##### 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 June 30, 2007
 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
    
    94085(Address of principal executive offices)
    
    (Zip code)
 (408) 522-3100
 þ o
  o þ o
 o þ




---



##### 



ENDWAVE CORPORATION
 INDEX
 PagePART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    
    3Condensed Consolidated Balance Sheets as of June 30, 2007
(unaudited) and December 31, 2006
    
    
    3Unaudited Condensed Consolidated Statements of Operations for
the three and six months ended June 30, 2007 and 2006
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 2007 and 2006
    
    
    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
    
    
    23Item 4.
    
    Controls and Procedures
    
    
    23PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    24Item 1A.
    
    Risk Factors
    
    
    24Item 6.
    
    Exhibits
    
    
    36SIGNATURES
    
    
    38EXHIBITS
    
    
    39EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  2




---



##### 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)
 June 30,
    
    
    December 31,2007
    
    
    2006(unaudited)
    
    
    (1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    24,046
    
    
    $
    26,176Short-term investments
    
    
    30,613
    
    
    
    41,411Accounts receivable, net
    
    
    9,368
    
    
    
    8,713Inventories
    
    
    12,707
    
    
    
    17,127Other current assets
    
    
    942
    
    
    
    640Total current assets
    
    
    77,676
    
    
    
    94,067Long-term investments
    
    
    10,075
    
    
    
    Property and equipment, net
    
    
    2,945
    
    
    
    2,024Other assets, net
    
    
    236
    
    
    
    110Restricted cash
    
    
    25
    
    
    
    261Goodwill and intangible assets, net
    
    
    8,102
    
    
    
    4,191$
    99,059
    
    
    $
    100,653LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,088
    
    
    $
    4,280Accrued warranty
    
    
    2,804
    
    
    
    2,928Accrued compensation
    
    
    1,992
    
    
    
    2,652Other current liabilities
    
    
    1,808
    
    
    
    1,164Total current liabilities
    
    
    9,692
    
    
    
    11,024Other long-term liabilities
    
    
    153
    
    
    
    231Total liabilities
    
    
    9,845
    
    
    
    11,255Contingencies (Note 8)Stockholders equity:Convertible preferred stock, $0.001
par value; 5,000,000 shares
authorized; 300,000 shares issued
and outstanding at June 30, 2007
and December 31, 2006, respectively
    
    
    
    
    
    
    Common stock, $0.001 par value;
100,000,000 shares authorized;
11,617,339 and 11,556,946 shares
issued and outstanding at June 30,
2007 and December 31, 2006,
respectively
    
    
    12
    
    
    
    12Additional paid-in capital
    
    
    359,721
    
    
    
    357,203Treasury stock, at cost, 39,150
shares at June 30, 2007 and
December 31, 2006
    
    
    (79
    )
    
    
    (79
    )Accumulated other comprehensive loss
    
    
    (40
    )
    
    
    (25
    )Accumulated deficit
    
    
    (270,400
    )
    
    
    (267,713
    )Total stockholders equity
    
    
    89,214
    
    
    
    89,398$
    99,059
    
    
    $
    100,653
 
 (1)
    
    Derived from the Companys audited consolidated financial statements as of December 31, 2006. The accompanying notes are an integral part of these condensed consolidated financial statements.
 3




---



##### Table of Contents



ENDWAVE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(unaudited)
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Product revenues
    
    $
    13,138
    
    
    $
    16,326
    
    
    $
    27,731
    
    
    $
    29,479Development fees
    
    
    401
    
    
    
    
    
    
    
    559
    
    
    
    593Total revenues
    
    
    13,539
    
    
    
    16,326
    
    
    
    28,290
    
    
    
    30,072Costs and expenses:Cost of product revenues*
    
    
    10,208
    
    
    
    11,434
    
    
    
    20,828
    
    
    
    21,430Cost of product revenues, amortization of
intangible assets
    
    
    137
    
    
    
    111
    
    
    
    250
    
    
    
    224Research and development*
    
    
    2,709
    
    
    
    2,111
    
    
    
    5,114
    
    
    
    4,190Selling, general and administrative*
    
    
    3,280
    
    
    
    3,534
    
    
    
    6,479
    
    
    
    6,492Amortization of intangible assets
    
    
    133
    
    
    
    39
    
    
    
    172
    
    
    
    78Total costs and expenses
    
    
    16,467
    
    
    
    17,229
    
    
    
