##### 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, 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
(State of incorporation)
    
    95-4333817
(I.R.S. Employer Identification No.)130 Baytech Drive 
San Jose, CA
(Address of principal executive offices)
    
    95134
(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 June 30, 2008
(unaudited) and December 31, 2007
    
    
    3Unaudited Condensed Consolidated Statements of Operations for
the Three and Six Months Ended June 30, 2008 and 2007
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for
the Six Months Ended June 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
    
    
    16Item 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
    
    
    35SIGNATURES
    
    
    37EXHIBITS
    
    
    38EXHIBIT 10.20EXHIBIT 10.24EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 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)
 June 30,
    
    
    December 31,2008
    
    
    2007(unaudited)
    
    
    (1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    33,352
    
    
    $
    38,992Short-term investments
    
    
    9,469
    
    
    
    5,464Accounts receivable, net
    
    
    10,833
    
    
    
    9,362Inventories
    
    
    15,130
    
    
    
    12,434Other current assets
    
    
    778
    
    
    
    1,168Total current assets
    
    
    69,562
    
    
    
    67,420Long-term investments
    
    
    1,222
    
    
    
    4,501Property and equipment, net
    
    
    3,421
    
    
    
    2,999Other assets, net
    
    
    242
    
    
    
    212Restricted cash
    
    
    625
    
    
    
    25Goodwill and intangible assets, net
    
    
    6,817
    
    
    
    7,432$
    81,889
    
    
    $
    82,589LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    4,045
    
    
    $
    3,422Accrued warranty
    
    
    2,803
    
    
    
    2,712Accrued compensation
    
    
    2,630
    
    
    
    2,240Other current liabilities
    
    
    696
    
    
    
    2,251Total current liabilities
    
    
    10,174
    
    
    
    10,625Other long-term liabilities
    
    
    29
    
    
    
    116Total liabilities
    
    
    10,203
    
    
    
    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 June 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 June 30, 2008 and December 31, 2007,
respectively
    
    
    9
    
    
    
    9Additional paid-in capital
    
    
    347,486
    
    
    
    345,038Treasury stock, at cost, 39,150 shares at December 31, 2007
    
    
    
    
    
    
    (79
    )Accumulated other comprehensive income (loss)
    
    
    1
    
    
    
    (6
    )Accumulated deficit
    
    
    (275,810
    )
    
    
    (273,114
    )Total stockholders equity
    
    
    71,686
    
    
    
    71,848$
    81,889
    
    
    $
    82,589
 
 (1)
    
    2f 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.
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ENDWAVE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except share and per share amounts)
 (unaudited)
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Product revenues
    
    $
    17,033
    
    
    $
    13,138
    
    
    $
    30,873
    
    
    $
    27,731Development fees
    
    
    247
    
    
    
    401
    
    
    
    588
    
    
    
    559Total revenues
    
    
    17,280
    
    
    
    13,539
    
    
    
    31,461
    
    
    
    28,290Costs and expenses:Cost of product revenues*
    
    
    11,688
    
    
    
    10,208
    
    
    
    21,731
    
    
    
    20,828Cost of product revenues, amortization of
intangible assets
    
    
    149
    
    
    
    137
    
    
    
    298
    
    
    
    250Research and development*
    
    
    2,930
    
    
    
    2,709
    
    
    
    5,772
    
    
    
    5,114Selling, general and administrative*
    
    
    3,366
    
    
    
    3,280
    
    
    
    6,727
    
    
    
    6,479Amortization of intangible assets
    
    
    179
    
    
    
    133
    
    
    
    358
    
    
    
    172Total costs and expenses
    
    
    18,312
    
    
    
    16,467
    
    
    
    34,886
    
    
    
    32,843Loss from operations
    
    
    (1,032
    )
    
    
    (2,928
    )
    
    
    (3,425
    )
    
    
    (4,553
    )Interest and other income, net
    
    
    294
    
    
    
