    24Total comprehensive
loss
    
    $
    (1,009
    )
    
    $
    (1,626
    )
    
    $
    (3,698
    )
    
    $
    (4,328
    )
 11. Segment Disclosures
  Three Months Ended September 30,2008
    
    
    2007United States
    
    $
    4,487
    
    
    
    26.4
    %
    
    $
    2,492
    
    
    
    18.1
    %Finland
    
    
    9,434
    
    
    
    55.6
    %
    
    
    8,560
    
    
    
    62.1
    %Italy
    
    
    22
    
    
    
    0.1
    %
    
    
    497
    
    
    
    3.6
    %Norway
    
    
    18
    
    
    
    0.1
    %
    
    
    543
    
    
    
    3.9
    %Slovakia
    
    
    843
    
    
    
    5.0
    %
    
    
    401
    
    
    
    2.9
    %Singapore
    
    
    1,560
    
    
    
    9.2
    %
    
    
    300
    
    
    
    2.2
    %Rest of the world
    
    
    615
    
    
    
    3.6
    %
    
    
    1,001
    
    
    
    7.2
    %Total
    
    $
    16,979
    
    
    
    100.0
    %
    
    $
    13,794
    
    
    
    100.0
    %
 Nine Months Ended September 30,2008
    
    
    2007United States
    
    $
    11,713
    
    
    
    24.2
    %
    
    $
    7,338
    
    
    
    17.5
    %Finland
    
    
    27,652
    
    
    
    57.1
    %
    
    
    21,083
    
    
    
    50.1
    %Italy
    
    
    844
    
    
    
    1.7
    %
    
    
    3,637
    
    
    
    8.6
    %Norway
    
    
    88
    
    
    
    0.2
    %
    
    
    3,551
    
    
    
    8.4
    %Slovakia
    
    
    2,499
    
    
    
    5.2
    %
    
    
    3,374
    
    
    
    8.0
    %Singapore
    
    
    2,952
    
    
    
    6.1
    %
    
    
    340
    
    
    
    0.8
    %Rest of the world
    
    
    2,692
    
    
    
    5.5
    %
    
    
    2,761
    
    
    
    6.6
    %Total
    
    $
    48,440
    
    
    
    100
    %
    
    $
    42,084
    
    
    
    100
    %
 15




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##### Table of Contents



12. Recent Accounting Pronouncements
   13. Subsequent Events
  16




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   Overview
    17




---



##### Table of Contents



Results of Operations
 Three and nine months ended September 30, 2008 and 2007
  Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of product revenues
    
    
    69.5
    
    
    
    72.1
    
    
    
    69.2
    
    
    
    73.1Cost of product revenues, amortization of intangible assets
    
    
    0.9
    
    
    
    1.1
    
    
    
    0.9
    
    
    
    0.9Research and development
    
    
    17.3
    
    
    
    20.2
    
    
    
    18.0
    
    
    
    18.8Selling, general and administrative
    
    
    18.8
    
    
    
    23.4
    
    
    
    20.5
    
    
    
    23.1Amortization of intangible assets
    
    
    1.1
    
    
    
    1.3
    
    
    
    1.1
    
    
    
    0.8Total costs and expenses
    
    
    107.6
    
    
    
    118.1
    
    
    
    109.7
    
    
    
    116.8Loss from operations
    
    
    (7.6
    )
    
    
    (18.1
    )
    
    
    (9.7
    )
    
    
    (16.8
    )Interest and other income, net
    
    
    1.7
    
    
    
    6.1
    
    
    
    2.2
    
    
    
    6.4Loss before provision for income taxes
    
    
    (5.9
    )
    
    
    (12.0
    )
    
    
    (7.6
    )
    
    
    (10.3
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    (5.9
    )%
    
    
    (12.0
    )%
    
    
    (7.6
    )%
    
    
    (10.3
    )%
 Total revenues
 Three months ended September 30,
    
    Nine months ended September 30,2008
    
    2007
    
    % Change
    
    2008
    
    2007
    
    % Change(In thousands)
    
    
    
    
    
    (In thousands)Total revenues
    
    $
    16,979
    
    
    $
    13,794
    
    
    