    32,843
    
    
    
    32,414Loss from operations
    
    
    (2,928
    )
    
    
    (903
    )
    
    
    (4,553
    )
    
    
    (2,342
    )Interest and other income, net
    
    
    1,021
    
    
    
    696
    
    
    
    1,866
    
    
    
    957Net loss
    
    $
    (1,907
    )
    
    $
    (207
    )
    
    $
    (2,687
    )
    
    $
    (1,385
    )Basic and diluted net loss per share
    
    $
    (0.16
    )
    
    $
    (0.02
    )
    
    $
    (0.23
    )
    
    $
    (0.12
    )Shares used in computing basic and diluted
net income loss per share
    
    
    11,601,642
    
    
    
    11,410,087
    
    
    
    11,575,716
    
    
    
    11,387,384
 
 *
    
    Includes the following amounts related to stock-based compensation: Cost of product revenues
    
    $
    190
    
    
    $
    126
    
    
    $
    295
    
    
    $
    214Research and development
    
    $
    231
    
    
    $
    160
    
    
    $
    382
    
    
    $
    280Selling, general and administrative
    
    $
    727
    
    
    $
    686
    
    
    $
    1,313
    
    
    $
    1,192
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 4




---



##### Table of Contents



ENDWAVE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
 Six months endedJune 30,2007
    
    
    2006Operating activities:Net loss
    
    $
    (2,687
    )
    
    $
    (1,385
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation
    
    
    445
    
    
    
    476Amortization of intangible assets
    
    
    422
    
    
    
    302Stock compensation expense
    
    
    1,990
    
    
    
    1,686Amortization of investments, net
    
    
    (8
    )
    
    
    51Changes in operating assets and liabilities:Accounts receivable, net
    
    
    61
    
    
    
    (1,434
    )Inventories
    
    
    5,569
    
    
    
    47Other assets
    
    
    (153
    )
    
    
    49Accounts payable
    
    
    (1,273
    )
    
    
    3,285Accrued warranty
    
    
    (282
    )
    
    
    (209
    )Accrued compensation, other current liabilities and other long-term
liabilities
    
    
    (1,339
    )
    
    
    (572
    )Net cash provided by operating activities
    
    
    2,745
    
    
    
    2,296Investing activities:Purchase of ALC Microwave, Inc., net of cash acquired
    
    
    (5,763
    )
    
    
    Change in restricted cash
    
    
    236
    
    
    
    (236
    )Proceeds on sale of property
    
    
    11
    
    
    
    Purchases of property and equipment
    
    
    (575
    )
    
    
    (1,095
    )Proceeds on maturities of short term investments
    
    
    38,345
    
    
    
    2,850Purchases of investments
    
    
    (37,629
    )
    
    
    (25,800
    )Net cash used in investing activities
    
    
    (5,375
    )
    
    
    (24,281
    )Financing activities:Proceeds from the sale of Series B preferred stock and warrants, net of
issuance costs
    
    
    
    
    
    
    43,118Proceeds from common stock issuance
    
    
    368
    
    
    
    379Proceeds from exercises of stock options, net of issuance costs
    
    
    132
    
    
    
    129Net cash provided by financing activities
    
    
    500
    
    
    
    43,626Net increase (decrease) in cash and cash equivalents
    
    
    (2,130
    )
    
    
    21,641Cash and cash equivalents at beginning of period
    
    
    26,176
    
    
    
    8,456Cash and cash equivalents at end of period
    
    $
    24,046
    
    
    $
    30,097
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 5




---



##### Table of Contents



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. Business Combination
   6




---



##### Table of Contents



Tangible assets acquired:Cash
    
    $
    178Accounts receivable
    
    
    716Inventory
    
    
    1,121Property, plant and equipment
    
    
    802Other current assets
    
    
    275Liabilities assumed:Accounts payable
    
    
    (81
    )Accrued compensation
    
    
    (221
    )Accrued warranty
    
    
    (158
    )Other current liabilities
    
    
    (13
    )Identifiable intangible assets acquired:Core/developed technology
    
    
    880Tradename
    
    
    230Customer relationships
    
    
    900Customer backlog
    
    
    560Non-compete agreement
    
    
    370Goodwill
    
    
    1,393Total purchase price
    
    $
    6,952
 Pro forma financial information
  7




---



##### Table of Contents



Three months ended
    
    Six months endedJune 30,
    

June 30,2007
    
    2006
    
    2007
    
    2006(in thousands except per share amounts)Net revenue
    
    $
    13,539
    
    
    $
    17,711
    
    
    $
    29,640
    
    
    $
    32,741Net loss
    
    $
    (1,907
    )
    