    1,021
    
    
    
    751
    
    
    
    1,866Loss before provision for income taxes
    
    
    (738
    )
    
    
    (1,907
    )
    
    
    (2,674
    )
    
    
    (2,687
    )Provision for income taxes
    
    
    22
    
    
    
    
    
    
    
    22
    
    
    
    Net loss
    
    $
    (760
    )
    
    $
    (1,907
    )
    
    $
    (2,696
    )
    
    $
    (2,687
    )Basic and diluted net loss per share
    
    $
    (0.08
    )
    
    $
    (0.16
    )
    
    $
    (0.29
    )
    
    $
    (0.23
    )Shares used in computing basic and diluted
net loss per share
    
    
    9,187,183
    
    
    
    11,601,642
    
    
    
    9,164,682
    
    
    
    11,575,716
 
 *
    
    Includes the following amounts related to stock-based compensation: Cost of product revenues
    
    $
    192
    
    
    $
    190
    
    
    $
    366
    
    
    $
    295Research and development
    
    
    243
    
    
    
    231
    
    
    
    469
    
    
    
    382Selling, general and administrative
    
    
    645
    
    
    
    727
    
    
    
    1,250
    
    
    
    1,313
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 4




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ENDWAVE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (unaudited)
 Six months endedJune 30,2008
    
    
    2007Operating activities:Net loss
    
    $
    (2,696
    )
    
    $
    (2,687
    )Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:Depreciation
    
    
    552
    
    
    
    445Amortization of intangible assets
    
    
    656
    
    
    
    422Stock compensation expense
    
    
    2,085
    
    
    
    1,990Amortization of investments, net
    
    
    2
    
    
    
    (8
    )Gain on sale of investments
    
    
    (45
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (1,471
    )
    
    
    61Inventories
    
    
    (2,690
    )
    
    
    5,569Other assets
    
    
    360
    
    
    
    (153
    )Accounts payable
    
    
    623
    
    
    
    (1,273
    )Accrued warranty
    
    
    91
    
    
    
    (282
    )Accrued compensation, other current liabilities and other
long-term liabilities
    
    
    (254
    )
    
    
    (1,339
    )Net cash provided by (used in) operating activities
    
    
    (2,787
    )
    
    
    2,745Investing activities:Purchase of ALC Microwave, Inc., net of cash acquired
    
    
    (1,027
    )
    
    
    (5,763
    )Change in restricted cash
    
    
    (600
    )
    
    
    236Proceeds on sale of property
    
    
    
    
    
    
    11Purchases of property and equipment
    
    
    (974
    )
    
    
    (575
    )Proceeds on sales and maturities of investments
    
    
    7,157
    
    
    
    38,345Purchases of investments
    
    
    (7,845
    )
    
    
    (37,629
    )Net cash used in investing activities
    
    
    (3,289
    )
    
    
    (5,375
    )Financing activities:Payments on capital leases
    
    
    (12
    )
    
    
    Proceeds from common stock issuance
    
    
    434
    
    
    
    368Proceeds from exercises of stock options, net of issuance costs
    
    
    2
    
    
    
    132Net cash provided by financing activities
    
    
    424
    
    
    
    500Effects of foreign exchange rate changes on cash and cash equivalents
    
    
    12
    
    
    
    Net decrease in cash and cash equivalents
    
    
    (5,640
    )
    
    
    (2,130
    )Cash and cash equivalents at beginning of period
    
    
    38,992
    
    
    
    26,176Cash and cash equivalents at end of period
    
    $
    33,352
    
    
    $
    24,046
 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
  June 30, 2008Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Investments:United States
government agency
    
    $
    4,006
    
    
    $
    3
    
    
    $
    
    
    
    $
    4,009Corporate securities
    
    
    6,684
    
    
    
    8
    
    
    
    (10
    )
    
    
    6,682Total
    
    $
    10,690
    
    
    $
    11
    
    
    $
    (10
    )
    