    23.1
    %
    
    $
    48,440
    
    
    $
    42,084
    
    
    
    15.1
    %Product revenues
    
    $
    16,937
    
    
    $
    13,608
    
    
    
    24.5
    %
    
    $
    47,810
    
    
    $
    41,339
    
    
    
    15.7
    %Development fees
    
    $
    42
    
    
    $
    186
    
    
    
    (77.4
    %)
    
    $
    630
    
    
    $
    745
    
    
    
    (15.4
    %)
    Cost of product revenues
 Three months ended September 30,
    
    Nine months ended September 30,2008
    
    2007
    
    % Change
    
    2008
    
    2007
    
    % Change(In thousands)
    
    
    
    
    
    (In thousands)Cost of product revenues
    
    $
    11,798
    
    
    $
    9,940
    
    
    
    18.7
    %
    
    $
    33,529
    
    
    $
    30,768
    
    
    
    9.0
    %Percentage of total revenues
    
    
    69.5
    %
    
    
    72.1
    %
    
    
    
    
    
    
    69.2
    %
    
    
    73.1
    %
 18




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##### Table of Contents



Research and development expenses
 Three months ended September 30,
    
    Nine months ended September 30,2008
    
    2007
    
    % Change
    
    2008
    
    2007
    
    % Change(In thousands)
    
    
    
    
    
    (In thousands)Research and development
expenses
    
    $
    2,943
    
    
    $
    2,792
    
    
    
    5.4
    %
    
    $
    8,715
    
    
    $
    7,906
    
    
    
    10.2
    %Percentage of total revenues
    
    
    17.3
    %
    
    
    20.2
    %
    
    
    
    
    
    
    18.0
    %
    
    
    18.8
    %
     19




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##### Table of Contents



Selling, general and administrative expenses
 Three months ended September 30,
    
    Nine months ended September 30,2008
    
    2007
    
    % Change
    
    2008
    
    2007
    
    % Change(In thousands)
    
    
    
    
    
    (In thousands)Selling, general and
administrative expenses
    
    $
    3,200
    
    
    $
    3,230
    
    
    
    (0.9
    %)
    
    $
    9,927
    
    
    $
    9,709
    
    
    
    2.2
    %Percentage of total revenues
    
    
    18.8
    %
    
    
    23.4
    %
    
    
    
    
    
    
    20.5
    %
    
    
    23.1
    %
     Amortization of intangible assets
 Three months ended September 30,
    
    Nine months ended September 30,2008
    
    2007
    
    % Change
    
    2008
    
    2007
    
    % Change(In thousands)
    
    
    
    
    
    (In thousands)Cost of product
revenues,
amortization of
intangible assets
    
    $
    149
    
    
    $
    149
    
    
    
    0.0
    %
    
    $
    447
    
    
    $
    399
    
    
    
    12.0
    %Amortization of
intangible assets
    
    $
    179
    
    
    $
    180
    
    
    
    (0.6
    %)
    
    $
    537
    
    
    $
    352
    
    
    
    52.6
    %
    20




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##### Table of Contents



Interest and other income, net
 Three months ended September 30,
    
    
    Nine months ended September 30,2008
    
    
    2007
    
    
    % Change
    
    
    2008
    
    
    2007
    
    
    % Change(In thousands)
    
    
    
    
    
    
    (In thousands)Interest and other income, net
    
    $
    291
    
    
    $
    842
    
    
    
    (65.4
    %)
    
    $
    1,042
    
    
    $
    2,708
    
    
    
    (61.5
    %)
     21




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##### Table of Contents



Liquidity and Capital Resources
  Nine months endedSeptember 30,2008
    
    2007(in thousands)Net cash provided by (used in) operating activities
    
    $
    (2,129
    )
    
    $
    3,539Net cash used in investing activities
    
    
    (8,209
    )
    
    
    (4,859
    )Net cash provided by financing activities
    
    
    419
    
    
    
    498Cash, cash equivalents, restricted cash, short-
term and long-term investments at end of period
    
    $
    44,686
    
    
    $
    65,386
      22




---



##### Table of Contents



Payments Due by PeriodLess Than 1
    
    
    
    
    
    
    
    
    
