##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-K



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FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF
1934


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1933    
|          
|           |  | For the fiscal year ended December 31,
    2003                                             
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                             

Commission file number: 000-31635



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Endwave Corporation

(Exact name of registrant as specified in its
charter)




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|                                                                                  |  |                                     
|--------------------------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                                          |  | 95-4333817                          
|(State of incorporation)                                                          |  | (I.R.S. Employer Identification No.)
|                                                                                 
|990 Almanor Avenue,
    Sunnyvale, CA(Address of principal executive
    offices) |  | 94085(Zip code)                     

(408) 522-3100

(Registrants telephone number, including
area code)


(Former name, former address and former fiscal
year, if changed since last report)



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Securities registered pursuant to
Section 12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, $0.001 par value


Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o

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

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of the registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this
Form 10-K. þ

The aggregate market value of the common stock
held by non-affiliates of the registrant as of June 30,
2003 was approximately $14.4 million. Shares of voting
common stock held by directors, executive officers, and by each
person who beneficially owns 10% or more of the outstanding
common stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other
purposes. The aggregate market value has been computed based on
a price of $2.64, which was the closing sale price June 30,
2003 as reported by the Nasdaq National Market.

The number of shares outstanding of the
registrants common stock as of March 12, 2004 was
approximately 9,584,623.



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ENDWAVE CORPORATION

FORM 10-K

December 31, 2003

TABLE OF CONTENTS

|               |  |                                                                                                        |    |          |    | 
|-------------- |  | ------------------------------------------------------------------------------------------------------ | -- | -------- | -- | 
|               |  |                                                                                                        |    | Page No.
|               |  |                                                                                                        |    |         
|PART I        
|Item 1.        |  | Business                                                                                               |    |          | 3  | 
|Item 2.        |  | Properties                                                                                             |    |          | 27 | 
|Item 3.        |  | Legal Proceedings                                                                                      |    |          | 28 | 
|Item 4.        |  | Submission of Matters to a
    Vote of Security Holders                                                |    |          | 28 | 
|PART II       
|              
|Item 5.        |  | Market for Registrants
    Common Stock and Related Stockholder Matters                               |    |          | 28 | 
|Item 6.        |  | Selected Financial Data                                                                                |    |          | 28 | 
|Item 7.        |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations              |    |          | 29 | 
|Item 7a.       |  | Quantitative and Qualitative
    Disclosures About Market Risk                                         |    |          | 39 | 
|Item 8.        |  | Financial Statements and
    Supplementary Data                                                        |    |          | 40 | 
|Item 9.        |  | Changes in and Disagreements
    With Accountants on Accounting and Financial Disclosure               |    |          | 64 | 
|Item 9a.       |  | Controls and Procedures                                                                                |    |          | 64 | 
|PART III      
|              
|Item 10.       |  | Directors and Executive
    Officers of the Registrant                                                 |    |          | 65 | 
|Item 11.       |  | Executive Compensation                                                                                 |    |          | 67 | 
|Item 12.       |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters |    |          | 71 | 
|Item 13.       |  | Certain Relationships and
    Related Transactions                                                     |    |          | 73 | 
|Item 14.       |  | Principal Accountant Fees
    and Services                                                             |    |          | 74 | 
|PART IV       
|              
|Item 15.       |  | Exhibits, Financial
    Statement Schedule, and Reports on Form 8-K                                    |    |          | 75 | 
|SIGNATURES     |  |                                                                                                        | 78 |         
|CERTIFICATIONS |  |                                                                                                        |    |         
|EXHIBIT 10.30 
|EXHIBIT 23.1  
|EXHIBIT 31.1  
|EXHIBIT 31.2  
|EXHIBIT 32.1  



1



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Forward-Looking Statements

In addition to historical information, this
Annual Report on Form 10-K contains forward-looking
statements as defined by federal securities laws.
Forward-looking statements involve known and unknown risks and
uncertainties, which may cause our actual results in future
periods to differ materially from what is currently anticipated.
Factors that might cause or contribute to such differences
include, but are not limited to, those discussed in Item 1,
Business, as well as Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations. You should carefully
review the risks described in this Annual Report on
Form 10-K and in other documents we file with the
Securities and Exchange Commission. When used in this report,
the words expect, anticipate,
intend, plan, believe,
seek, estimate, and similar expressions
are generally intended to identify forward-looking statements.
You should not place undue reliance on the forward-looking
statements, which speak only as of the date of this Annual
Report on Form 10-K. We undertake no obligation to publicly
release any revisions to the forward-looking statements or
reflect events or circumstances after the date of this
document.

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PART I






|        |         
|------- | --------
|Item 1. | Business

We design, manufacture and market RF (radio
frequency) subsystems that enable the transmission, reception
and processing of high-speed electromagnetic signals in
broadband wireless telecommunications systems, cellular
telephone infrastructure networks, defense electronics systems
and other similar systems requiring RF, microwave and millimeter
wave technology.

We were originally incorporated in California in
1991 and reincorporated in Delaware in 1995. In March 2000, we
merged with TRW Milliwave Inc. (TRW Milliwave), a RF
subsystem supplier that was a wholly-owned subsidiary of TRW
Inc., now owned by Northrop Grumman Space & Mission
Systems Corp. (Northrop Grumman). In connection with
the merger, we changed our name from Endgate Corporation to
Endwave Corporation. As a result of the merger, we became one of
our industrys largest commercial suppliers of microwave
and millimeter wave RF subsystems with a substantially increased
customer base and design and manufacturing capacity. On
October 17, 2000, we successfully completed the initial
public offering of our common stock.

The largest use of our products is in current and
next generation cellular backhaul networks, carrier class
trunking networks, point-to-point transmission networks, and
point-to-multipoint access networks. Our target customers for
these applications are microwave radio manufacturers and
wireless systems integrators (collectively referred to as OEMs)
that provide the wireless equipment used by communications
service providers to deliver voice, data and video services to
businesses and consumers. We also supply products to cellular
base station subsystem manufacturers. Original equipment
manufacturers (OEMs) that use or have used our products include
Allgon Microwave, Ceragon, Ericsson, Harris Corporation, Hughes
Network Systems, Nera Networks, Nokia, Nortel Networks, P-Com,
Powerwave, Siemens AG, Spectrian, Stratex Networks and Witcom
Wireless. In addition to these telecommunications applications,
our products are also used in various other adjacent market
applications. Our target customers in these markets are defense
contractors and sub-contractors that design aerospace,
defense/weapons, and electronics platforms for various domestic
and foreign defense customers. We also supply manufacturers of
test and measurement equipment, surveillance equipment and of
various other electronic products for commercial and government
applications. Adjacent market customers that use or have used
our products include Anritsu, Boeing Corporation, Filtronic,
Harris Corporation, IDT, L-3 Communications, Lockheed
Martin, M/ A-COM/ Tyco, Raytheon, Safeview and various business
units of Northrop Grumman.