    $
    10,691Cash equivalents:Commercial
paper
    
    $
    2,997
    
    
    $
    
    
    
    $
    
    
    
    $
    2,997United States
government agency
    
    
    29,192
    
    
    
    
    
    
    
    
    
    
    
    29,192Total
    
    $
    32,189
    
    
    $
    
    
    
    $
    
    
    
    $
    32,189
 December 31, 2007Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Investments:United States government agency
    
    $
    1,496
    
    
    $
    4
    
    
    $
    
    
    
    $
    1,500Corporate securities
    
    
    8,463
    
    
    
    8
    
    
    
    (6
    )
    
    
    8,465Total
    
    $
    9,959
    
    
    $
    12
    
    
    $
    (6
    )
    
    $
    9,965Cash equivalents:Commercial paper
    
    $
    7,195
    
    
    $
    
    
    
    $
    
    
    
    $
    7,195
    Fair Value Measurement
  7




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Quoted Prices inActive Markets of
    
    
    Significant OtherBalance as of
    
    
    Identical Assets
    
    
    Observable InputsJune 30, 2008
    
    
    (Level 1)
    
    
    (Level 2)Assets:Cash equivalents:Money market funds
    
    $
    15,205
    
    
    $
    15,205
    
    
    $
    Commercial
paper
    
    
    2,997
    
    
    
    
    
    
    
    2,997United States government
agency
    
    
    13,987
    
    
    
    
    
    
    
    13,987Short-term investments:United States government
agency
    
    
    4,009
    
    
    
    
    
    
    
    4,009Corporate securities
    
    
    5,460
    
    
    
    
    
    
    
    5,460Long-term investments:Corporate securities
    
    
    1,222
    
    
    
    
    
    
    
    1,222Total
    
    $
    42,880
    
    
    $
    15,205
    
    
    $
    27,675Liabilities:
    
    $
    
    
    
    $
    
    
    
    $
    
  4. Inventories
  June 30,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    10,328
    
    
    $
    9,630Work in process
    
    
    2,182
    
    
    
    1,365Finished goods
    
    
    2,620
    
    
    
    1,439$
    15,130
    
    
    $
    12,434
 5. Goodwill and Intangible Assets
 Goodwill
  Intangible Assets
  8




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Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    AmountDeveloped technology
    
    $
    3,130
    
    
    $
    (1,934
    )
    
    $
    1,196Tradename
    
    
    1,290
    
    
    
    (45
    )
    
    
    1,245Customer relationships
    
    
    1,680
    
    
    
    (786
    )
    
    
    894Customer backlog
    
    
    700
    
    
    
    (467
    )
    
    
    233Non-compete agreement
    
    
    370
    
    
    
    (108
    )
    
    
    262Total intangible assets
    
    $
    7,170
    
    
    $
    (3,340
    )
    
    $
    3,830
  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
    Years Ending December 31,2008 (July 1 through December 31)
    
    $
    6582009
    
    
    8742010
    
    
    4282011
    
    
    366Thereafter
    
    
    444Total
    
    $
    2,770
 6. Warranty
  9




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Six months ended June 30,2008
    
    
    2007Balance at January 1
    
    $
    2,712
    
    
    $
    2,928Warranties accrued
    
    
    376
    
    
    
    503Warranties settled or reversed
    
    
    (285
    )
    
    
    (627
    )Balance at June 30
    
    $
    2,803
    
    
    $
    2,804
 7. Commitments and Contingencies
   Years Ending December 312008 (July 1 through December 31)
    
    $
    4442009
    
    
    1,0162010
    
    
    9072011
    
    
    7872012
    
    
    538Thereafter
    
    
    509Total
    
    $
    4,201
 8. Stockholders Equity
 Stock Option Exchange
   10




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##### Table of Contents



Stock Based Compensation
   Three months ended June 30,2008
    
    
    2007Stock-based compensation expense by type of award:Employee stock options
    
    $
    907
    
    
    $
    1,054Employee stock purchase plan
    
    
    171
    
    
    
