##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 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 DriveSan Jose, CA
    
    95134(Address of principal executive offices)
    
    (Zip code)
 (408) 522-3100
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



ENDWAVE CORPORATION
 INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009
    
    
    3Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2010 and 2009
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    26PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    26Item 1A. Risk Factors
    
    
    27Item 6. Exhibits
    
    
    37SIGNATURES
    
    
    40EXHIBITS
    
    
    41EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 ENDWAVE CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and per share amounts)
 September 30,
    
    
    December 31,2010
    
    
    2009(unaudited)
    
    
    (1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,834
    
    
    $
    55,158Short-term investments
    
    
    14,892
    
    
    
    11,307Accounts receivable, net
    
    
    3,641
    
    
    
    3,009Inventories
    
    
    4,499
    
    
    
    4,879Other current assets
    
    
    532
    
    
    
    788Total current assets
    
    
    33,398
    
    
    
    75,141Property and equipment, net
    
    
    2,076
    
    
    
    1,796Other assets, net
    
    
    78
    
    
    
    179Total assets
    
    $
    35,552
    
    
    $
    77,116LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,562
    
    
    $
    1,726Accrued warranty
    
    
    809
    
    
    
    1,087Accrued compensation
    
    
    647
    
    
    
    590Restructuring liabilities, short-term
    
    
    467
    
    
    
    570Other current liabilities
    
    
    339
    
    
    
    426Total current liabilities
    
    
    4,824
    
    
    
    4,399Restructuring liabilities, long-term
    
    
    351
    
    
    
    638Other long-term liabilities
    
    
    124
    
    
    
    127Total liabilities
    
    
    5,299
    
    
    
    5,164Commitments and contingencies (Note 7)Stockholders equity:Convertible preferred stock, $0.001 par value;
5,000,000 shares authorized; zero and 300,000 shares
issued and outstanding at September 30, 2010 and
December 31, 2009, respectively
    
    
    
    
    
    
    43,092Common stock, $0.001 par value; 50,000,000 shares
authorized; 9,802,084 and 9,684,756 shares issued and
outstanding at September 30, 2010 and December 31,
2009, respectively
    
    
    10
    
    
    
    10Additional paid-in capital, common stock
    
    
    317,256
    
    
    
    309,755Accumulated other comprehensive income
    
    
    3
    
    
    
    15Accumulated deficit
    
    
    (287,016
    )
    
    
    (280,920
    )Total stockholders equity
    
    
    30,253
    
    
    
    71,952Total liabilities and stockholders equity
    
    $
    35,552
    
    
    $
    77,116
 
 (1)
    
    Derived from the Companys audited consolidated financial statements as of December 31, 2009. The accompanying notes are an integral part of these condensed consolidated financial statements.
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##### Table of Contents



ENDWAVE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except share and per share amounts)
 (unaudited)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues:Product revenues
    
    $
    4,058
    
    
    $
    3,126
    
    
    $
    12,645
    
    
    $
    15,948Costs and expenses:Cost of product revenues*
    
    
    3,169
    
    
    
    2,369
    
    
    
    10,596
    
    
    
    11,425Research and development*
    
    
    1,221
    
    
    
    1,452
    
    
    
    3,302
    
    
    
    4,463Sales and marketing*
    
    
    594
    
    
    
    594
    
    
    
    1,745
    
    
    
    1,656General and administrative*
    
    
    996
    
    
    
    1,374
    
    
    
    3,009
    
    
    
    4,605Restructuring
    
    
    63
    
    
    
    (21
    )
    
    
    49
    
    
    
    1,212Total costs and expenses
    
    
    6,043
    
    
    
    5,768
    
    
    
    18,701
    
    
    
    23,361Loss from continuing operations
    
    
    (1,985
    )
    
    
    (2,642
    )
    
    
    (6,056
    )
    
    
    (7,413
    )Interest and other income (expense), net
    
    
    (14
    )
    
    
    (3
    )
    
    
    (40
    )
    
    
    197Loss from continuing operations before benefit from income taxes
    
    
    (1,999
    )
    
    
    (2,645
    )
    
    
    (6,096
    )
    
    
    (7,216
    )Benefit from income taxes
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    (32
    )Loss from continuing operations
    
    
    (1,999
    )
    
    
    (2,634
    )
    
    
    (6,096
    )
    
    
    (7,184
    )Income from discontinued operations, net of tax*
(Note 9)
    
    
    
    
    
    
    41
    
    
    
    
    
    
    
    17,571Net income (loss)
    
    $
    (1,999
    )
    
    $
    (2,593
    )
    
    $
    (6,096
    )
    
    $
    10,387Basic and diluted net loss per share from continuing operations
    
    $
    (0.20
    )
    