We design our products to best satisfy our
customers technical, inventory, logistical, and cost
requirements by using our proprietary technologies, RF design,
and manufacturing expertise. We offer a broad range of products
at multiple levels of integration that are optimized for a
customers specific product and performance needs. Our
products include RF modules such as power amplifiers, low noise
amplifiers, up and down converters, frequency multipliers,
oscillators, synthesizers, integrated transceivers, and power
amplifier switch combiners used in cellular base stations. Our
proprietary circuit and manufacturing technologies enable us to
design and manufacture RF subsystems that minimize the use of
expensive gallium arsenide and reduce manual labor. We use
third-party semiconductor fabrication facilities for the
manufacturing of the gallium arsenide and other semiconductor
devices, which we design. Designing our own semiconductor
devices gives us the flexibility to use technologies best suited
for specific applications and eliminates dependence on and
limitations of standard, commercially available gallium arsenide
devices. We believe our proprietary technologies and processes
give us a significant competitive advantage in manufacturing our
products in high volume with a path to low per-unit cost.

We also offer build-to-print
(BTP) manufacturing services for customer-designed products
such as multi-function modules, transceivers and other key
components of outdoor units (ODUs). BTP services enable us to
capture new manufacturing volume for customer programs that
require no design efforts on the part of Endwave. Although BTP
business does not fully utilize all of Endwaves expertise,
particularly RF design, it does allow us to serve the needs of
larger customers that have exceeded their internal manufacturing
capacities, want to move to an outsourced manufacturing model,
or have the need to

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change suppliers due to product sourcing
difficulties or other business reasons, including the departure
of other merchant suppliers. BTP manufacturing opportunities
also allow Endwave to capture manufacturing volume and
associated revenues without expending the substantial
engineering investments typically associated with RF product
design effort. Further, it builds our relationship with the
customer enhancing our opportunities for additional business.


During the telecommunications market downturn
that began in late 2000, Endwave initiated a mergers and
acquisitions strategy designed to achieve revenue growth and
gain market share. As part of our strategy, Endwave has made
selected acquisitions of businesses in related or competitive
markets.

Endwave has completed the following asset
acquisitions during the past 36 months:

|                                    |  |                   |  |               
|----------------------------------- |  | ----------------- |  | --------------
|Acquired Assets:                    |  | Acquired From:    |  | Timeframe:    
|                                    |  |                   |  |               
|Stellex Broadband Wireless Business |  | M/ A-COM/ Tyco    |  | April 2001    
|Signal Technologys Wireless Group  |  | Signal Technology |  | September 2002
|Arcom Wireless                      |  | Dover Corporation |  | February 2003 
|Verticom Wireless                   |  | Verticom          |  | May 2003      

In April 2001 we completed the acquisition of
certain assets from Tyco Electronics related to their M/A-Com
broadband wireless business. The assets acquired included
product designs and intellectual property, inventory, equipment
and customer contracts for YIG oscillators, frequency
synthesizers and microwave radio transceivers.

In September 2002 we acquired the broadband
assets of the Fixed Wireless division of Signal Technology
Corporation. The acquisition included assets such as customer
contracts, equipment, inventory, product designs and other
intellectual property, and key personnel needed for the ongoing
operation of the business unit. The acquisition added a broad
product offering and capability to the Endwave product and
technology portfolio. The acquisition both expanded
relationships with existing customers such as Stratex Networks,
Nera Networks and other major OEMs, and added several
significant new customers to Endwaves customer list.

In February 2003, we acquired certain assets from
the broadband business of Arcom Wireless, Inc., a
subsidiary of Dover Corporation. This acquisition was structured
as an asset purchase, and included transceiver designs and
intellectual property required to manufacture and supply a
58 GHz integrated transceiver product to an existing
Endwave customer. No employees from Arcom were retained in
connection with this acquisition.

In May 2003, we acquired certain assets of
Verticom Inc., an independent corporation that produced
YIG-based oscillators and frequency synthesizers. At the time,
Verticom was anticipating liquidation which subsequently did
occur. This acquisition was structured as an asset purchase, and
included product designs and intellectual property, inventory,
equipment and a contract to supply a customer not previously
doing business with Endwave. No employees from Verticom were
retained in connection with this acquisition, however some
employees were employed on a temporary basis in order to effect
a transfer of the production process.

Telecommunications Market Overview

The telecommunications industry has seen many
significant changes and developments over the last few years.
The rapid acceptance and broad use of the Internet has created
the need for communications networks that are capable of
handling large amounts of digital traffic. The widespread use of
wireless communications and the desire for mobile, high speed
Internet access by consumers and businesses has created needs
for communication solutions that have not been met by
traditional wire line systems. The continued growth in the use
of cellular phones and other wireless communications devices,
such as PC and Personal Digital Assistants (PDAs), has created a
large market opportunity for broadband wireless infrastructure.

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Developing countries realize that a key
requirement for their economic growth is the availability of
modern communications systems to provide widely available and
reliable phone and data services. Rather than installing the
traditional wired networks, they often choose cellular networks
as the best solution since they are the easiest and fastest to
deploy and provide the mobility that so many desire. In such
countries where wired infrastructure is unavailable or
expensive, the interconnection of the various cell sites is
accomplished by the use of microwave radio links. Developing
nations such as China and India have created a significant
demand for such microwave radio links.

In Europe and other developed countries, as new
networks are deployed or additional cell sites are installed to
handle increased traffic density, these new cell sites are also
often connected to the existing networks through the use of
microwave radio links. This application, commonly referred to as
cellular backhaul, has resulted in the installation
of hundreds of thousands of radio links over the last decade. As
users desire messaging services and internet access from their
cellular phones and PDAs, network integrators and service
providers are moving to new generations of cellular systems
known as 2.5G and 3G (or 3rd Generation) systems. It has
been predicted that these new systems will require as much as
three times the number of base stations as first generation
systems and that each base station will require higher capacity
backhaul to the network. Further, because of the high volume of
the backhaul traffic and the importance of maintaining a robust
backhaul network, it is anticipated that future networks will
use a mesh or token ring structure rather than the star
architectures employed today. When these next generation systems
are deployed, we believe that they will create a demand for a
large number of new microwave radios. In addition, as spectrums
become crowded and the cost of bandwidth increases, network
operators are expected to require higher performance radios that
provide higher capacities and greater spectral efficiency.

Businesses and consumers continue to fuel the
need for additional bandwidth in the Internet infrastructure
with the growing use of e-mail, audio, and video streaming,
corporate data networks, corporate websites, e-commerce,
electronic data exchange, customer support, supply chain
management and telecommuting. To adequately satisfy these needs,
service providers must be able to transport large quantities of
data, at high speed, to almost any location, often worldwide.
Since not all locations are served by high-speed copper wire or
fiber optic cable, there is a growing need for broadband
wireless access.