    $
    (174
    )
    
    $
    (2,908
    )
    
    $
    (1,253
    )Net loss per share  basic and diluted
    
    $
    (0.16
    )
    
    $
    (0.02
    )
    
    $
    (0.25
    )
    
    $
    (0.11
    )
  3. Restricted Cash
   4. Investments
  June 30, 2007Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Investments:United States government agencies
    
    $
    2,542
    
    
    $
    
    
    
    $
    (4
    )
    
    $
    2,538Corporate securities
    
    
    14,548
    
    
    
    
    
    
    
    (36
    )
    
    
    14,512Obligations of states and
political subdivisions
    
    
    23,638
    
    
    
    
    
    
    
    
    
    
    
    23,638Total
    
    $
    40,728
    
    
    $
    
    
    
    $
    (40
    )
    
    $
    40,688Cash equivalents:Commercial paper
    
    $
    16,931
    
    
    $
    
    
    
    $
    
    
    
    $
    16,931
 8




---



##### Table of Contents



December 31, 2006Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Short-term investments:United States government agencies
    
    $
    2,000
    
    
    $
    
    
    
    $
    (11
    )
    
    $
    1,989Corporate securities
    
    
    3,871
    
    
    
    
    
    
    
    (9
    )
    
    
    3,862Obligations of states and
political subdivisions
    
    
    29,750
    
    
    
    
    
    
    
    
    
    
    
    29,750Commercial paper
    
    
    5,815
    
    
    
    
    
    
    
    (5
    )
    
    
    5,810Total
    
    $
    41,436
    
    
    $
    
    
    
    $
    (25
    )
    
    $
    41,411Cash equivalents:Commercial paper
    
    $
    21,799
    
    
    $
    
    
    
    $
    
    
    
    $
    21,799
    5. Inventories
  June 30,
    
    
    December 31,2007
    
    
    2006Raw materials
    
    $
    8,705
    
    
    $
    10,174Work in process
    
    
    1,681
    
    
    
    1,829Finished goods
    
    
    2,321
    
    
    
    5,124$
    12,707
    
    
    $
    17,127
 6. Goodwill and Intangible Assets
 Goodwill
  Intangible Assets
  9




---



##### Table of Contents



Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    AmountDeveloped technology
    
    $
    3,130
    
    
    $
    (1,338
    )
    
    $
    1,792Tradename
    
    
    1,290
    
    
    
    (7
    )
    
    
    1,283Customer relationships
    
    
    1,680
    
    
    
    (480
    )
    
    
    1,200Customer backlog
    
    
    700
    
    
    
    (187
    )
    
    
    513Non-compete agreement
    
    
    370
    
    
    
    (15
    )
    
    
    355Total intangible assets
    
    $
    7,170
    
    
    $
    (2,027
    )
    
    $
    5,143
  Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    AmountDeveloped technology
    
    $
    2,250
    
    
    $
    (1,088
    )
    
    $
    1,162Tradename
    
    
    1,060
    
    
    
    
    
    
    
    1,060Customer relationships
    
    
    780
    
    
    
    (377
    )
    
    
    403Customer backlog
    
    
    140
    
    
    
    (140
    )
    
    
    Total intangible assets
    
    $
    4,230
    
    
    $
    (1,605
    )
    
    $
    2,625
      10




---



##### Table of Contents



Years Ending December 312007 (July 1 through December 31)
    
    $
    6572008
    
    
    1,3142009
    
    
    8742010
    
    
    4282011
    
    
    366Thereafter
    
    
    444$
    4,083
 7. Warranty
   Six months ended June 30,2007
    
    
    2006Balance at January 1
    
    $
    2,928
    
    
    $
    3,257Warranties accrued
    
    
    503
    
    
    
    402Warranties settled or reversed
    
    
    (627
    )
    
    
    (611
    )Balance at June 30
    
    $
    2,804
    
    
    $
    3,048
 8. Contingencies
  9. Stock-Based Compensation
  11




---



##### Table of Contents



Three months ended June 30,2007
    
    
    2006Stock-based compensation expense by type of award:Employee stock options
    
    $
    1,054
    
    
    $
    843Employee stock purchase plan
    
    
    111
    
    
    