    $
    (0.27
    )
    
    $
    (0.62
    )
    
    $
    (0.76
    )Basic and diluted net income per share from discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1.86Basic and diluted net income (loss) per share
    
    $
    (0.20
    )
    
    $
    (0.27
    )
    
    $
    (0.62
    )
    
    $
    1.10Shares used in computing basic and diluted net loss per share
    
    
    9,798,972
    
    
    
    9,625,583
    
    
    
    9,757,899
    
    
    
    9,477,516
 
 *
    
    Includes the following amounts related to stock-based compensation: Cost of product revenues
    
    $
    (15
    )
    
    $
    80
    
    
    $
    6
    
    
    $
    190Research and development
    
    
    13
    
    
    
    186
    
    
    
    65
    
    
    
    374Sales and marketing
    
    
    35
    
    
    
    215
    
    
    
    69
    
    
    
    390General and administrative
    
    
    107
    
    
    
    458
    
    
    
    270
    
    
    
    999Income from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    355
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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ENDWAVE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (unaudited)
 Nine months endedSeptember 30,2010
    
    
    2009Operating activities:Net income (loss)
    
    $
    (6,096
    )
    
    $
    10,387Income from discontinued operations
    
    
    
    
    
    
    17,571Loss from continuing operations, net of tax
    
    
    (6,096
    )
    
    
    (7,184
    )Adjustments to reconcile net loss to net cash used in continuing operating activities:Depreciation
    
    
    654
    
    
    
    576Stock compensation expense
    
    
    410
    
    
    
    1,953Amortization of investments, net
    
    
    249
    
    
    
    198Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (632
    )
    
    
    478Inventories
    
    
    376
    
    
    
    3,448Other assets
    
    
    357
    
    
    
    (1,015
    )Accounts payable
    
    
    836
    
    
    
    528Accrued warranty
    
    
    (278
    )
    
    
    (631
    )Accrued compensation and other liabilities
    
    
    (420
    )
    
    
    (831
    )Net cash used in operating activities
    
    
    (4,544
    )
    
    
    (2,480
    )Investing activities:Proceeds from sale of discontinued operations
    
    
    
    
    
    
    28,000Change in restricted cash
    
    
    
    
    
    
    600Purchases of property and equipment
    
    
    (934
    )
    
    
    (289
    )Proceeds on sales and maturities of investments
    
    
    15,530
    
    
    
    19,715Purchases of investments
    
    
    (19,376
    )
    
    
    (30,331
    )Net cash (used in) provided by investing activities
    
    
    (4,780
    )
    
    
    17,695Financing activities:Repurchase of preferred stock
    
    
    (36,238
    )
    
    
    Payments on capital leases
    
    
    (3
    )
    
    
    (13
    )Proceeds from common stock issuance
    
    
    74
    
    
    
    242Proceeds from exercises of stock options
    
    
    167
    
    
    
    331Net cash (used in) provided by financing activities
    
    
    (36,000
    )
    
    
    560Cash flows from discontinued operations:Operating activities
    
    
    
    
    
    
    (2,472
    )Investing activities
    
    
    
    
    
    
    (794
    )Financing activities
    
    
    
    
    
    
    Net cash used in discontinued operations
    
    
    
    
    
    
    (3,266
    )Net change in cash and cash equivalents
    
    
    (45,324
    )
    
    
    12,509Cash and cash equivalents at beginning of period
    
    
    55,158
    
    
    
    33,998Cash and cash equivalents at end of period
    
    $
    9,834
    
    
    $
    46,507
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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ENDWAVE CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 1. Business and Basis of Presentation
  
    
    The Companys transceiver modules, which serve as the core RF sub-system in digital
microwave radios, are produced for telecommunication network original equipment
manufacturers and system integrators located throughout the world, collectively referred
to as telecom OEMs.
    
    The Companys semiconductor product line consists of a broad range of monolithic
microwave integrated circuits, or MMICs, including amplifiers, voltage controlled
oscillators, up and down converters, variable gain amplifiers, voltage variable
attenuators, fixed attenuators and filters. These types of devices find wide application
in numerous telecommunications, avionic, defense, homeland security, instrumentation and
consumer systems.
    2. Investments
  September 30,  2010Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Investments:Commercial paper
    
    $
    2,649
    
    
    $
    
    
    
    $
    
    
    
    $
    2,649United States government agencies
    
    
    12,240
    
    
    
    3
    
    
    
    
    
    
    
    12,243Total
    
    $
    14,889
    
    
    $
    3
    
    
    $
    
    
    
    $
    14,892
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##### Table of Contents



December 31, 2009Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Investments:Commercial paper
    
    $
    799
    
    
    $
    
    
    