While over the long term we believe these
fundamental forces are creating needs for greater capacity in
the telecommunications infrastructure and for wireless access to
that network, the last three years have been very challenging
for the entire telecommunications industry including service
providers, system integrators, OEMs and their suppliers. Service
providers have struggled with servicing large debt loads
incurred to build out their networks, lower than projected
subscription rates for some new services, industry wide
overcapacity and fierce price competition. This situation has
been further exacerbated by a major slowdown in the U.S. and
world economies. This has resulted in several of the CLECs
(Competitive Local Exchange Carrier), declaring bankruptcy,
delays in the introduction of new 2.5 and 3G networks, and
plummeting capital expenditures by the service providers. The
drop in capital expenditures has consequently impacted all those
who produce telecommunications equipment including system
integrators, OEMs and subsystem suppliers such as Endwave. The
difficulties of the recent past notwithstanding, current
developments suggest that the situation is improving and that a
level of stability has returned to the industry. Service
providers have significantly improved their cash flow and
repaired their balance sheets. Spending for equipment and
network systems cannot be expected to return to the inordinately
high levels of the late 1990s, however there are signs
that a more sustainable growth rate is emerging.

Further, new applications for wireless access
technologies are developing at both ends of the RF spectrum. On
the lower end of the frequency range at 2.4 GHz and
5.8 GHz, the 802.11 specifications commonly referred to as
Wi-Fi are becoming a de facto standard for short
range wireless computing. Business professionals, students, and
mobile professionals are embracing the technology as the method
of choice for connecting to the Internet and corporate networks
in a mobile setting and while moving about in office buildings
and campuses. Sales of Wi-Fi enabled devices nearly tripled in
2003 and continued growth is expected in 2004 and 2005. Although
Endwaves core competencies lie at frequency ranges

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above 10 GHz, we believe that the broad
adoption of Wi-Fi technology will create additional demand for
high capacity data links which could generate opportunities for
Endwave products.


At the higher end of the spectrum, newly FCC
approved 5 GHz wide bands at 71-76 GHz and
81-86 GHz have commanded the interest of major networking
companies such as Cisco. This spectrum is particularly well
suited to deliver data rates of 1-10 Gbps over distances of
approximately 2 Kilometers. This distance and data rate
capability make the technology an ideal candidate to provide
high speed internet connectivity to the 75% of the 750,000
business buildings that are within 1 mile of the nearest
fiber connection but cannot practically access the fiber. A
second application is to use the technology for high speed
building-to-building LAN bridging links. This business
opportunity is still nascent and its impact unknown, but Endwave
is one of a few companies that is capable of designing,
developing, testing and manufacturing the RF subsystems for
these high frequency wireless systems.

In the specific telecommunications market segment
that Endwave serves, digital microwave radios, current worldwide
production volumes we estimate at 250,000 to 300,000 units
per year, of which approximately 85% are used for cellular
backhaul applications. More than 80% of these were in the 10 to
40 GHz frequency range, where our design and manufacturing
processes are focused. The production of these microwave radios
is concentrated in a relatively small number of OEMs. Of the
approximately 250,000 to 300,000 radios produced last year, the
top 10 manufacturers produced more than 90% of the total.
The largest OEM producers include Alcatel, Ericsson, Harris,
NEC, Nera, Nokia, Siemens and Stratex Networks. These OEMs are
in turn supplied key components and sub-assemblies either by
captive internal sources, or by merchant suppliers such as
Endwave. Of these external merchant suppliers, Endwave has a
significant market share. Several of our competitors are
financially weak and several have exited the business in the
past three years. Some industry observers believe that the
component and sub-assembly supplier base will undergo further
consolidation, and Endwave in particular has a stated plan to
take a leading role in this industry consolidation trend.

Adjacent Market Overview

Many applications other than terrestrial
microwave radios exist for RF subsystems of the type
Endwave produces. These include satellite communications
systems, defense systems, RF test instruments and various
types of security devices. Endwave is actively pursuing all of
these applications in an effort to increase our revenues and
broaden our market base. In fiscal 2003, this market area
represented $3.6 million of our revenues or 11% of our
total revenues. The outlook for these market segments is
generally positive in the near future.

Satellite communication systems are of increasing
importance in many existing applications, new applications are
being proposed and the current satellite infrastructure is
aging. The combination of these aging factors could generate
significant business opportunities in the future. Several
existing satellites will come to the end of their useful lives
during the next several years and the replacement systems will
utilize frequencies well matched to Endwave capabilities. Both
in the past and at present, Endwave has produced equipment
utilized in satellite ground terminals.

Various defense systems utilize wireless
communication channels to transmit and receive both voice and
data communications. A key driver in this application area is
the so called intelligent battlefield scenario in
which multiple sensors survey the battlefield situation and the
data from these sensor systems is then aggregated and provided
real time to the battlefield commanders. Such systems require
high bandwidth communication capabilities similar to those found
in high speed commercial telecommunications systems. Further,
new weapons systems will utilize sophisticated radar systems to
detect small insurgent force vehicles and personnel. These
applications utilize subsystem modules similar to those used in
commercial telecommunications systems. Endwave intends to
continue to pursue these applications aggressively. Target
customers include the key defense prime contractors such as
Boeing, Northrop Grumman, Raytheon and Lockheed. Additionally,
we will continue to market to major system contractors that
supply products to these prime contractors.

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The Challenge

Forecasts for future demand of our products and
the products of our customers are uncertain. It is difficult to
accurately predict how long the current economic conditions will
continue in the United States and other parts of the world, or
whether they will improve. In our telecommunications markets,
regulatory conditions affecting radio deployments around the
world are changing, the impact of the expected consolidation of
service providers is unknown, new spectrums are being allocated
and new wireless applications are being created. These uncertain
and changing conditions make it very hard for our customers to
predict their specific future product requirements with
certainty. In our adjacent market areas, we face similar
uncertainty as to market demands and we are still building our
position in these business areas. However, we believe that in
order to be successful in the future our customers will need:



| |   |                                               
| | - | ----------------------------------------------
| |  | Higher performance products;                  
|
| |  | Lower product costs;                          
|
| |  | Scalable production with high volume capacity;
|
| |  | Short product design cycles;                  
|
| |  | Broad product portfolio;                      
|
| |  | Logistical flexibility; and                   
|
| |  | High product quality.                         