    134Amounts capitalized as inventory
    
    
    (17
    )
    
    
    (5
    )Total stock-based compensation
    
    
    1,148
    
    
    
    972Tax effect on stock-based compensation
    
    
    
    
    
    
    Total stock-based compensation expense
    
    $
    1,148
    
    
    $
    972Impact on net loss per share
    
    $
    (0.10
    )
    
    $
    (0.09
    )
  Six months ended June 30,2007
    
    
    2006Stock-based compensation expense by type of award:Employee stock options
    
    $
    1,838
    
    
    $
    1,489Employee stock purchase plan
    
    
    180
    
    
    
    216Amounts capitalized as inventory
    
    
    (28
    )
    
    
    (19
    )Total stock-based compensation
    
    
    1,990
    
    
    
    1,686Tax effect on stock-based compensation
    
    
    
    
    
    
    Total stock-based compensation expense
    
    $
    1,990
    
    
    $
    1,686Impact on net loss per share
    
    $
    (0.17
    )
    
    $
    (0.15
    )
    Valuation Assumptions
  12




---



##### Table of Contents



Three months ended
    
    Six months endedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Risk-free interest rate
    
    
    4.58
    %
    
    
    4.97
    %
    
    
    4.74
    %
    
    
    4.61
    %Expected life of options
    
    3.4
    years
    
    4.6
    years
    
    3.6
    years
    
    4.6
    yearsExpected dividends
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Volatility
    
    
    70
    %
    
    
    70
    %
    
    
    70
    %
    
    
    80
    %
  Three months ended
    
    Six months endedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Risk-free interest rate
    
    
    4.90
    %
    
    
    5.0
    %
    
    
    4.85
    %
    
    
    4.85
    %Expected life of options
    
    1.1
    years
    
    1.3
    years
    
    1.2
    years
    
    0.8
    yearsExpected dividends
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Volatility
    
    
    51
    %
    
    
    51
    %
    
    
    51
    %
    
    
    61
    %
    Equity Incentive Program
  13




---



##### Table of Contents



Weighted-Weighted-
    
    Average
    
    AggregateAverage
    
    Remaining
    
    IntrinsicNumber of
    
    Exercise
    
    Contractual
    
    ValueShares
    
    Price
    
    Term (Years)
    
    (In thousands)Outstanding at December 31, 2006
    
    
    1,732,669
    
    
    $
    13.59Options granted
    
    
    748,250
    
    
    
    12.32Options exercised
    
    
    (20,648
    )
    
    
    6.65Options cancelled
    
    
    (11,904
    )
    
    
    15.74Outstanding at June 30, 2007
    
    
    2,448,367
    
    
    $
    13.25
    
    
    
    8.25
    
    
    $
    3,310Options vested and exercisable and
expected to be exercisable at June
30, 2007
    
    
    2,170,813
    
    
    $
    13.44
    
    
    
    8.12
    
    
    $
    3,114Options vested and exercisable at
June 30, 2007
    
    
    1,065,425
    
    
    $
    15.35
    
    
    
    7.28
    
    
    $
    2,249
   Options Vested and ExercisableOptions Outstanding at June 30, 2007
    
    At June 30, 2007Weighted-AverageWeighted-Average
    
    Remaining
    
    
    
    
    
    Weighted-AverageRange of Exercise Price
    
    Shares
    
    Exercise Price
    
    Contractual Life
    
    Shares
    
    Exercise Price$0.76 - $9.32
    
    
    308,325
    
    
    $
    4.93
    
    
    
    6.83
    
    
    
    219,457
    
    
    $
    3.22$9.68 - $9.75
    
    
    19,232
    
    
    $
    9.70
    
    
    
    6.83
    
    
    
    13,449
    
    
    $
    9.70$9.77 - $9.77
    
    
    360,985
    
    
    $
    9.77
    
    
    
    8.61
    
    
    
    109,285
    
    
    $
    9.77$9.90 - $10.20
    
    
    328,510
    
    
    $
    10.04
    
    
    
    8.57
    
    
    
    84,819
    
    
    $
    10.200$10.22 - $11.58
    
    
    251,381
    
    
    $
    10.38
    
    
    
    7.16
    
    
    
    157,122
    
    
    $
    10.42$11.75 - $12.90
    
    
    161,937
    
    
    $
    12.45
    
    
    
    8.33
    
    
    