    $
    
    
    
    $
    799United States government agency
    
    
    8,759
    
    
    
    5
    
    
    
    (2
    )
    
    
    8,762Corporate securities
    
    
    1,734
    
    
    
    12
    
    
    
    
    
    
    
    1,746Total
    
    $
    11,292
    
    
    $
    17
    
    
    $
    (2
    )
    
    $
    11,307
    Fair Value Measurements
  Quoted Prices inActive Markets of
    
    
    Significant OtherIdentical Assets
    
    
    Observable Inputs(Level 1)
    
    
    (Level 2)Sept  30,
    
    
    Dec 31,
    
    
    Sept 30,
    
    
    Dec 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Assets:Cash equivalents:Money market funds
    
    $
    7,491
    
    
    $
    54,097
    
    
    $
    
    
    
    $
    Commercial paper
    
    
    
    
    
    
    
    
    
    
    650
    
    
    
    Short-term investments:Commercial paper
    
    
    
    
    
    
    
    
    
    
    2,649
    
    
    
    799United States government agencies
    
    
    
    
    
    
    
    
    
    
    12,243
    
    
    
    8,762Corporate securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,746Total
    
    $
    7,491
    
    
    $
    54,097
    
    
    $
    15,542
    
    
    $
    11,307Liabilities:
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
  7




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##### Table of Contents



3. Inventories
  September 30,
    
    
    December 31,2010
    
    
    2009Raw materials
    
    $
    3,597
    
    
    $
    4,046Work in process
    
    
    398
    
    
    
    292Finished goods
    
    
    504
    
    
    
    541$
    4,499
    
    
    $
    4,879
 4. Note Receivable
    5. Warranty
   8




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##### Table of Contents



Nine months ended Sept 30,2010
    
    
    2009Balance at January 1
    
    $
    1,087
    
    
    $
    2,439Warranties accrued
    
    
    345
    
    
    
    641Warranties settled or reversed
    
    
    (623
    )
    
    
    (1,190
    )Warranties transferred due to sale of business
    
    
    
    
    
    
    (728
    )Balance at September 30
    
    $
    809
    
    
    $
    1,162
 6. Restructuring
      Nine months ended September 30,2010
    
    
    2009Accrual at January 1
    
    $
    1,208
    
    
    $
    Restructuring charge
    
    
    63
    
    
    
    1,507Cash payments
    
    
    (475
    )
    
    
    (1,351
    )Imputed interest
    
    
    36
    
    
    
    Restructuring charge adjustment
    
    
    (14
    )
    
    
    (76
    )Accrual at September 30
    
    $
    818
    
    
    $
    80
  9




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##### Table of Contents



7. Commitments and Contingencies
  8. Stockholders Equity
 Preferred Stock and Warrant Purchase Agreement
     Stock Option Exchange
  10




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##### Table of Contents



Stock-based Compensation
   Three months ended September 30,2010
    
    
    2009Stock-based compensation expense by type of award:Employee stock options and restricted stock units
    
    $
    81
    
    
    $
    847Employee stock purchase plan
    
    
    58
    
    
    
    109Amounts capitalized into inventory during the three month period
    
    
    
    
    
    
    (17
    )Amounts previously capitalized into inventory and expensed
    
    
    1
    
    
    
    Total stock-based compensation
    
    
    140
    
    
    
    939Tax effect on stock-based compensation
    
    
    
    
    
    
    Total stock-based compensation expense
    
    $
    140
    
    
    $
    939Impact on net loss per share  basic and diluted
    
    $
    (0.01
    )
    
    $
    (0.10
    )
  Nine months ended September 30,2010
    
    
    2009Stock-based compensation expense by type of award:Employee stock options and restricted stock units
    
    $
    443
    
    
    $
    1,998Employee stock purchase plan
    
    
    (38
    )
    
    
    314Amounts capitalized into inventory during the nine month period
    
    
    (6
    )
    
    
    (29
    )Amounts previously capitalized into inventory and expensed
    
    
    11
    
    
    
    25Total stock-based compensation
    
    
    410
    
    
    
    2,308Tax effect on stock-based compensation
    
    
    
    
    
    
    Total stock-based compensation expense
    
    $
    410
    
    
    $
    2,308Impact on net income (loss) per share  basic and diluted
    
    $
    (0.04
    )
    
    $
    (0.24
    )
  11




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Valuation Assumptions
  Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2010
    
    2009
    
    2010
    
    2009Risk-free interest rate
    
    
    0.84% - 1.60
    %
    
    
    1.62% - 2.53
    %
    
    
    0.84% - 2.43
    %
    
    
    1.44% - 2.53
    %Expected life of options
    
    4.6 years
    
    
    3.7 years
    
    
    4.6 years
    
    
    4.1 yearsExpected dividends
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Volatility
    