Our Solution

As a provider of RF subsystems, we design and
manufacture a broad portfolio of products, from RF modules to
fully integrated transceivers, outdoor units and major subsystem
assemblies. We strive to provide our customers with the
products, resources and services that they need to be successful
in this changing environment. We provide:

Superior performance through technological
leadership.Technological leadership
begins with the people, their capabilities and their experience.
We have a large technical team with broad expertise in device
physics, semiconductor device design, circuit design, component
and/or subsystem design, test engineering and other critical
disciplines. Our technical leadership enables us to optimize our
products for critical performance factors that are important to
our customers. We provide the technology to optimize such key
parameters as spectral efficiency, which is the rate at which
data can be transmitted in a given segment of the radio
frequency spectrum. We have extensive experience in the design
of RF devices based on gallium arsenide, the semiconductor
material most widely used in broadband wireless access
applications as well as other less commonly used RF
semiconductor materials. This design expertise gives us the
flexibility to optimize our product designs because we are not
limited to standard, commercially available semiconductor
devices. We use third-party semiconductor fabrication facilities
to manufacture the gallium arsenide and other semiconductor
devices we design. Our use of third-party semiconductor
facilities gives us the flexibility to use the process
technology that is best suited for each application and
eliminates the need for us to invest in and maintain our own
semiconductor fabrication facilities.

Path to low cost through multiple circuit
technologies.With our proprietary
circuit and process technologies, coupled with our advanced
manufacturing processes, we believe we are able to provide
better solutions related to our customers volume and cost
requirements. We currently employ three distinct circuit
technologies as appropriate to meet the needs of our customers
and their specific project, including traditional Hybrid
Microwave Integrated Circuits (HMICs), Monolithic Microwave
Integrated Circuits (MMICs), and Flip Chip Integrated Circuits
(FCICsTM). HMICs have many bond wires that must be
individually tested and adjusted, or tuned, during the
manufacturing process. Our MMIC circuits eliminate most of the
bond wires used in HMICs, allowing us to produce them using
automated assembly techniques. Our internal MMIC design
capability allows us to design MMICs that are optimized to the
particular circuit application. Our patented FCIC technology
enables us to design and manufacture

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RF circuits more cost effectively by using
less gallium arsenide material than a typical MMIC circuit and
significantly fewer wire bonds than HMICs. As a result, FCIC
circuits lend themselves to high-volume, automated manufacturing
processes for applications characterized by very high unit
volumes and competitive pricing. During the past year, we have
further enhanced this capability by developing and verifying
improved circuit substrates that allow more sophisticated
circuit configurations and further reduce the cost of this
circuit type. We refer to this new technology as
MLMSTM or Multilithic Microsystem. Our circuit
technologies have been supplemented by our development of the
EpsilonTM microwave packaging system to reduce costs
even further. These technical advantages, coupled with our
advanced manufacturing process, we believe will allow us to
significantly reduce product costs.


Short product design
cycle.We have developed an extensive
library of RF circuit and device designs that allow us to
rapidly and economically combine standard circuits and devices
into custom assemblies to quickly satisfy the various
performance and frequency requirements of our customers and we
have the expertise and facilities to rapidly prototype and test
a new design. We believe that this ability to migrate from
prototype to volume production in a short period of time is an
important competitive advantage.

Broad product
portfolio.We offer a range of
products at multiple levels of integration, from single function
RF modules to integrated transceivers, to address most any
customer need. This allows our customers to select the products
that best complement their internal capabilities and
manufacturing requirements. Our product design capability
supports a broad range of frequencies, from 1 GHz to
100 GHz, and addresses multiple market applications. This
enables us to rapidly design products for new frequencies or
applications and facilitate our customers product
introduction plans and schedules.

Scalable manufacturing with high volume, low
cost production capability.We believe
we are one of the largest suppliers of microwave
RF subsystems and a market leading supplier in the
commercial broadband wireless segment. Our traditional
manufacturing approach allows our customers to develop new
products in relatively small quantities during the early stages
of development. As their design becomes proven and is moved into
production, these products can either be maintained with
traditional assembly approaches, moved into an automated process
where volumes justify this transition, or moved to our offshore
manufacturing facility. Our advanced assembly and testing
capabilities and multiple production lines allow us to rapidly
achieve high volume production to meet our customers
increasing volume demands. We have a long-term gallium arsenide
device supply agreement with Velocium, which is an operating
unit of Northrop Grumman, which further enhances our
manufacturing capabilities and ensures an adequate supply of
gallium arsenide devices.

Logistical
flexibility.We provide our customers
with a high degree of logistical flexibility through the use of
multi-year frame agreements with logistical plans that are
tailored to their individual needs. These frame agreements
usually cover a variety of products and frequencies, with
varying degrees of flexibility on quantities and delivery rates.
Additionally, for some customers we provide enhanced inventory
management services by maintaining point of use inventories in
their facilities. This allows our customers to rapidly adjust to
the changing demands of their market.

High quality.Our
customers, whether focused in telecommunications, defense or
other adjacent markets, expend considerable financial and human
resources to develop and introduce new products. Understandably,
they have high demands for quality and reliability once
theyve completed their development and are preparing to
take their product to market. Many customers find it necessary
to design their systems so they will operate 99.99% or even
99.999% of the time. Our careful design, advanced manufacturing
and ISO 9001-2000 certified facilities are intended to provide
the high reliability required for todays commercial and
defense systems.

Our Strategy

Our objective is to be a leading global supplier
of RF subsystems for broadband wireless and other
applications. We intend to become the RF subsystem supplier
of choice for microwave systems built by

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the leading companies in telecommunications and
other markets. The major elements of our strategy include:


Maintain and expand our strong position in our
core market.The majority of our
revenues is derived from production of low and medium data rate
radios, in the 10 to 40 GHz frequency range, for use in
cellular backhaul systems. Today this represents the largest and
one of the most stable portions of the market. We intend to
maintain and expand our penetration in these areas, both in
terms of current and new customers, customer programs, and
frequency ranges.

Extend our technological
leadership.We will continue to invest
in next generation research and development,
maintain our team of talented engineers and scientists, and
build on our manufacturing technologies.

Provide our customers with increased
logistical flexibility.In this
uncertain market, it is difficult for our customers to predict
exact products, frequencies and quantities. By developing
broader band circuits and by using multi-product, multi-year
supply agreements, flexible logistics plans and short
manufacturing cycles, we help our customers to quickly respond
to market demands.

Target new frequencies and emerging
applications.We currently offer a
wide range of products that support the principal frequency
bands currently used for broadband wireless backhaul and access,
and defense applications. We intend to offer products for higher
data rate radios, new frequency bands and emerging market
applications as opportunities arise.

Provide best-in-class manufacturing
capability.Our circuit design,
manufacturing and testing processes and continuous improvement
programs have helped to bring manufacturing innovations to an
industry that has historically utilized labor-intensive
manufacturing techniques. We will continue to improve our lean
manufacturing methods that have produced significant cost
reductions and significantly higher outputs with fewer employed
assets.