    56,081
    
    
    $
    12.45$13.23 - $13.23
    
    
    539,250
    
    
    $
    13.23
    
    
    
    9.62
    
    
    
    3,655
    
    
    $
    13.23$15.14 - $21.47
    
    
    309,397
    
    
    $
    19.64
    
    
    
    7.70
    
    
    
    252,207
    
    
    $
    20.33$24.00 - $45.80
    
    
    159,350
    
    
    $
    34.583
    
    
    
    8.07
    
    
    
    159,350
    
    
    $
    34.58$56.00 - $56.00
    
    
    10,000
    
    
    $
    56.00
    
    
    
    3.07
    
    
    
    10,000
    
    
    $
    56.00$0.76 - $56.00
    
    
    2,448,367
    
    
    $
    13.25
    
    
    
    8.25
    
    
    
    1,065,425
    
    
    $
    15.35
 Employee Stock Purchase Plan
  14




---



##### Table of Contents



10. Net Loss Per Share
    11. Comprehensive Loss
    12. Segment Disclosures
  Three months ended June 30,2007

    
    2006United States
    
    $
    2,735
    
    
    
    20.2
    %
    
    $
    2,159
    
    
    
    13.2
    %Finland
    
    
    6,438
    
    
    
    47.6
    %
    
    
    6,189
    
    
    
    37.9
    %Italy
    
    
    598
    
    
    
    4.4
    %
    
    
    5,153
    
    
    
    31.6
    %Norway
    
    
    705
    
    
    
    5.2
    %
    
    
    1,784
    
    
    
    10.9
    %Slovakia
    
    
    2,179
    
    
    
    16.1
    %
    
    
    
    
    
    
    0.0
    %Other
    
    
    884
    
    
    
    6.5
    %
    
    
    1,041
    
    
    
    6.4
    %Total
    
    $
    13,539
    
    
    
    100.0
    %
    
    $
    16,326
    
    
    
    100.0
    %
 15




---



##### Table of Contents



Six months ended June 30,2007

    
    2006United States
    
    $
    4,846
    
    
    
    17.1
    %
    
    $
    5,606
    
    
    
    18.6
    %Finland
    
    
    12,523
    
    
    
    44.3
    %
    
    
    9,588
    
    
    
    31.9
    %Italy
    
    
    3,140
    
    
    
    11.1
    %
    
    
    9,230
    
    
    
    30.7
    %Norway
    
    
    3,008
    
    
    
    10.6
    %
    
    
    3,253
    
    
    
    10.8
    %Slovakia
    
    
    2,179
    
    
    
    7.7
    %
    
    
    
    
    
    
    0.0
    %Other
    
    
    2,594
    
    
    
    9.2
    %
    
    
    2,395
    
    
    
    8.0
    %Total
    
    $
    28,290
    
    
    
    100.0
    %
    
    $
    30,072
    
    
    
    100.0
    %
   16




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   Overview
    Results of Operations
 Three and six months ended June 30, 2007 and 2006
  17




---



##### Table of Contents



Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of product revenues
    
    
    75.4
    
    
    
    70.0
    
    
    
    73.6
    
    
    
    71.3Cost of product revenues,
amortization of intangible assets
    
    
    1.0
    
    
    
    0.7
    
    
    
    0.9
    
    
    
    0.7Research and development
    
    
    20.0
    
    
    
    12.9
    
    
    
    18.1
    
    
    
    13.9Selling, general and administrative
    
    
    24.2
    
    
    
    21.6
    
    
    
    22.9
    
    
    
    21.6Amortization of intangible assets
    
    
    1.0
    
    
    
    0.2
    
    
    
    0.6
    
    
    
    0.3Total costs and expenses
    
    
    121.6
    
    
    
    105.5
    
    
    
    116.1
    
    
    
    107.8Loss from operations
    
    
    (21.6
    )
    
    
    (5.5
    )
    
    
    (16.1
    )
    
    
    (7.8
    )Interest and other income, net
    
    
    7.5
    
    
    
    4.2
    
    
    
    6.6
    
    
    
    3.2Net loss
    
    
    (14.1
    )%
    
    
    (1.3
    )%
    
    
    ( 9.5
    )%
    
    
    ( 4.6
    )%
 Total revenues
 Three months ended June 30,
    
    Six months ended June 30,2007
    
    2006
    
    % Change
    
    2007
    
    2006
    
    % Change(In thousands)
    
    
    
    
    