    
    70
    %
    
    
    70
    %
    
    
    70
    %
    
    
    70
    %
 12




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##### Table of Contents



Nine months endedSeptember 30,2010
    
    2009Risk-free interest rate
    
    
    0.24% - 1.06
    %
    
    
    0.35% - 0.93
    %Expected life of options
    
    1.2 years
    
    
    1.2 yearsExpected dividends
    
    
    0.0
    %
    
    
    0.0
    %Volatility
    
    
    51
    %
    
    
    51
    %
    Equity Incentive Program
  The following table summarizes the stock option activity for the indicated periods:
 Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    ValueShares
    
    
    Price
    
    
    Term (Years)
    
    
    (In thousands)Outstanding at December 31, 2009
    
    
    1,010,561
    
    
    $
    2.31Options granted
    
    
    301,500
    
    
    
    2.69Options exercised
    
    
    (80,725
    )
    
    
    2.07Options cancelled
    
    
    (57,957
    )
    
    
    2.97Outstanding at September 30, 2010
    
    
    1,173,379
    
    
    $
    2.39
    
    
    
    6.69
    
    
    $
    122Options vested and exercisable and expected to be
exercisable at September 30, 2010
    
    
    1,118,107
    
    
    $
    2.39
    
    
    
    6.59
    
    
    $
    119Options vested and exercisable at September 30, 2010
    
    
    615,930
    
    
    $
    2.33
    
    
    
    4.82
    
    
    $
    82
 13




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##### Table of Contents



Options Vested and ExercisableOptions Outstanding at September 30, 2010
    
    
    At September 30, 2010Weighted-AverageWeighted-Average
    
    
    Remaining
    
    
    
    
    
    
    Weighted-AverageRange of Exercise Price
    
    Shares
    
    
    Exercise Price
    
    
    Contractual Life
    
    
    Shares
    
    
    Exercise Price$0.76 - $  1.21
    
    
    11,183
    
    
    $
    1.13
    
    
    
    2.25
    
    
    
    11,183
    
    
    $
    1.13$1.81 - $  1.81
    
    
    278,926
    
    
    $
    1.81
    
    
    
    5.36
    
    
    
    166,539
    
    
    $
    1.81$1.93 - $  2.40
    
    
    86,372
    
    
    $
    2.17
    
    
    
    5.76
    
    
    
    56,396
    
    
    $
    2.04$2.53 - $  2.53
    
    
    460,617
    
    
    $
    2.53
    
    
    
    6.15
    
    
    
    306,035
    
    
    $
    2.53$2.55 - $  2.55
    
    
    30,300
    
    
    $
    2.55
    
    
    
    8.59
    
    
    
    30,093
    
    
    $
    2.55$2.65 - $  2.65
    
    
    261,825
    
    
    $
    2.65
    
    
    
    9.05
    
    
    
    32,740
    
    
    $
    2.65$2.82 - $  6.59
    
    
    41,781
    
    
    $
    3.45
    
    
    
    8.58
    
    
    
    10,682
    
    
    $
    4.27$9.90 - $13.23
    
    
    2,375
    
    
    $
    10.43
    
    
    
    5.54
    
    
    
    2,262
    
    
    $
    10.401,173,379
    
    
    $
    2.39
    
    
    
    6.69
    
    
    
    615,930
    
    
    $
    2.33
  Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicNumber of
    
    
    Grant Date
    
    
    Contractual
    
    
    ValueShares
    
    
    Fair Value
    
    
    Term (Years)
    
    
    (In thousands)Outstanding at December 31, 2009
    
    
    
    
    
    $
    0.00Awarded
    
    
    218,000
    
    
    
    2.67Released
    
    
    
    
    
    
    0.00Forfeited
    
    
    (6,200
    )
    
    
    2.58Outstanding at September 30, 2010
    
    
    211,800
    
    
    $
    2.68
    
    
    
    0.94
    
    
    $
    460
   Employee Stock Purchase Plan
    14




---



##### Table of Contents



9. Discontinued Operations
     Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2009Revenue of discontinued operations
    
    $
    
    
    
    $
    5,313Loss from discontinued operations
    
    $
    
    
    
    $
    (2,028
    )Gain on sale of discontinued operation, net of tax
    
    
    41
    
    
    
    19,599Income from discontinued operations, net of tax
    
    $
    41
    
    
    $
    17,571
 10. Net Income (Loss) Per Share
   15




---



##### Table of Contents



11. Comprehensive Income (Loss)
   Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss)
    
    $
    (1,999
    )
    
    $
    (2,593
    )
    
    $
    (6,096
    )
    