Reduce costs through offshore
manufacturing.Endwave has responded
to customer and market requirements for lower cost solutions
with the establishment of a partnership with a major
manufacturing subcontractor in Southeast Asia. By the end of
2003, over 70% of our product was manufactured in our
subcontractors facility. This partnership and the product
manufacturing are managed by Endwaves full-time,
in-country management team with extensive experience in process
engineering and manufacturing management. We draw on the local
economy to obtain lower cost of materials, labor, and facilities
than is available in the United States.

Maintain rapid design and prototyping
capability.We intend to maintain our
ability to rapidly design and prototype new products that meet
our customers needs. We believe we can achieve this with
our multiple design and manufacturing techniques.

Leverage strategic relationship with
Velocium.Our supply agreement with
Velocium provides us with a long-term supply of gallium arsenide
devices at a preferred cost. We believe that our supply of these
devices from Velocium is a competitive advantage because the
supply of gallium arsenide devices may become constrained in the
future as the broadband wireless access market grows. In
addition, we have access to Velociums research and design
expertise in the areas of RF and digital circuit design
technologies as well as advanced semiconductor materials. We
believe this access represents a significant competitive
advantage.

Secure new design wins to expand and diversify
our customer base.We intend to use
our technology, skilled design teams, short design cycles and
manufacturing capability to secure new designs wins with new and
existing customers. We will focus our efforts on the top
10 microwave radio suppliers who represent over 90% of the
total demand and on key opportunities in adjacent markets that
match our capabilities and competitive strengths.

Use our unique strengths to further penetrate
adjacent markets.We have unique
technology, experience, and capabilities in the design of high
volume microwave modules and subsystems in the 10 to
100 GHz frequency range. These are attributes that are
useful in other adjacent markets such as

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instrumentation, scientific, automotive radar,
security, fiber optics and military systems. We will continue to
pursue additional opportunities in these adjacent markets where
our technologies are advantageous.


Pursue additional acquisitions where
appropriate.In order to achieve our
goal of being the leading global supplier of RF subsystems,
we intend to continue to pursue additional acquisition
opportunities that are strategically and financially
advantageous.

Products

Our products include amplifiers, multipliers,
frequency converters, oscillators, frequency synthesizers,
integrated transceivers and key components of outdoor units
(ODUs) that enable the transmission and reception of data
signals in communication applications such as cellular backhaul,
broadband wireless access, and network trunking; as well as
other adjacent markets requiring these technologies and
products. In addition to those products designed and developed
by Endwave, we also provide build-to-print (BTP) manufacturing
services for products that have been designed by our customers.
While the majority of our existing customers are wireless
systems integrators and original equipment manufacturers serving
the broadband wireless market, a portion of our revenues are
derived from customers who use our products to satisfy needs for
defense, instrumentation, scientific and other adjacent markets.

Microwave radio transceivers are our core product
offering, representing approximately 75% of our net revenues for
2003. Transceivers are a critical subsystem found in microwave
and millimeter wave radios. These subsystems function as the
heart of the wireless system by combining transmit and receive
functions in a single package, which gets built into the overall
radio system. Endwave specializes in high frequency transceivers
in the range of 10 GHz to 60 GHz, for point-to-point
and point-to-multipoint communications applications.

Customers

We sell our products primarily to global wireless
systems integrators and original equipment manufacturers. During
2003 we shipped products to more than 61 different customers.
The ten customers that attributed the greatest proportion of our
revenues in the year ended December 31, 2003, were:

|                                                 |  |        
|------------------------------------------------ |  | -------
|Allgon AB                                        |  | Sweden 
|Harris Corporation                               |  | USA    
|Intracom                                         |  | Greece 
|Lockheed Martin Corporation                      |  | USA    
|Nera Networks                                    |  | Norway 
|Nokia Networks                                   |  | Finland
|Northrop Grumman Space and Mission Systems Corp. |  | USA    
|Siemens AG                                       |  | Italy  
|Stratex Networks, Inc.                           |  | USA    
|Zeta                                             |  | USA    

A relatively limited number of customers have
historically accounted for a substantial portion of our sales.
For the years ending December 31, 2003, 2002 and 2001,
sales to our largest customer, Nokia, accounted for 59%, 71% and
67% of our total revenues, respectively. In 2003, Stratex
Networks also accounted for more than 10% of our revenues.
Looking forward, we cannot predict whether any significant
customer in prior periods will continue to be a significant
customer in future periods. Further, we expect that a high
percentage of our product sales will continue to be to a rather
limited number of customers in the foreseeable future.

Sales

Product and development fee revenues were
$33.8 million, $22.6 million and $34.1 million
for 2003, 2002 and 2001, respectively. Shipments to
international customers accounted for 75%, 77% and 73% of

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total product sales in 2003, 2002 and 2001,
respectively. Additionally, many of our domestic customers sell
their products, which incorporate components and subsystems sold
by us, outside the United States.


Competition

Competition in the market for RF subsystems
for broadband wireless access systems is intense. In the markets
for RF modules, transceivers and outdoor units, we
primarily compete with, among others, the following merchant
suppliers:

|                                        |  |       
|--------------------------------------- |  | ------
|Eyal Microwave                          |  | Israel
|Filtronics PLC                          |  | UK    
|Forem (A division of Allen Telecom)     |  | Italy 
|Millitron Inc.                          |  | Korea 
|Mitel                                   |  | Italy 
|Microelectronics Technology, Inc. (MTI) |  | Taiwan
|REMEC, Inc.                             |  | USA   
|Teledyne Technologies Incorporated      |  | USA   
|Thales Group SA                         |  | France
|Xytrans Inc.                            |  | USA   

In addition to those companies listed above with
whom we may compete directly, there are OEMs, for example,
Ericsson, that design and manufacture their own
RF subsystems for use in their products. To the extent that
OEMs presently, or may in the future, produce their own
RF subsystems, we lose the opportunity to gain a customer
and the related sales opportunities. Conversely, if they should
decide to outsource their requirements, this may significantly
expand the market available to Endwave.

We are committed to providing superior product
performance, logistical flexibility and manufacturing
excellence, as we believe these factors are critical to our
customers decision to purchase our products. We believe
that the cost structure of our products is competitive in each
of our target markets. Many factors contribute to the final
pricing of our products, including the costs for customer
specific designs, the scale of production, and the logistical
arrangements.

While we believe we are well positioned to
compete effectively in our chosen markets, some of our current
and potential competitors are substantially larger than us and
have greater financial, technical, manufacturing and marketing
resources. If we were unable to compete successfully, our future
operations and financial results would be harmed.