    
    More Than 5Total
    
    
    Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    Years(In thousands)Contractual Obligations:Capital lease obligations, including interest
    
    $
    49
    
    
    $
    23
    
    
    $
    26
    
    
    $
    
    
    
    $
    Operating lease obligations
    
    
    4,413
    
    
    
    1,074
    
    
    
    1,965
    
    
    
    1,266
    
    
    
    108Total
    
    $
    4,462
    
    
    $
    1,097
    
    
    $
    1,991
    
    
    $
    1,266
    
    
    $
    108
 Recent Accounting Pronouncements
   23




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4. Controls and Procedures
 (a) Evaluation of disclosure controls and procedures.
   (b) Changes in internal controls over financial reporting.
  24




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 You should consider carefully the following risk factors as well as other information in this
report before investing in any of our securities. If any of the following risks actually occur, our
business, operating results and financial condition could be adversely affected. This could cause
the market price of our common stock to decline, and you may lose all or part of your investment.
 
 ** Indicates risk factor has been updated since our Annual Report on Form 10-K for the year
ended December 31, 2007. Risks Relating to Our Business
 We have had a history of losses and may not be profitable in the future.**
  The current turmoil in the global credit markets could adversely impact our operations and
financial results.**
  25




---



##### Table of Contents



We depend on a small number of key customers in the telecommunications industry for a large portion
of our revenues. If we lose any of our major customers, particularly Nokia Siemens Networks, or
there is any material reduction in orders for our products from any of these customers, our
business, financial condition and results of operations would be adversely affected.**
  We depend on the telecommunications industry for most of our revenues. If this industry suffers
another downturn or fails to grow as anticipated, our revenues could decrease and our profitability
could suffer. In addition, consolidation in this industry could result in delays or cancellations
of orders for our products, adversely impacting our results of operations.**
    Implementing our acquisition strategy could result in dilution to our stockholders and operating
difficulties leading to a decline in revenues and operating profit.**
  
    
    diversion of our management from the operation of our core business;
    
    assimilating the acquired operations and personnel;
 26




---



##### Table of Contents




    
    integrating information technology and reporting systems;
    
    retention of key personnel;
    
    retention of acquired customers; and
    
    implementation of controls, procedures and policies in the acquired business.
  Our future success depends in part on our ability to further penetrate into new
non-telecommunication markets, such as defense electronics, homeland security and other systems,
and we may be unable to do so.**
  Our operating results may be adversely affected by substantial quarterly and annual fluctuations
and market downturns.
  Because of the shortages of some components and our dependence on single source suppliers and
custom components, we may be unable to obtain an adequate supply of components of sufficient
quality in a timely fashion, or we may be required to pay higher prices or to purchase components
of lesser quality.
   
    
    semiconductor devices;
    
    application-specific monolithic microwave integrated circuits;
 27




---



##### Table of Contents




    
    voltage-controlled oscillators;
    
    voltage regulators;
    
    unusual or low usage components;
    
    surface mount components compliant with the EUs Restriction of Hazardous
Substances, or RoHS, Directive;
    
    high-frequency circuit boards;
    
    custom connectors; and
    
    yttrium iron garnet components.
  Our cash requirements will be impacted by our need to increase inventories.**
  We are exposed to fluctuations in the market values of our investment portfolio.**
  We rely heavily on a Thailand facility of HANA Microelectronics Co., Ltd., a contract manufacturer,
to produce our RF modules. If HANA is unable to produce these modules in sufficient quantities or
with adequate quality, or it chooses to terminate our manufacturing arrangement, we will be forced
to find an alternative manufacturer and may not be able to fulfill our production commitments to
our customers, which could cause sales to be delayed or lost and could harm our reputation.**
 28




---



##### Table of Contents



We rely on the semiconductor foundry operations of Northrop Grumman Space Technology, Inc.
(formerly known as Velocium) and other third-party semiconductor foundries to manufacture the
semiconductors contained in our products. The loss of our relationship with any of these foundries,
particularly Northrop Grumman Space Technology, Inc., without adequate notice would adversely
impact our ability to fill customer orders and could damage our customer relationships.
   Our products may contain component, manufacturing or design defects or may not meet our customers
performance criteria, which could cause us to incur significant repair expenses, harm our customer
relationships and industry reputation, and reduce our revenues and profitability.
  29