    $
    10,387Change in unrealized gain (loss) on investments
    
    
    2
    
    
    
    4
    
    
    
    (12
    )
    
    
    (37
    )Total comprehensive income (loss)
    
    $
    (1,997
    )
    
    $
    (2,589
    )
    
    $
    (6,108
    )
    
    $
    10,350
 12. Segment Disclosures
  Three months ended September 30,2010
    
    
    2009United States
    
    $
    470
    
    
    
    11.6
    %
    
    $
    168
    
    
    
    5.4
    %Finland
    
    
    
    
    
    
    
    
    
    
    106
    
    
    
    3.4
    %Germany
    
    
    2,343
    
    
    
    57.7
    %
    
    
    1,205
    
    
    
    38.5
    %Slovakia
    
    
    947
    
    
    
    23.3
    %
    
    
    1,081
    
    
    
    34.6
    %Hungary
    
    
    230
    
    
    
    5.7
    %
    
    
    448
    
    
    
    14.3
    %Rest of the world
    
    
    68
    
    
    
    1.7
    %
    
    
    118
    
    
    
    3.8
    %Total
    
    $
    4,058
    
    
    
    100.0
    %
    
    $
    3,126
    
    
    
    100.0
    %
 Nine months ended September 30,2010
    
    
    2009United States
    
    $
    3,793
    
    
    
    30.0
    %
    
    $
    213
    
    
    
    1.3
    %Finland
    
    
    
    
    
    
    
    
    
    
    9,997
    
    
    
    62.7
    %Germany
    
    
    5,520
    
    
    
    43.7
    %
    
    
    2,181
    
    
    
    13.7
    %Slovakia
    
    
    2,280
    
    
    
    18.0
    %
    
    
    2,178
    
    
    
    13.7
    %Hungary
    
    
    600
    
    
    
    4.7
    %
    
    
    1,157
    
    
    
    7.3
    %Rest of the world
    
    
    452
    
    
    
    3.6
    %
    
    
    222
    
    
    
    1.3
    %Total
    
    $
    12,645
    
    
    
    100.0
    %
    
    $
    15,948
    
    
    
    100
    %
 16




---



##### Table of Contents



13. Recent Accounting Pronouncements
      17




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   Overview
   
    
    Our transceiver modules, which serve as the core RF sub-system in digital microwave
radios, are produced for telecommunication network original equipment manufacturers and
system integrators located throughout the world, collectively referred to as telecom
OEMs.
 
    
    Our semiconductor product line consists of a broad range of monolithic microwave
integrated circuits, or MMICs, including amplifiers, voltage controlled oscillators, up
and down converters, variable gain amplifiers, voltage variable attenuators, fixed
attenuators and filters. These types of devices find wide application in numerous
telecommunications, avionic, defense, homeland security, instrumentation and consumer
systems. Our semiconductor product line was formally introduced to the market in the
latter part of 2009 and has not yet become a significant source of revenue for us.
  Critical Accounting Policies
  18




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##### Table of Contents



Results of Operations
 Three and nine months ended September 30, 2010 and 2009
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of product revenues
    
    
    78.1
    
    
    
    75.8
    
    
    
    83.8
    
    
    
    71.6Research and development
    
    
    30.1
    
    
    
    46.5
    
    
    
    26.1
    
    
    
    28.0Sales and marketing
    
    
    14.6
    
    
    
    19.0
    
    
    
    13.8
    
    
    
    10.4General and administrative
    
    
    24.5
    
    
    
    44.0
    
    
    
    23.8
    
    
    
    28.9Restructuring
    
    
    1.6
    
    
    
    (0.7
    )
    
    
    0.4
    
    
    
    7.6Total costs and expenses
    
    
    148.9
    
    
    
    184.5
    
    
    
    147.9
    
    
    
    146.5Loss from continuing operations
    
    
    (48.9
    )
    
    
    (84.5
    )
    
    
    (47.9
    )
    
    
    (46.5
    )Interest and other income (expense), net
    
    
    (0.4
    )
    
    
    (0.1
    )
    
    
    (0.3
    )
    
    
    1.2Loss from continuing operations before benefit from income taxes
    
    
    (49.3
    )
    
    
    (84.6
    )
    
    
    (48.2
    )
    
    
    (45.3
    )Benefit from income taxes
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    (0.2
    )Loss from continuing operations
    
    
    (49.3
    )
    
    
    (84.3
    )
    
    
    (48.2
    )
    
    
    (45.1
    )Income from discontinued operations, net of tax
    
    
    
    
    
    
    1.3
    
    
    
    
    
    
    
    110.2Net income (loss)
    
    
    (49.3
    )%
    
    
    (83.0
    )%
    
    
    (48.2
    )%
    
    
    65.1
    %
 Total revenues
 Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    2009
    