Backlog

Our order backlog consists of a combination of
standard purchase orders, annual purchase agreements and
multi-year frame agreements. The large majority of our orders
are pursuant to multi-year frame agreements with major
commercial OEMs. These frame agreements usually include an
estimate of the expected annual quantities during the contract
and include a logistics plan that provides for a monthly rolling
forecast of usage from the customer. These forecasts, however,
are primarily for material and capacity planning purposes and
are subject to significant changes from month to month and
quarter to quarter. The logistics plans generally allow the
customers a high degree of flexibility in changing, rescheduling
or canceling forecasted requirements. Because these customers
are only required to take delivery of the firm
portion of the forecasts, which is usually approximately a
month. They have the ability to significantly change forecasted
delivery dates and quantities. For these reasons we believe that
backlog is not a reliable indicator of future revenues.

Backlog includes all purchase orders and
contracts for products with expected delivery dates through
December 31, 2004. Our backlog at March 15, 2004 was
approximately $20.6 million as compared to a backlog of
$19.2 million as of March 19, 2003. There can be no
assurance that the current backlog will necessarily lead to
actual sales in any future period. Of our current backlog,
approximately 70% is

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attributable to orders received from Nokia and
10% is attributable to orders received from Allgon. If we were
to lose these customers or if orders by Nokia, Allgon or other
customers were to decrease or be delayed, our operating results
and financial condition would be adversely impacted.


Governmental Regulations

Our products are incorporated into wireless
communications systems that are subject to various United States
regulations and similar laws and regulations adopted by
regulatory authorities in other countries. Regulatory changes,
including changes in allocation of available frequency spectrum,
could significantly impact our operations by restricting
development efforts by our customers, making obsolete current
products or increasing the opportunity for additional
competition. Changes in, or failure to comply with, applicable
domestic and international regulations could have an adverse
effect on our business, operating results and financial
condition. In addition, the increasing demand for wireless
communication has exerted pressure on regulatory bodies
worldwide to adopt new standards for these products and
services, generally following extensive investigation of and
deliberation over competing technologies. The delays inherent in
this governmental approval process have caused in the past, and
may cause in the future, the cancellation, postponement or
rescheduling of installation of communications systems by our
customers, which in turn may negatively affect the sale of our
products to those customers.

Patents and Intellectual Property
Rights

Our success depends, in part, on our ability to
protect our intellectual property. We rely primarily on a
combination of patent, copyright, trademark and trade secret
laws to protect our proprietary technologies and processes.
Nevertheless, these measures may not be adequate to safeguard
the proprietary technology underlying our products. As of
December 31, 2003, we had 39 United States patents issued,
many with associated foreign filings and patents. Our issued
patents include those relating to basic circuit and device
designs, semiconductors, our proprietary FCICTM
circuit technology and various circuit and system designs. In
addition, we jointly hold two patents with AT&T pertaining
to sectorized communications systems and jointly hold one patent
with Superconducting Supertechnologies, Inc. relating to
satellite communications. Our issued patents expire between 2007
and 2020. Of all our patents, we consider two patents relating
to our FCICTM circuit technology and a patent
relating to our YIG oscillator technology to be the most
valuable. With regard to our pending patent applications, no
patents may be issued as a result of these or any future
applications. If they are issued, any patent claims allowed may
not be sufficiently broad to protect our technology. In
addition, any existing or future patents may be challenged,
invalidated or circumvented, and any right granted hereunder may
not provide meaningful protection to us. The failure of any
patents to provide protection to our technology might make it
easier for our competitors to offer similar products and use
similar manufacturing techniques.

We generally enter into confidentiality and
assignment of rights to inventions agreements with our
employees, and confidentiality and non-disclosure agreements
with our strategic partners, and generally control access to and
distribution of our documentation and other proprietary
information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use our products or
technology without authorization, develop similar technology
independently or design around our patents. In addition,
effective patent, copyright, trademark and trade secret
protection may be unavailable or limited outside of the United
States, Europe and Japan. We may not be able to obtain any
meaningful intellectual property protection in other countries
and territories. Additionally, we may, for a variety of reasons,
decide not to file for patent, copyright, or trademark
protection outside of the United States. We occasionally agree
to incorporate a customers or suppliers intellectual
property into our designs, in which cases we have obligations
with respect to the non-use and non-disclosure of that
intellectual property. We also license technology from Velocium,
which is an operating unit of Northrop Grumman. There are no
limitations on our rights to make, use or sell products we may
develop in the future utilizing the technology licensed to us by
Velocium, provided that the products are for commercial
customers and non-satellite applications.

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Steps taken by us to prevent misappropriation or
infringement of our intellectual property or the intellectual
property of our customers may not be successful. Moreover,
litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets or to
determine the validity and scope of proprietary rights of
others, including our customers. Litigation of this type could
result in substantial costs and diversion of our resources.

The wireless access industry is characterized by
vigorous protection and pursuit of intellectual property rights.
We have received, and may receive in the future, notices of
claims of infringement of other parties proprietary
rights. In addition, the invalidity of our patents may be
asserted or prosecuted against us. Furthermore, in a patent or
trade secret action, we could be required to withdraw the
product or products as to which infringement was claimed from
the market or redesign products offered for sale or under
development. We have also at times agreed to indemnification
obligations in favor of our customers and strategic partners
that could be triggered upon an allegation or finding of our
infringement of other parties proprietary rights. These
indemnification obligations would be triggered for reasons
including our sale or supply to a customer or strategic partner
of a product which was later discovered to infringe upon another
partys proprietary rights. Irrespective of the validity or
successful assertion of such claims we would likely incur
significant costs and diversion of our resources with respect to
the defense of such claims. To address any potential claims or
actions asserted against us, we may seek to obtain a license
under a third partys intellectual property rights.
However, in such an instance, a license may not be available on
commercially reasonable terms, if at all.

Research and Development

The goal of our research and development efforts
are to reduce the cost and increase the functionality and
performance of our products, while adapting them to the
specifications required of our customers and of new markets for
our products. In addition, substantial efforts have been devoted
to the development of efficient manufacturing methods necessary
for competitive pricing and improved gross margins of our
products, while maintaining high quality standards required by
our customers. Other development efforts include expansion of
existing product families and initiatives to combine products
from our various complementary product lines to create
additional functionality.

We believe that our future success will depend on
our ability to continue to enhance and cost reduce our existing
products, and to develop and introduce new products to maintain
our technological leadership and meet a wider range of customer
needs. However, as a business we recognize the need to balance
research and development spending with running a profitable
business and have reduced our research effort accordingly. Our
research and development and related engineering expenses were
approximately $4.5 million, $9.2 million and
$14.2 million, in each of 2003, 2002, and 2001,
respectively. The decrease in 2003 spending was primarily the
result of staff reductions associated with matching our research
and development spending to the current needs of the industry
and our increasing engineering efficiency that required less
resources to execute on our R & D program.