    111Amounts capitalized into inventory during the three month period
    
    
    (19
    )
    
    
    (28
    )Amounts previously capitalized into inventory and expensed
    
    
    21
    
    
    
    11Total stock-based compensation
    
    
    1,080
    
    
    
    1,148Tax effect on stock-based compensation
    
    
    
    
    
    
    Total stock-based compensation expense
    
    $
    1,080
    
    
    $
    1,148Impact on net loss per share  basic and diluted
    
    $
    (0.12
    )
    
    $
    (0.10
    )
  Six months ended June 30,2008
    
    
    2007Stock-based compensation expense by type of award:Employee stock options
    
    $
    1,798
    
    
    $
    1,838Employee stock purchase plan
    
    
    293
    
    
    
    180Amounts capitalized into inventory during the
six month period
    
    
    (41
    )
    
    
    (28
    )Amounts previously capitalized into inventory
and expensed
    
    
    35
    
    
    
    Total stock-based compensation
    
    
    2,085
    
    
    
    1,990Tax effect on stock-based
compensation
    
    
    
    
    
    
    Total stock-based compensation
expense
    
    $
    2,085
    
    
    $
    1,990Impact on net loss per share  basic and
diluted
    
    $
    (0.23
    )
    
    $
    (0.17
    )
   11




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##### Table of Contents



Valuation Assumptions
  Three months ended
    
    Six months endedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Risk-free interest rate
    
    2.38%  2.80%
    
    4.54%  4.59%
    
    2.32%  2.80%
    
    4.54%  4.80%Expected life of options
    
    2.2 years
    
    3.4 years
    
    3.5 years
    
    3.6 yearsExpected dividends
    
    
    0.0%

    
    
    0.0%

    
    
    0.0%

    
    
    0.0%Volatility
    
    
    70%

    
    
    70%

    
    
    70%

    
    
    70%
  Three months ended
    
    Six months endedJune 30,
    
    June 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
  12




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##### Table of Contents



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
    
    
    960,021
    
    
    
    6.58Options exercised
    
    
    (1,075
    )
    
    
    1.92Options cancelled
    
    
    (466,309
    )
    
    
    24.04Outstanding at June 30, 2008
    
    
    2,958,073
    
    
    $
    9.33
    
    
    
    8.11
    
    
    $
    891Options vested and exercisable
and expected to be exercisable
at June 30, 2008
    
    
    2,607,222
    
    
    $
    9.44
    
    
    
    7.97
    
    
    $
    878Options vested and exercisable
at June 30, 2008
    
    
    1,200,848
    
    
    $
    9.98
    
    
    
    6.80
    
    
    $
    830
   Options Vested and ExercisableOptions Outstanding at June 30, 2008
    
    At June 30, 2008Weighted-AverageWeighted-Average
    
    Remaining
    
    
    
    
    
    Weighted-AverageRange of Exercise Price
    
    Shares
    
    Exercise Price
    
    Contractual Life
    
    Shares
    
    Exercise Price$ 0.76 - $6.37
    
    
    228,007
    
    
    $
    2.93
    
    
    
    5.93
    
    
    
    175,372
    
    
    $
    1.91$ 6.59 - $6.59
    
    
    896,171
    
    
    $
    6.59
    
    
    
    9.62
    
    
    
    600
    
    
    $
    6.59$ 6.60 - $9.75
    
    
    199,160
    
    
    $
    9.07
    
    
    
    7.72
    
    
    
    108,305
    
    
    $
    9.08$ 9.77 - $9.77
    
    
    329,122
    
    
    $
    9.77
    
    
    
    7.61
    
    
    
    183,016
    
    
    $
    9.77$ 9.90 - $10.22
    
    
    446,328
    
    
    $
    10.10
    
    
    