    
    % Change
    
    
    2010
    
    
    2009
    
    
    % Change(In thousands)
    
    
    
    
    
    
    (In thousands)Total revenues
    
    $
    4,058
    
    
    $
    3,126
    
    
    
    29.8
    %
    
    $
    12,645
    
    
    $
    15,948
    
    
    
    (20.7
    )%
    19




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##### Table of Contents



Cost of product revenues
 Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    2009
    
    
    % Change
    
    
    2010
    
    
    2009
    
    
    % Change(In thousands)
    
    
    
    
    
    
    (In thousands)Cost of product revenues
    
    $
    3,169
    
    
    $
    2,369
    
    
    
    33.8
    %
    
    $
    10,596
    
    
    $
    11,425
    
    
    
    (7.3
    )%Percentage of total revenues
    
    
    78.1
    %
    
    
    75.8
    %
    
    
    
    
    
    
    83.8
    %
    
    
    71.6
    %
     Research and development expenses
 Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    2009
    
    
    % Change
    
    
    2010
    
    
    2009
    
    
    % Change(In thousands)
    
    
    
    
    
    
    (In thousands)Research and development expenses
    
    $
    1,221
    
    
    $
    1,452
    
    
    
    (15.9
    )%
    
    $
    3,302
    
    
    $
    4,463
    
    
    
    (26.0
    )%Percentage of total revenues
    
    
    30.1
    %
    
    
    46.5
    %
    
    
    
    
    
    
    26.1
    %
    
    
    28.0
    %
    20




---



##### Table of Contents



Sales and marketing
 Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    2009
    
    
    % Change
    
    
    2010
    
    
    2009
    
    
    % Change(In thousands)
    
    
    
    
    
    
    (In thousands)Sales and marketing
    
    $
    594
    
    
    $
    594
    
    
    
    0.0
    %
    
    $
    1,745
    
    
    
    $1,656
    
    
    
    5.4
    %Percentage of total revenues
    
    
    14.6
    %
    
    
    19.0
    %
    
    
    
    
    
    
    13.8
    %
    
    
    10.4
    %
     General and administrative
 Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    2009
    
    
    % Change
    
    
    2010
    
    
    2009
    
    
    % Change(In thousands)
    
    
    
    
    
    
    (In thousands)General and administrative
    
    $
    996
    
    
    $
    1,374
    
    
    
    (27.5
    )%
    
    $
    3,009
    
    
    $
    4,605
    
    
    
    (34.7
    )%Percentage of total revenues
    
    
    24.5
    %
    
    
    44.0
    %
    
    
    
    
    
    
    23.8
    %
    
    
    28.9
    %
     21




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##### Table of Contents



Restructuring
 Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    2009
    
    
    % Change
    
    
    2010
    
    
    2009
    
    
    % Change(In thousands)
    
    
    
    
    
    
    (In thousands)Restructuring expenses
    
    $
    63
    
    
    $
    (21
    )
    
    
    400.0
    %
    
    $
    49
    
    
    $
    1,212
    
    
    
    (96.0
    )%
     Interest and other income (expense), net
 Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    2009
    
    
    % Change
    
    
    2010
    
    
    2009
    
    
    % Change(In thousands)
    
    
    
    
    
    
    (In thousands)Interest and other income (expense), net
    
    $
    (14
    )
    
    $
    (3
    )
    
    
    (366.7
    )%
    
    $
    (40
    )
    
    $
    197
    
    
    
    (120.3
    )%
     22




---



##### Table of Contents



Benefit from income taxes
 Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    2009
    
    
   % Change
    
    
    2010
    
    
    2009
    
    
    % Change(In thousands)
    
    
    
    
    
    
    (In thousands)Benefit from income taxes
    
    $
    
    
    
    $
    (11
    )
    
    
    (100.0
    )%
    
    $
    
    
    
    $
    (32
    )
    
    
    (100.0
    )%
  Income from discontinued operations, net of tax
 Three months ended September 30,
    
    

Nine months ended September 30,2010
    
    
    2009
    
    
    % Change
    
    
    2010
    
    
    2009
    
    
    % Change(In thousands)
    
    
    
    
    
    
    (In thousands)Income from
discontinued
operations, net of
tax
    
    $
    
    
    
    $
    41
    
    
    
    (100.0
    )%
    
    $
    
    
    
    $
    17,571
    
    
    
    (100.0
    )%
    Liquidity and Capital Resources
  23




---



##### Table of Contents



Nine months endedSeptember 30,2010
    
    
    2009(in thousands)Net cash used in operating activities
    
    $
    (4,544
    )
    
    $
    (2,480
    )Net cash (used in) provided by investing activities
    
    
    (4,780
    )
    