Employees

As of December 31, 2003, we had
108 full-time employees, including 59 in manufacturing, 25
in product and process engineering, 11 in sales and marketing
and 13 in general and administrative. Our employees are not
subject to any collective bargaining agreement with us and we
believe that our relations with our employees are good.

Available Information

Our principal executive offices are located at
990 Almanor Avenue, Sunnyvale, California 94085, and our
main telephone number is (408) 522-3100. The public may
read and copy any material we file

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with the SEC at the SECs Public Reference
Room at 450 Fifth Street, N.W., Washington D.C., 20549. The
public may obtain information on the operations of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site, http://www.sec.gov, that
contains reports, proxy and information statements and other
information regarding issuers that file electronically with the
SEC.


Risk Factors

Stockholders or potential investors considering
the purchase of shares of our common stock should carefully
consider the following risk factors, in addition to other
information contained in this Annual Report on Form 10-K.
Additional risks and uncertainties not presently known to us or
that we currently deem immaterial could also impair our business
operations.

We expect to operate near our break even point
and may not be profitable in the future.

We have had a history of losses. We had net
losses of $7.9 million, $31.0 million,
$156.7 million for the years ended December 31, 2003,
2002 and 2001, respectively. While we have taken ongoing
restructuring actions, there is no guarantee that these
restructuring actions will enable the Company to achieve
consistent profitability in the future. Our failure to attain
consistent profitability may cause the market price of our
common stock to decline in the future.

We depend upon a small number of customers,
and the loss of any of them, or their failure to sell their
systems, would limit our ability to generate revenues.

We depend, and expect to remain dependent, on a
relatively small number of customers for sales of our products.
If our customers reduce orders for our products, we could lose
revenues and suffer damage to our reputation in the industry.
For the year ended December 31, 2003, sales to Nokia,
Stratex Networks, and Siemens accounted for 78% of total
revenues. For the years ended December 31, 2003, 2002 and
2001, sales to Nokia accounted for 59%, 71% and 67%,
respectively, of total revenues.

The loss of, or significant reduction in demand
from any one of our major customers, particularly Nokia, would
have a material adverse effect on our business, financial
condition and results of operations.

Most of our customers are not under any
commitment to purchase products from us, except on a purchase
order basis. Under our contract with Nokia, Nokia is required to
provide us with a weekly rolling forecast for the upcoming
52-week period and we are obligated to provide products to them
in a consignment stock location. The amount and type of product
shipped to the consignment location is based upon Nokias
estimate of need and RF frequency. Revenues are recognized
at the time product is withdrawn by Nokia from the consignment
location, or at the latest, after four months have passed since
the date of receipt. As a result, there could be up to a
four-month period whereby we would not recognize revenues for
product previously shipped. Deliveries are based on forecast but
there is no guarantee that the forecast will be fulfilled.
Forecasts may vary greatly and can be changed without notice.

Our customers may not have or use the financial,
marketing, technological and other resources necessary to ensure
that their solutions will succeed in a marketplace characterized
by rapid technological changes and intense competition. For
example, communications service providers may insist that
wireless systems integrators provide extensive financing for the
deployment of large broadband wireless access networks, and our
customers may be unwilling or unable to provide the necessary
financial resources. If the wireless systems integrators,
particularly Nokia, that we supply were not successful in
selling their broadband wireless access systems for any reason,
our operating results would be harmed.

Until recently, our cost of product revenues
has exceeded our product revenues, and because we expect
competitive conditions will force us to reduce prices in the
future, we must achieve further cost reductions in order to
maintain sufficient positive gross margins to remain
profitable.

We have reported negative gross margins from
inception until the fourth quarter of 2002. If we are not able
to continue to reduce our per-unit cost of product revenues to a
sufficient degree, we may not be

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able to maintain positive gross margins. We
expect market conditions, particularly declining prices for
competing broadband access solutions, will force us to reduce
our prices in the future. In order to reduce these costs, we
must continue to migrate our products to designs that require
lower cost materials, improve our manufacturing efficiencies and
successfully move production to low cost, offshore locations.
The combined effects of these actions may not be sufficient to
achieve the cost reductions needed to maintain positive gross
margins and to sustain profitability.


Our operating results have historically
fluctuated significantly and are likely to continue to do so in
future periods. These results may fail to meet the expectations
of securities analysts or investors, causing our stock price to
fall.

Our quarterly and annual operating results are
difficult to predict and are likely to continue to fluctuate
significantly from period to period. It is likely that our
operating results in one or more future quarters may be below
the expectation of security analysts and investors. In that
event, the trading price of our common stock almost certainly
would decline. Our operating results may fluctuate for many
reasons, including but may not limited to:



| |   |                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | variations in the timing and size of, or
    cancellations or reductions of, customer orders and shipments;                                                                 
|
| |  | variations in the availability, cost and quality
    of components from our suppliers, particularly from our single
    source suppliers and suppliers of scarce components;
|
| |  | competitive factors, including pricing,
    availability and demand for competing products;                                                                                 
|
| |  | constraints on our manufacturing capacity;                                                                                                                                  
|
| |  | variability of the product development and sales
    cycle with our customers;                                                                                              
|
| |  | variations in our manufacturing yields and other
    factors affecting our manufacturing costs;                                                                             
|
| |  | changes in our sales prices;                                                                                                                                                
|
| |  | changes in the mix of products with different
    gross margins;                                                                                                            
|
| |  | failure to meet milestones under any significant
    development contracts;                                                                                                 
|
| |  | obsolescence of our component inventories;                                                                                                                                  
|
| |  | hiring and loss of personnel, particularly in
    manufacturing, research and development and sales and
    marketing; and                                                  
|
| |  | product defect claims and associated warranty
    expenses.                                                                                                                 

We have a lengthy product development and
sales cycle. As a result, we must invest substantial financial
and technical resources in a potential sale before we know
whether the sale will occur. If the sale does not occur, we may
not have the opportunity to sell products to that customer until
another generation of its system is developed.

Our products are highly technical and accordingly
our sales efforts involve a collaborative and iterative process
with our customers to determine their specific requirements and
design an appropriate solution. Depending on the product, the
typical product development and sales cycle can take anywhere
from three to twelve months, and we incur significant expenses
as part of this process without any assurance of resulting
revenues. During the product development phase, our engineers
typically work with the customer to define the product and
design a prototype product for the customer to evaluate. We
generate revenues only if our product is selected for
incorporation into a customers system and that system is
accepted in the marketplace. If our product is not selected, or
the customers development program is discontinued, we generally
will not have an opportunity to sell our product to that
customer until that customer develops a new generation of its
system. In the past, we have had difficulty meeting some of our
major customers stated volume and cost requirements. The
length of our product development and sales cycle makes us

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particularly vulnerable to the loss of a
significant customer or a significant reduction in orders by a
customer because we may be unable to quickly replace the lost or
reduced sales.