    6.86
    
    
    
    327,145
    
    
    $
    10.17$10.23 - $12.90
    
    
    227,155
    
    
    $
    11.97
    
    
    
    7.42
    
    
    
    143,916
    
    
    $
    11.95$13.23 - $13.23
    
    
    513,350
    
    
    $
    13.23
    
    
    
    8.63
    
    
    
    161,650
    
    
    $
    13.23$15.14 - $19.30
    
    
    114,627
    
    
    $
    16.64
    
    
    
    6.84
    
    
    
    96,691
    
    
    $
    16.58$20.32 - $20.32
    
    
    124
    
    
    $
    20.32
    
    
    
    1.74
    
    
    
    124
    
    
    $
    20.32$21.47 - $21.47
    
    
    4,029
    
    
    $
    21.47
    
    
    
    6.61
    
    
    
    4,029
    
    
    $
    21.472,958,073
    
    
    $
    9.33
    
    
    
    8.11
    
    
    
    1,200,848
    
    
    $
    9.98
 Employee Stock Purchase Plan
  9. Net Loss Per Share
  13




---



##### Table of Contents



10. Comprehensive Income (Loss)
   Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (760
    )
    
    $
    (1,907
    )
    
    $
    (2,696
    )
    
    $
    (2,687
    )Foreign currency translation adjustments
    
    
    19
    
    
    
    
    
    
    
    12
    
    
    
    Change in unrealized gain (loss) on
investments
    
    
    (52
    )
    
    
    (22
    )
    
    
    (5
    )
    
    
    (15
    )Total comprehensive loss
    
    $
    (793
    )
    
    $
    (1,929
    )
    
    $
    (2,689
    )
    
    $
    (2,702
    )
 11. Segment Disclosures
  Three months ended June 30,2008
    
    
    2007United States
    
    $
    4,091
    
    
    
    23.7
    %
    
    $
    2,735
    
    
    
    20.2
    %Finland
    
    
    10,614
    
    
    
    61.4
    %
    
    
    6,438
    
    
    
    47.6
    %Italy
    
    
    188
    
    
    
    1.1
    %
    
    
    598
    
    
    
    4.4
    %Norway
    
    
    36
    
    
    
    0.2
    %
    
    
    705
    
    
    
    5.2
    %Slovakia
    
    
    328
    
    
    
    1.9
    %
    
    
    2,179
    
    
    
    16.1
    %Singapore
    
    
    929
    
    
    
    5.4
    %
    
    
    6
    
    
    
    0.0
    %Rest of the world
    
    
    1,094
    
    
    
    6.3
    %
    
    
    878
    
    
    
    6.5
    %Total
    
    $
    17,280
    
    
    
    100.0
    %
    
    $
    13,539
    
    
    
    100.0
    %
 14




---



##### Table of Contents



Six months ended June 30,2008
    
    
    2007United States
    
    $
    7,225
    
    
    
    23.0
    %
    
    $
    4,846
    
    
    
    17.1
    %Finland
    
    
    18,218
    
    
    
    57.9
    %
    
    
    12,523
    
    
    
    44.3
    %Italy
    
    
    823
    
    
    
    2.6
    %
    
    
    3,140
    
    
    
    11.1
    %Norway
    
    
    70
    
    
    
    0.2
    %
    
    
    3,008
    
    
    
    10.6
    %Slovakia
    
    
    1,656
    
    
    
    5.3
    %
    
    
    2,973
    
    
    
    10.5
    %Singapore
    
    
    1,392
    
    
    
    4.4
    %
    
    
    40
    
    
    
    0.2
    %Rest of the world
    
    
    2,077
    
    
    
    6.6
    %
    
    
    1,760
    
    
    
    6.2
    %Total
    
    $
    31,461
    
    
    
    100
    %
    
    $
    28,290
    
    
    