    
    17,695Net cash (used in) provided by financing activities
    
    
    (36,000
    )
    
    
    560Cash, cash equivalents, short-term investments at
end of period
    
    $
    24,726
    
    
    $
    68,238
       24




---



##### Table of Contents



Payments Due by PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    More ThanTotal
    
    
    1 Year
    
    
    1  3 Years
    
    
    3-5 Years
    
    
    5 Years(In thousands)Contractual Obligations:Capital lease obligations, including interest
    
    $
    6
    
    
    $
    6
    
    
    $
    
    
    
    
    
    
    
    $
    Operating lease obligations
    
    
    872
    
    
    
    539
    
    
    
    318
    
    
    
    15
    
    
    
    Total
    
    $
    878
    
    
    $
    545
    
    
    $
    318
    
    
    $
    15
    
    
    $
    
 Recent Accounting Pronouncements
      
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  25




---



##### Table of Contents



Item 4. Controls and Procedures
 (a) Evaluation of disclosure controls and procedures.
   (b) Changes in internal controls over financial reporting.
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
    26




---



##### Table of Contents



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, 2009.
 Risks Relating to Our Business
 We have had a history of losses and may not be profitable in the future.**
  We depend on the mobile communication industry for substantially all of our revenues. As this
industry is negatively impacted by the global economic downturn, our revenues and our profitability
could continue to suffer. In addition, consolidation in this industry could result in delays or
cancellations of orders for our products, adversely impacting our results of operations.
   We depend on a small number of key customers in the mobile communication industry for a significant
portion of our revenues. If we lose any of our major customers 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.**
  27




---



##### Table of Contents



The current turmoil in the global economy could adversely impact our operations and financial
results.**
  Our semiconductor product line will require us to incur significant expenses and may not be
successful.**
  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;
 
    
    passive components;
 
    
    unusual or low usage components;
 
    
    surface mount components compliant with the EUs Restriction of Hazardous
Substances, or RoHS, Directive;
 
    
    custom metal parts;
 28




---



##### Table of Contents




    
    high-frequency circuit boards; and
 
    
    custom connectors.
  Competitive conditions often require us to reduce prices and, as a result, we need to reduce our
costs in order to be profitable.**
  Our operating results may be adversely affected by substantial quarterly and annual fluctuations
and market downturns.
  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.
 29




---



##### Table of Contents



We rely on the semiconductor foundry operations of third-party semiconductor foundries to
manufacture the integrated circuits sold directly to our customers or contained in our products.
The loss of our relationship with any of these foundries without adequate notice would adversely
impact our ability to fill customer orders and could damage our customer relationships.
   We rely heavily on a Thailand facility of HANA, a contract manufacturer, to produce our RF modules
and to package our microwave and millimeter wave integrated circuits. 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.**
  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.
  30




---



##### Table of Contents



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 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.
   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 integrated circuits and module products 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.
 31




---



##### Table of Contents



We may not be able to manufacture and deliver our products as quickly as our customers require,
which could cause us to lose sales and would harm our reputation.
  
    
    the failure of a supplier to deliver needed components on a timely basis or with
acceptable quality;
 
    
    lack of sufficient capacity;
 
    
    poor manufacturing yields;
 
    
    equipment failures;
 
    
    manufacturing personnel shortages;
 
    
    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.
  Although we do have long-term commitments from many of our customers, they are not for fixed
quantities of product. As a result, we must estimate customer demand, and errors in our estimates
could have negative effects on our cash, inventory levels, revenues and results of operations.**
  32




---



##### Table of Contents



Any failure to protect our intellectual property appropriately could reduce or eliminate any
competitive advantage we have.**
    33




---



##### Table of Contents



We are exposed to fluctuations in the market values of our investment portfolio.
  Risks Relating to Our Industry
 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.
  34




---



##### Table of Contents



Our failure to continue to develop new or improved semiconductor process technologies could impair
our competitive position.
  The segment of the semiconductor industry in which we participate is intensely competitive, and our
inability to compete effectively would harm our business.
   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 significant trends or changes in the
markets we serve;
 
    
    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 customers 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.
 35




---



##### Table of Contents



We have a few stockholders that each own a large percentage of our outstanding capital stock and,
as a result of their significant ownership, are able to significantly affect the outcome of matters
requiring stockholder approval.**
  Our certificate of incorporation, bylaws and arrangements with executive officers could delay or
prevent a change in control.
   36




---



##### Table of Contents



Item 6. Exhibits.
 Number
    
    Description2.1(1)
    
    Asset Purchase Agreement among the Registrant, Microsemi Corporation and SHR Corporation dated April 20,
2009.2.2(2)
    