    (In thousands)Total revenues
    
    $
    13,539
    
    
    $
    16,326
    
    
    
    (17.1
    %)
    
    $
    28,290
    
    
    $
    30,072
    
    
    
    (5.9
    %)Product revenues
    
    $
    13,138
    
    
    $
    16,326
    
    
    
    (19.5
    %)
    
    $
    27,731
    
    
    $
    29,479
    
    
    
    (5.9
    %)Development fees
    
    $
    401
    
    
    $
    
    
    
    
    100
    %
    
    $
    559
    
    
    $
    593
    
    
    
    (5.7
    %)
    Cost of product revenues
 Three months ended June 30,
    
    Six months ended June 30,2007
    
    2006
    
    % Change
    
    2007
    
    2006
    
    % Change(In thousands)
    
    
    
    
    
    (In thousands)Cost of product revenues
    
    $
    10,208
    
    
    $
    11,434
    
    
    
    (10.7
    %)
    
    $
    20,828
    
    
    $
    21,430
    
    
    
    (2.8
    %)Percentage of total revenues
    
    
    75.4
    %
    
    
    70.0
    %
    
    
    
    
    
    
    73.6
    %
    
    
    71.3
    %
  18




---



##### Table of Contents



Research and development expenses
 Three months ended June 30,
    
    Six months ended June 30,2007
    
    2006
    
    % Change
    
    2007
    
    2006
    
    % Change(In thousands)
    
    
    
    
    
    (In thousands)Research and
development expenses
    
    $
    2,709
    
    
    $
    2,111
    
    
    
    28.3
    %
    
    $
    5,114
    
    
    $
    4,190
    
    
    
    22.1
    %Percentage of total revenues
    
    
    20.0
    %
    
    
    12.9
    %
    
    
    
    
    
    
    18.1
    %
    
    
    13.9
    %
     19




---



##### Table of Contents



Selling, general and administrative expenses
 Three months ended June 30,
    
    Six months ended June 30,2007
    
    2006
    
    % Change
    
    2007
    
    2006
    
    % Change(In thousands)
    
    
    
    
    
    (In thousands)Selling, general and
administrative expenses
    
    $
    3,280
    
    
    $
    3,534
    
    
    
    (7.2
    %)
    
    $
    6,479
    
    
    $
    6,492
    
    
    
    (0.2
    %)Percentage of total revenues
    
    
    24.2
    %
    
    
    21.6
    %
    
    
    
    
    
    
    22.9
    %
    
    
    21.6
    %
     Amortization of intangible assets
 Three months ended June 30,
    
    Six months ended June 30,2007
    
    2006
    
    % Change
    
    2007
    
    2006
    
    % Change(In thousands)
    
    
    
    
    
    (In thousands)Cost of
product revenues,
amortization of
intangible assets
    
    $
    137
    
    
    $
    111
    
    
    
    23.4
    %
    
    $
    250
    
    
    $
    224
    
    
    
    11.6
    %Amortization of
intangible assets
    
    $
    133
    
    
    $
    39
    
    
    
    241.0
    %
    
    $
    172
    
    
    $
    78
    
    
    
    120.5
    %
    20




---



##### Table of Contents



Interest and other income, net
 Three months ended June 30,
    
    Six months ended June 30,2007
    
    2006
    
    % Change
    
    2007
    
    2006
    
    % Change(In thousands)
    
    
    
    
    
    (In thousands)Interest and other income, net
    
    $
    1,021
    
    
    $
    696
    
    
    
    46.7
    %
    
    $
    1,866
    
    
    $
    957
    
    
    
    95.0
    %
  Liquidity and Capital Resources
  Six months endedJune 30,2007
    
    2006(in thousands)Net cash provided by operating activities
    
    $
    2,745
    
    
    $
    2,296Net cash provided used in investing activities
    
    
    (5,375
    )
    
    
    (24,281
    )Net cash provided by financing activities
    
    
    500
    
    
    
    43,626Cash, cash equivalents, restricted cash, short-
term and long-term investments at end of period
    
    $
    64,759
    
    
    $
    67,211
   21




---



##### Table of Contents



Payment Due by PeriodTotal
    
    Less Than 1 Year
    
    1  3 Years
    
    3-5 Years
    
    More Than 5 Years(In thousands)Contractual obligations:Operating lease obligations
    