    100
    %
    12. Recent Accounting Pronouncements
  15




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   Overview
     16




---



##### Table of Contents



Results of Operations
 Three and six months ended June 30, 2008 and 2007
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of product revenues
    
    
    67.6
    
    
    
    75.4
    
    
    
    69.1
    
    
    
    73.6Cost of
product revenues, amortization of intangible assets
    
    
    0.9
    
    
    
    1.0
    
    
    
    0.9
    
    
    
    0.9Research and development
    
    
    17.0
    
    
    
    20.0
    
    
    
    18.4
    
    
    
    18.1Selling, general and administrative
    
    
    19.5
    
    
    
    24.2
    
    
    
    21.4
    
    
    
    22.9Amortization of intangible assets
    
    
    1.0
    
    
    
    1.0
    
    
    
    1.1
    
    
    
    0.6Total costs and expenses
    
    
    106.0
    
    
    
    121.6
    
    
    
    110.9
    
    
    
    116.1Loss from operations
    
    
    (6.0
    )
    
    
    (21.6
    )
    
    
    (10.9
    )
    
    
    (16.1
    )Interest and other income, net
    
    
    1.7
    
    
    
    7.5
    
    
    
    2.4
    
    
    
    6.6Loss before provision for income taxes
    
    
    (4.3
    )
    
    
    (14.1
    )
    
    
    (8.5
    )
    
    
    (9.5
    )Provision for income taxes
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    Net loss
    
    
    (4.4
    )%
    
    
    (14.1
    )%
    
    
    ( 8.6
    )%
    
    
    ( 9.5
    )%
 Total revenues
 Three months ended June 30,
    
    Six months ended June 30,2008
    
    2007
    
    % Change
    
    2008
    
    2007
    
    % Change(In thousands)
    
    
    
    
    
    (In thousands)Total revenues
    
    $
    17,280
    
    
    $
    13,539
    
    
    
    27.6
    %
    
    $
    31,461
    
    
    $
    28,290
    
    
    
    11.2
    %Product revenues
    
    $
    17,033
    
    
    $
    13,138
    
    
    
    29.6
    %
    
    $
    30,873
    
    
    $
    27,731
    
    
    
    11.3
    %Development fees
    
    $
    247
    
    
    $
    401
    
    
    
    (38.4
    %)
    
    $
    588
    
    
    $
    559
    
    
    
    5.2
    %
    Cost of product revenues
 Three months ended June 30,
    
    Six months ended June 30,2008
    
    2007
    
    % Change
    
    2008
    
    2007
    
    % Change(In thousands)
    
    
    
    
    
    (In thousands)Cost of product revenues
    
    $
    11,688
    
    
    $
    10,208
    
    
    
    14.5
    %
    
    $
    21,731
    
    
    $
    20,828
    
    
    
    4.3
    %Percentage of total revenues
    
    
    67.6
    %
    
    
    75.4
    %
    
    
    
    
    
    
    69.1
    %
    
    
    73.6
    %
 17




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##### Table of Contents



Research and development expenses
 Three months ended June 30,
    
    Six months ended June 30,2008
    
    2007
    
    % Change
    
    2008
    
    2007
    
    % Change(In thousands)
    
    
    
    
    
    (In thousands)Research and development
expenses
    
    $
    2,930
    
    
    $
    2,709
    
    
    
    8.2
    %
    
    $
    5,772
    
    
    $
    5,114
    
    
    
    12.9
    %Percentage of total revenues
    
    
    17.0
    %
    
    
    20.0
    %
    
    
    
    
    
    
    18.4
    %
    
    
    18.1
    %
     18




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##### Table of Contents



Selling, general and administrative expenses
 Three months ended June 30,
    
    Six months ended June 30,2008
    
    2007
    
    % Change
    
    2008
    
    2007
    
    % Change(In thousands)
    
    
    
    
    
    (In thousands)Selling, general and
administrative expenses
    
    $
    3,366
    
    
    $
    3,280
    
    
    