---



##### Table of Contents



We depend on our key personnel. Skilled personnel in our industry can be in short supply. If we are
unable to retain our current personnel or hire additional qualified personnel, our ability to
develop and successfully market our products would be harmed.
   Competitive conditions often require us to reduce prices and, as a result, we need to reduce our
costs in order to be profitable.
  The length of our sales cycle requires us to invest substantial financial and technical resources
in a potential sale before we know whether the sale will occur. There is no guarantee that the sale
will ever occur and if we are unsuccessful in designing a high-frequency RF module for a particular
generation of a customers products, we may need to wait until the next generation of that product
to sell our products to that particular customer.
  We may not be able to design our products as quickly as our customers require, which could cause us
to lose sales and may harm our reputation.**
  30




---



##### Table of Contents



We may not be able to manufacture and deliver our products as quickly as our customers require,
which could cause us to lose sales and would harm our reputation.**
  
    
    the failure of a supplier to deliver needed components on a timely basis or with
acceptable quality;
    
    lack of sufficient capacity;
    
    poor manufacturing yields;
    
    equipment failures;
    
    manufacturing personnel shortages;
    
    labor disputes;
    
    transportation disruptions;
    
    changes in import/export regulations;
    
    infrastructure failures at the facilities of our offshore contract manufacturer;
    
    natural disasters;
    
    acts of terrorism; and
    
    political instability.
  31




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##### Table of Contents



Although we do have long-term commitments from many of our customers, they are not for fixed
quantities of product. As a result, we must estimate customer demand, and errors in our estimates
could have negative effects on our cash, inventory levels, revenues and results of operations.**
  Any failure to protect our intellectual property appropriately could reduce or eliminate any
competitive advantage we have.**
   32




---



##### Table of Contents



Risks Relating to Our Industry
 Our revenues in the defense electronics and homeland security markets largely depend upon the
funding and implementation decisions of Congress and government agencies. These decisions could
change abruptly and without notice, unexpectedly reducing our revenues from these markets.
  Our failure to compete effectively could reduce our revenues and margins.**
  33




---



##### Table of Contents



Our failure to comply with any applicable environmental regulations could result in a range of
consequences, including fines, suspension of production, excess inventory, sales limitations and
criminal and civil liabilities.
  Government regulation of the communications industry could limit the growth of the markets that we
serve or could require costly alterations of our current or future products.
  Risks Relating to Ownership of Our Stock
 The market price of our common stock has fluctuated historically and is likely to fluctuate in the
future.**
  
    
    our financial performance or the performance of our competitors;
    
    the purchase or sale of common stock, short-selling or transactions by
large stockholders;
    
    technological innovations or other trends or changes in telecommunication
and non-telecommunication networks;
    
    successes or failures at significant product evaluations or site
demonstrations;
    
    the introduction of new products by us or our competitors;
    
    acquisitions, strategic alliances or joint ventures involving us or our
competitors;
    
    decisions by major participants in the communications industry not to
purchase products from us or to pursue alternative technologies;
 34




---



##### Table of Contents




    
    decisions by investors to de-emphasize investment categories, groups or
strategies that include our company or industry;
    
    market conditions in the industry, the financial markets and the economy as
a whole;
    
    existence of preferred stock with rights differing from those of common
stock; and
    
    the low trading volume of our common stock.
  We have a few shareholders that each own a large percentage of our outstanding capital stock and,
as a result of their significant ownership, are able to significantly affect the outcome of matters
requiring stockholder approval.**
   Our certificate of incorporation, bylaws and arrangements with executive officers contain
provisions that could delay or prevent a change in control.
  35




---



##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
  1.
    
    To elect one director, John M. McGrath, Jr., to hold office until the 2011
Annual Meeting of Stockholders.FOR:     10,226,413          WITHHOLD:     152,3452.
    
    To elect one director, Wade Meyercord, to hold office until the 2011 Annual
Meeting of Stockholders.FOR:      9,976,328            WITHHOLD:     402,4303.
    