    $
    2,486
    
    
    $
    815
    
    
    $
    1,203
    
    
    $
    468
    
    
    $
    
 22




---



##### Table of Contents



Item 3. Qualitative and Quantitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
 (a) Evaluation of disclosure controls and procedures.
   (b) Changes in internal controls over financial reporting.
  23




---



##### 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, 2006.
 Risks Relating to Our Business
 We have had a history of losses and may not be profitable in the future. **
  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 Nera or 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.**
   24




---



##### Table of Contents



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;
    
    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.
  25




---



##### Table of Contents



Our future success depends in part on our ability to further penetrate into new markets, such as
defense electronics and homeland security, 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;
    
    voltage-controlled oscillators;
    
    voltage regulators;
    
    surface mount components compliant with the EUs Restriction of Hazardous
Substances, or RoHS, Directive;
    
    high-frequency circuit boards;
    
    custom connectors;
    
    electromagnetic housings;
    
    yttrium iron garnet components; and
 26




---



##### Table of Contents




    
    magnetic components.
  Our cash requirements will be impacted by our need to increase inventories.**
  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.
  We rely on 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
Velocium, without adequate notice would adversely impact our ability to fill customer orders and
could damage our customer relationships.**
  27




---



##### Table of Contents



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.
  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.**
  28




---



##### Table of Contents



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.**
    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;
 29




---



##### Table of Contents




    
    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.
   Though 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 inventory levels, revenues and results of operations.
  30




---



##### Table of Contents



Some of our customer contracts require us to manufacture products designed by our customers. While
we intend to convert many of these products to products of our own design, such transitions may be
difficult and/or expensive to implement and delays or difficulties in doing so could harm our
operating results.
  Any failure to protect our intellectual property appropriately could reduce or eliminate any
competitive advantage we have.**
    31




---



##### Table of Contents



Risks Relating to Our Industry
 We have increased our focus on sales to the United States government and other governmental
agencies. Our revenues in this market largely depend upon the funding and implementation decisions
of Congress and government agencies. These decisions could change abruptly and without notice,
unexpectedly reducing our current or future revenues in this market.
  Our failure to compete effectively could reduce our revenues and margins.**
   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.
  32




---



##### Table of Contents



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 assets of Wood River Capital Management, L.L.C. and certain of its affiliates, the holders of
shares of common stock representing approximately 26.4% of our outstanding capital stock as of June
30, 2007, have been placed into receivership by the Securities and Exchange Commission, and the
receiver may dispose of such shares of our common stock. Such disposition may adversely affect the
trading price of our common 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, or short-selling or other
transactions involving our securities, particularly by the Wood River Entities, Oak
or other large stockholders;
    
    technological innovations or other trends or changes in the
telecommunication network, defense electronics or homeland security markets;
    
    successes or failures at significant product evaluations or site demonstrations;
    
    the introduction of new products by us or our competitors;
 33




---



##### Table of Contents




    
    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;
    
    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; and
    
    the low trading volume of our common stock.
  We have two shareholders that 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.**
  34




---



##### Table of Contents



35




---



##### Table of Contents



Item 6. Exhibits.
 Number
    
    Description2.1(4)
    
    Stock Purchase Agreement among the Registrant and the stockholders and option holders of ALC
Microwave, Inc. dated April 19, 2007.3.1(1)
    
    Amended and Restated Certificate of Incorporation effective October 20, 2000.3.2(2)
    
    Certificate of Amendment of Amended and Restated Certificate of Incorporation effective June 28, 2002.3.3(1)
    
    Amended and Restated Bylaws effective October 20, 2000.3.4(9)
    
    Certificate of Designation for Series A Junior Participating Preferred Stock.3.5(12)
    
    Certificate of Designation for Series B Preferred Stock.3.6(7)
    
    Amendment to Amended and Restated Bylaws.4.1(1)
    
    Form of specimen Common Stock Certificate.4.2(9)
    
    Rights Agreement dated as of December 1, 2005 between the Registrant and Computershare Trust Company,
Inc.4.3(9)
    
    Form of Rights Certificate4.4(12)
    
    Preferred Stock and Warrant Purchase Agreement by and between Oak Investment Partners XI, Limited
Partnership and the Registrant dated April 24, 2006.4.5(12)
    
    Warrant issued to Oak Investment Partners XI, Limited Partnership.4.6(14)
    
    Registration Rights 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 May 17, 2007.10.1(1)
    