    Indemnification Agreement between the Registrant and Microsemi Corporation dated April 30, 2009.3.1(2)
    
    Amended and Restated Certificate of Incorporation effective October 20, 2000.3.2(3)
    
    Certificate of Amendment of Amended and Restated Certificate of Incorporation effective June 28, 2002.3.3(4)
    
    Certificate of Designation for Series A Junior Participating Preferred Stock.3.4(5)
    
    Certificate of Designation for Series B Preferred Stock.3.5(6)
    
    Certificate of Amendment of Amended and Restated Certificate of Incorporation effective July 26, 2007.3.6(7)
    
    Amended and Restated Bylaws.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 Certificate4.6(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(18)*
    
    Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under the 2007 Equity
Incentive Plan.10.9(2)*
    
    2000 Employee Stock Purchase Plan.10.10(2)*
    
    Form of 2000 Employee Stock Purchase Plan Offering.10.11(11)*
    
    2000 Non-Employee Directors Stock Option Plan, as amended.10.12(2)*
    
    Form of Nonstatutory Stock Option Agreement under the 2000 Non-Employee Director Plan.10.13(12)*
    
    Description of Compensation Payable to Non-Employee Directors.10.14(18)*
    
    2010 Base Salaries for Named Executive Officers.10.15(19)*
    
    Executive Officer Severance Plan.10.16(19)*
    
    Senior Executive Officer Severance and Retention Plan.10.17(2)
    
    License Agreement by and between TRW Inc. and TRW Milliwave Inc. dated February 28, 2000.10.18(14)
    
    Purchase Agreement between Nokia and the Registrant dated January 1, 2006.10.19(14)
    
    Frame Purchase Agreement by and between the Registrant and Siemens Mobile Communications Spa dated
January 16, 2006.10.20(15)
    
    Lease Agreement by and between Legacy Partners I San Jose, LLC and the Registrant dated May 24, 2006.10.21(16)
    
    Services Agreement by and between Hana Microelectronics Co., Ltd. and the Registrant dated October 15, 2006.10.22(17)
    
    Lease Agreement by and between 8812, a California limited partnership, and the Registrant dated May 20, 2008.10.23(17)
    
    Amended and Restated Supply Agreement by and between Northrop Grumman Space and Mission Systems Corp. and
the Registrant dated May 12, 2008.10.24(13)
    
    First Amendment, dated as of December 1, 2008, to Amended and Restated Supply Agreement by and between
Northrop Grumman Space and Mission Systems Corp. and the Registrant dated May 12, 2008.
 37




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##### Table of Contents



Number
    
    Description10.25(13)
    
    Amendment, dated as of February 13, 2009, to Amended and Restated Supply Agreement by and between
Northrop Grumman Space and Mission Systems Corp. and the Registrant dated May 12, 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.
 
 (1)
    
    Previously filed as an exhibit to the Registrants Quarterly Report on Form 10-Q filed
on August 14, 2009 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 Quarterly Report on Form 10-Q for
the quarter ended September 30, 2007 and incorporated herein by reference.(7)
    
    Previously filed as an exhibit to the Registrants Current Report on Form 8-K filed on
July 28, 2008 and incorporated herein by reference.(8)
    
    Previously filed as an exhibit to the Registrants Current Report on Form 8-K filed on
December 28, 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 Quarterly Report on Form 10-Q filed
for the quarter year ended March 31, 2009 and incorporated herein by reference.(14)
    
    Previously filed as an exhibit to the Registrants Registration Statement on Form S-3
(Registration No. 333-144054) and incorporated herein by reference.(15)
    
    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.(16)
    
    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. 38




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##### Table of Contents



(17)
    
    Previously filed as an exhibit to the Registrants Quarterly Report on Form 10-Q for
the quarter year ended June 30, 2008 and incorporated herein by reference.(18)
    
    Previously filed as an exhibit to the Registrants Annual Report on Form 10-K for the
fiscal year ended December 31, 2009 and incorporated herein by reference.(19)
    
    Previously filed as an exhibit to the Registrants Current Report on Form 8-K filed on
September 17, 2009 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. 39




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##### Table of Contents



SIGNATURES
  ENDWAVE CORPORATIONDate: November 12, 2010
    By:
    /s/ John J. Mikulsky
    
John J. MikulskyPresident and Chief Executive Officer(Duly
Authorized Officer and Principal Executive Officer)By:
    /s/ Curt P. SacksCurt P. SacksChief Financial Officer
and Senior Vice President
(Duly Authorized Officer and Principal 
Financial and Accounting Officer) 40




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##### Table of Contents



INDEX TO EXHIBITS
 Number
    
    Description31.1
    
    Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.31.2
    
    Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.32.1
    
    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 41