    To ratify the selection by the Audit Committee of the Board of Directors of
Burr, Pilger & Mayer LLP as our independent registered public accounting firm for the
fiscal year ending December 31, 2008.FOR:     10,368,289           AGAINST:        8,137          ABSTAIN:     2,332
 36




---



##### Table of Contents



Item 6. Exhibits.
 Number
    
    Description2.1(1)
    
    Stock Purchase Agreement among the Registrant and the stockholders and option holders of ALC
Microwave, Inc. dated April 19, 2007.3.1(2)
    
    Amended and Restated Certificate of Incorporation effective October 20, 2000.3.2(3)
    
    Certificate of Amendment of Amended and Restated Certificate of Incorporation effective June 28, 2002.3.3(4)
    
    Amended and Restated Bylaws effective July 22, 2008.3.4(5)
    
    Certificate of Designation for Series A Junior Participating Preferred Stock.3.5(6)
    
    Certificate of Designation for Series B Preferred Stock.3.7(7)
    
    Certificate of Amendment of Amended and Restated Certificate of Incorporation effective July 26, 2007.4.1(2)
    
    Form of specimen Common Stock Certificate.4.2(4)
    
    Rights Agreement dated as of December 1, 2005 between the Registrant and Computershare Trust Company,
Inc.4.3(4)
    
    Form of Rights Certificate4.4(5)
    
    Preferred Stock and Warrant Purchase Agreement by and between Oak Investment Partners XI, Limited
Partnership and the Registrant dated April 24, 2006.4.5(5)
    
    Warrant issued to Oak Investment Partners XI, Limited Partnership.4.6(8)
    
    Amendment No. 1 to Rights Agreement, dated as of December 21, 2007, between the Registrant and
ComputerShare Trust Company, Inc.10.1(2)
    
    Form of Indemnity Agreement entered into by the Registrant with each of its directors and officers.10.2(2)*
    
    1992 Stock Option Plan.10.3(2)*
    
    Form of Incentive Stock Option under 1992 Stock Option Plan.10.4(2)*
    
    Form of Nonstatutory Stock Option under 1992 Stock Option Plan.10.5(9)*
    
    2007 Equity Incentive Plan.10.6(10)*
    
    Form of Stock Option Agreement under 2007 Equity Incentive Plan.10.7(10)*
    
    Form of Stock Option Agreement for Non-Employee Directors under the 2007 Equity Incentive Plan.10.8(2)*
    
    2000 Employee Stock Purchase Plan.10.9(2)*
    
    Form of 2000 Employee Stock Purchase Plan Offering.10.10(11)*
    
    2000 Non-Employee Directors Stock Option Plan, as amended.10.11(2)*
    
    Form of Nonstatutory Stock Option Agreement under the 2000 Non-Employee Director Plan.10.12(12)*
    
    Description of Compensation Payable to Non-Employee Directors.10.13(12)*
    
    2008 Base Salaries for Named Executive Officers.10.14(12)*
    
    2008 Executive Incentive Compensation Plan.10.15(17)*
    
    Executive Officer Severance and Retention Plan.10.16(2)
    
    License Agreement by and between TRW Inc. and TRW Milliwave Inc. dated February 28, 2000.10.17(13)
    
    Purchase Agreement between Nokia and the Registrant dated January 1, 2006.10.18(13)
    
    Frame Purchase Agreement by and between the Registrant and Siemens Mobile Communications Spa dated
January 16, 2006.10.19(14)
    
    Lease Agreement by and between Legacy Partners I San Jose, LLC and the Registrant dated May 24, 2006.10.20(18)
    
    Amended and Restated Supply Agreement by and between Northrop Grumman Space and Mission Systems Corp.
and the Registrant dated May 12, 2008.10.21(15)
    
    Services Agreement by and between Hana Microelectronics Co., Ltd. and the Registrant dated October
15, 2006.10.22(16)
    
    Amended and Restated Settlement Agreement by and between the Registrant and Arthur Steinberg, as
receiver for Wood River Capital Management, L.L.C., Wood River Associates, L.L.C., Wood River
Partners, L.P. and Wood River Partners Offshore, Ltd., dated December 20, 2007.10.23(8)
    