    Form of Indemnity Agreement entered into by the Registrant with each of its directors and officers.10.2(1)*
    
    1992 Stock Option Plan.10.3(1)*
    
    Form of Incentive Stock Option under 1992 Stock Option Plan.10.4(1)*
    
    Form of Nonstatutory Stock Option under 1992 Stock Option Plan.10.5(16)*
    
    2007 Equity Incentive Plan.10.6(17)*
    
    Form of Stock Option Agreement under 2007 Equity Incentive Plan.10.7(1)*
    
    2000 Employee Stock Purchase Plan.10.7(17)*
    
    Form of Stock Option Agreement for Non-Employee Directors under the 2007 Equity Incentive Plan.10.8(1)*
    
    Form of 2000 Employee Stock Purchase Plan Offering.10.9(10)*
    
    2000 Non-Employee Directors Stock Option Plan, as amended.10.10(1)*
    
    Form of Nonstatutory Stock Option Agreement under the 2000 Non-Employee Director Plan.10.11(11)*
    
    Description of Compensation Payable to Non-Employee Directors.10.12(11)*
    
    2007 Base Salaries for Named Executive Officers.10.13(11)*
    
    2007 Executive Incentive Compensation Plan.10.14(5)*
    
    Executive Officer Severance and Retention Plan.10.15(1)
    
    License Agreement by and between TRW Inc. and TRW Milliwave Inc. dated February 28, 2000.10.16(15)
    
    Purchase Agreement between Nokia and the Registrant dated January 1, 2006.10.17(15)
    
    Frame Purchase Agreement by and between the Registrant and Siemens Mobile Communications Spa dated
January 16, 2006.10.18(13)
    
    Lease Agreement by and between Legacy Partners I San Jose, LLC and the Registrant dated May 24, 2006.10.19(13)
    
    Supply Agreement by and between Northrop Grumman Space and Mission Systems Corp. and the Registrant
dated July 25, 2006.10.20(8)
    
    Services Agreement by and between Hana Microelectronics Co., Ltd. and the Registrant dated October
15, 2006.10.21(14)
    
    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 May 17, 2007.31.1
    
    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.
 
 (1)
    
    Previously filed as an exhibit to the Registrants Registration
Statement on Form S-1 (Registration No. 333-41302) and incorporated
herein by reference.(2)
    
    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. 36




---



##### Table of Contents



(3)
    
    Previously filed as an exhibit to the Registrants Current Report on
Form 8-K filed on March 25, 2005 and incorporated herein by reference.(4)
    
    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.(5)
    
    Previously filed as an exhibit to the Registrants Quarterly Report on
Form 10-Q for the quarter ended September 30, 2003 and incorporated
herein by reference.(6)
    
    Previously filed as an exhibit to an amendment to the Registrants
Quarterly Report on Form 10-Q for the quarter ended September 30, 2003
filed on August 4, 2004 and incorporated herein by reference.(7)
    
    Previously filed as an exhibit to the Registrants Current Report on
Form 8-K filed on February 5, 2007 and incorporated herein by
reference.(8)
    
    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.(9)
    
    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.(10)
    
    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.(11)
    
    Previously filed as an exhibit to the Registrants Current Report on
Form 8-K filed on February 7, 2007 and incorporated herein by
reference.(12)
    
    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.(13)
    
    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.(14)
    
    Previously filed as an exhibit to the Registrants Current Report on
Form 8-K filed on May 30, 2007 and incorporated herein by reference.(15)
    
    Previously filed as an exhibit to the Registrants Registration
Statement on Form S-3 (Registration No.333-144054) and incorporated
herein by reference.(16)
    
    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.(17)
    
    Previously filed as an exhibit to the Registrants Registration
Statement on Form S-8 (Registration No.333-144851) and incorporated
herein by reference.*
    
    Indicates a management contract or compensatory plan or arrangement.
    
    Confidential treatment has been requested for a portion of this exhibit. 37




---



##### Table of Contents



SIGNATURES
  ENDWAVE CORPORATIONDate:
August 6, 2007By:
    
    /s/ Edward A. Keible, Jr.Edward A. Keible, Jr.President and Chief Executive Officer(Duly Authorized Officer and PrincipalExecutive Officer)By:
    
    /s/ Brett W. WallaceBrett W. WallaceExecutive Vice Presidentand Chief Financial Officer(Duly Authorized Officer and PrincipalFinancial and Accounting Officer)
 38




---



##### 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.
 39