    2.6
    %
    
    $
    6,727
    
    
    $
    6,479
    
    
    
    3.8
    %Percentage of total revenues
    
    
    19.5
    %
    
    
    24.2
    %
    
    
    
    
    
    
    21.4
    %
    
    
    22.9
    %
     Amortization of intangible assets
 Three months ended June 30,
    
    Six months ended June 30,2008
    
    2007
    
    % Change
    
    2008
    
    2007
    
    % Change(In thousands)
    
    
    
    
    
    (In thousands)Cost of product
revenues,
amortization of
intangible assets
    
    $
    149
    
    
    $
    137
    
    
    
    8.8
    %
    
    $
    298
    
    
    $
    250
    
    
    
    19.2
    %Amortization of
intangible assets
    
    $
    179
    
    
    $
    133
    
    
    
    34.6
    %
    
    $
    358
    
    
    $
    172
    
    
    
    108.1
    %
    19




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##### Table of Contents



Interest and other income, net
 Three months ended June 30,
    
    Six months ended June 30,2008
    
    2007
    
    % Change
    
    2008
    
    2007
    
    % Change(In thousands)
    
    
    
    
    
    (In thousands)Interest and other income, net
    
    $
    294
    
    
    $
    1,021
    
    
    
    (71.2
    %)
    
    $
    751
    
    
    $
    1,866
    
    
    
    (59.8
    %)
     20




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##### Table of Contents



Liquidity and Capital Resources
  Six months endedJune 30,2008
    
    2007(in thousands)Net cash provided by (used in) operating activities
    
    $
    (2,787
    )
    
    $
    2,745Net cash used in investing activities
    
    
    (3,289
    )
    
    
    (5,375
    )Net cash provided by financing activities
    
    
    424
    
    
    
    500Cash, cash equivalents, restricted cash, short-
term and long-term investments at end of period
    
    $
    44,668
    
    
    $
    64,759
       21




---



##### 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
    
    $
    55
    
    
    $
    24
    
    
    $
    31
    
    
    $
    
    
    
    $
    Operating lease obligations
    
    
    4,201
    
    
    
    1,002
    
    
    
    1,825
    
    
    
    1,143
    
    
    
    231Total
    
    $
    4,256
    
    
    $
    1,026
    
    
    $
    1,856
    
    
    $
    1,143
    
    
    $
    231
 Recent Accounting Pronouncements
  22




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##### 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.
  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, 2007.
 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 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.**
   24




---



##### Table of Contents



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.
  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.**
  25




---



##### Table of Contents



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;
    
    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.
  26




---



##### Table of Contents



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.
  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.
  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;
    
    poor manufacturing yields;
    
    equipment failures;
 29




---



##### Table of Contents



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




---



##### Table of Contents



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
 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.**
   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.
  32




---



##### Table of Contents



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;
    
    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 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.**
  33




---



##### Table of Contents



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



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(2)
    
    Amended and Restated Bylaws effective October 20, 2000.3.4(4)
    
    Certificate of Designation for Series A Junior Participating Preferred Stock.3.5(5)
    
    Certificate of Designation for Series B Preferred Stock.3.6(6)
    
    Amendment to Amended and Restated Bylaws.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
    
    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
    
    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.
 35




---



##### 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 December 5, 2005 and incorporated herein by
reference.(5)
    
    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.(6)
    
    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.(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.*
    
    Indicates a management contract or compensatory plan or arrangement.
    
    Confidential treatment has been requested for a portion of this exhibit. 36




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##### Table of Contents



SIGNATURES
  Date: August 11, 2008
    ENDWAVE CORPORATIONBy:
    /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) 37




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##### Table of Contents



Index to Exhibits
 Number
    
    Description10.20
    
    Amended and Restated Supply Agreement by and between Northrop Grumman Space and Mission
Systems Corp. and the Registrant dated May 12, 2008.10.24
    
    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.
 38