    Stock Purchase Agreement, dated December 21, 2007, entered into between the Registrant, Wood River
Partners, L.P., Wood River Partners Offshore, Ltd. and, for the limited purpose set forth therein,
Arthur J. Steinberg, solely in his capacity as Receiver for Wood River Capital Management, L.L.C.,
Wood River Associates, L.L.C., Wood River Partners, L.P. and Wood River Partners Offshore, Ltd. and
not in his individual capacity.10.24(18)
    
    Lease Agreement by and between 8812, a California limited partnership, and the Registrant dated May
20, 2008.31.1
    
    Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 37




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##### Table of Contents



(1)
    
    Previously filed as an exhibit to the Registrants Current Report on
Form 8-K filed on April 24, 2007 and incorporated herein by reference.(2)
    
    Previously filed as an exhibit to the Registrants Registration
Statement on Form S-1 (Registration No. 333-41302) and incorporated
herein by reference.(3)
    
    Previously filed as an exhibit to the Registrants Quarterly Report on
Form 10-Q for the quarter ended March 31, 2004 and incorporated herein
by reference.(4)
    
    Previously filed as an exhibit to the Registrants Current Report on
Form 8-K filed on July 28, 2008 and incorporated herein by reference.(5)
    
    Previously filed as an exhibit to the Registrants Current Report on
Form 8-K filed on December 5, 2005 and incorporated herein by
reference.(6)
    
    Previously filed as an exhibit to the Registrants Current Report on
Form 8-K filed on April 26, 2006 and incorporated herein by reference.(7)
    
    Previously filed as an exhibit to the Registrants Quarterly Report on
Form 10-Q for the quarter ended September 30, 2007 and incorporated
herein by reference.(8)
    
    Previously filed as an exhibit to the Registrants Current Report on
Form 8-K filed on December 21, 2007 and incorporated herein by
reference.(9)
    
    Previously filed as an appendix to the Registrants Definitive Proxy
Statement on Schedule 14A filed on June 13, 2007 and incorporated
herein by reference.(10)
    
    Previously filed as an exhibit to the Registrants Registration
Statement on Form S-8 (Registration No.333-144851) and incorporated
herein by reference.(11)
    
    Previously filed as an exhibit to the Registrants Annual Report on
Form 10-K for the fiscal year ended December 31, 2005 and incorporated
herein by reference.(12)
    
    Previously filed as an exhibit to the Registrants Current Report on
Form 8-K filed on February 1, 2008 and incorporated herein by
reference.(13)
    
    Previously filed as an exhibit to the Registrants Registration
Statement on Form S-3 (Registration No.333-144054) and incorporated
herein by reference.(14)
    
    Previously filed as an exhibit to the Registrants Quarterly Report on
Form 10-Q for the quarter ended June 30, 2006 and incorporated herein
by reference.(15)
    
    Previously filed as an exhibit to the Registrants Annual Report on
Form 10-K for the fiscal year ended December 31, 2006 and incorporated
herein by reference.(16)
    
    Previously filed as an exhibit to the Registrants Current Report on
Form 8-K filed on December 20, 2007 and incorporated herein by
reference.(17)
    
    Previously filed as an exhibit to the Registrants Annual Report on
Form 10-K filed for the fiscal year ended December 31, 2007 and
incorporated herein by reference.(18)
    
    Previously filed as an exhibit to the Registrants Quarterly Report on
Form 10-Q for the quarter ended June 30, 2008 and incorporated herein
by reference. 38




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##### Table of Contents



*
    
    Indicates a management contract or compensatory plan or arrangement.
    
    Confidential treatment has been requested for a portion of this exhibit. 
 SIGNATURES
  ENDWAVE CORPORATIONDate: November 7, 2008By:
    
    /s/ Edward A. Keible, Jr.Edward A. Keible, Jr.President and Chief
Executive Officer 
(Duly
Authorized Officer and Principal Executive
Officer)By:
    
    /s/ Brett W. WallaceBrett W. WallaceExecutive Vice President
and Chief Financial Officer(Duly
Authorized Officer and Principal Financial
and Accounting Officer)
 39




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##### Table of Contents



Index to Exhibits
 Number
    
    Description31.1
    
    Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.31.2
    
    Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.32.1
    
    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 40