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.

Existing and potential customers typically demand
that we design products for them under difficult time
constraints. In the current market environment, the need to
respond quickly is particularly important. If we are unable to
commit the necessary resources to complete a project for a
potential customer within the requested timeframe, we may lose a
potential sale. Our ability to design products within the time
constraints demanded by a customer will depend on the number of
product design professionals who are available to focus on that
customers project and the availability of professionals
with the requisite level of expertise is limited.

Each of our products is designed for a specific
range of frequencies. Because different national governments
license different portions of the frequency spectrum for the
broadband wireless access market, and because communications
service providers that use broadband wireless access systems
license specific frequencies as they become available, we must
adapt our products rapidly to use a wide range of different
frequencies in order to remain competitive. This may require the
design of products at a number of different frequencies
simultaneously. This design process can be difficult and time
consuming, could increase our costs and could cause delays in
the delivery of products to our customers, which may harm our
reputation and affect the timing of our revenues.

We may not be able to manufacture and deliver
our products as quickly as our customers require, which could
cause us to lose sales or incur penalties and would harm our
reputation.

At times in the past, we have not produced
products in the volume requested by our customers. In the
future, we may not be able to manufacture products and deliver
them to our customers at the times, and in the volumes they
require. If we fail to manufacture and deliver products in a
timely fashion, our reputation may be harmed, we may jeopardize
existing orders and lose potential future sales and we may be
forced to pay penalties to our customers. Manufacturing delays
and interruptions can occur for many reasons including but not
limited to:



| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | lack of sufficient capacity;                                                                             
|
| |  | the failure of a supplier to deliver needed
    components on a timely basis, or with acceptable quality;
|
| |  | poor manufacturing yields;                                                                               
|
| |  | labor disputes;                                                                                          
|
| |  | manufacturing personnel shortages;                                                                       
|
| |  | equipment failures;                                                                                      
|
| |  | natural disasters;                                                                                       
|
| |  | transportation disruptions;                                                                              
|
| |  | acts of terrorism;                                                                                       
|
| |  | changes in import/export regulations;                                                                    
|
| |  | infrastructure failures; and                                                                             
|
| |  | political instability.                                                                                   

The manufacturing of our products is complex. The
yield, or percentage of products manufactured that conform to
required specifications, can decrease for many reasons,
including materials containing impurities, equipment not
functioning in accordance with requirements or human error. If
our yield is lower than we expect, we may not be able to deliver
products on time.

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We rely heavily on our Southeast Asia offshore
manufacturing partners to produce product for us. If our
partners are unable to produce product in sufficient quantities
or with adequate quality or they choose to terminate our
partnership arrangements, we may not be able to fulfill our
production commitments to our customers, which could cause us to
lose sales or incur penalties and would harm our
reputation.

As part of our operating strategy, we partially
or wholly outsource the assembly and test of some of our
subassemblies and finished products to offshore partners located
in Southeast Asia. We plan to continue this arrangement as a key
element of our operating strategy. If these vendors do not
provide us with high quality products and services in a timely
manner, or if one or more of these vendors terminates its
relationship with us, we may be unable to obtain satisfactory
replacements to fulfill customer orders on a timely basis.
Factors that could result in an interruption of supply from our
offshore partners include, but may not be limited to:



| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | changes in local regulations and government
    policy;                                                  
|
| |  | currency fluctuations;                                                                                   
|
| |  | lack of sufficient capacity;                                                                             
|
| |  | the failure of a supplier to deliver needed
    components on a timely basis, or with acceptable quality;
|
| |  | poor manufacturing yields;                                                                               
|
| |  | labor disputes;                                                                                          
|
| |  | manufacturing personnel shortages;                                                                       
|
| |  | equipment failures;                                                                                      
|
| |  | natural disasters;                                                                                       
|
| |  | transportation disruptions;                                                                              
|
| |  | acts of terrorism;                                                                                       
|
| |  | changes in import/export regulations;                                                                    
|
| |  | infrastructure failures; and                                                                             
|
| |  | political instability.                                                                                   

In the event of an interruption of supply from
our offshore partners, our reputation may be harmed and we may
lose potential future sales.

Our reliance on Velocium and other third-party
semiconductor providers to manufacture our gallium arsenide
devices may cause a significant delay in our ability to fill
orders and limit our ability to assure product quality and
control costs.

We do not own or operate a semiconductor
fabrication facility. We currently rely on the semiconductor
fabrication facilities of Velocium, an operating unit of
Northrop Grumman, and other third parties to manufacture
substantially all of the gallium arsenide and other
semiconductor devices incorporated in our products. The loss of
our relationship with any of these third parties or our use of
their semiconductor fabrication facilities, particularly
Velociums facility, and any resulting delay or reduction
in the supply of gallium arsenide devices to us, will impact our
ability to fulfill customer orders and could damage our
relationships with our customers. Our current supply agreement
with Velocium expires in December of 2005.

We may not be able to negotiate an extension to
this agreement on favorable terms, if at all. We also may not be
successful in forming alternative supply arrangements that
provide us with a sufficient supply of gallium arsenide devices.
Because there are limited numbers of third-party semiconductor
fabrication facilities that use the particular process
technologies we select for our products and have sufficient
capacity

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to meet our needs, using alternative or
additional third-party semiconductor fabrication facilities
would require an extensive qualification process that could
prevent or delay product shipments.


Since we do not own or control any of these third
party semiconductor suppliers, any change in the corporate
structure or ownership of the corporations that own these
foundries, could have a negative effect on or future relations
and ability to negotiate favorable supply agreements.

Our reliance on these third-party suppliers
involves several additional risks, including reduced control
over manufacturing costs, delivery times, reliability and
quality of the products incorporating these devices. The
fabrication of semiconductor devices is a complex and precise
process. There are many factors that can cause a substantial
percentage of wafers to be rejected or numerous devices on a
wafer to be nonfunctional including, but not limited to:



| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | minute impurities;                                                           
|
| |  | difficulties or inconsistencies in the
    fabrication process;              
|
| |  | defects in the masks used to print circuits on a
    semiconductor wafer; and
|
| |  | wafer breakage.                                                              

We expect that our customers will continue to
establish demanding specifications for quality, performance and
reliability that must be met by our products. Our third-party
semiconductor fabrication facilities may not be able to achieve
and maintain acceptable production yields in the future. In the
past, we have experienced delays in product shipments from our
third-party semiconductor fabrication facilities, which in turn
delayed product shipments to our customers. To the extent these
suppliers suffer failures or defects, or delay deliveries to us,
we could experience lost revenues, increased costs and delays
in, cancellations or rescheduling of orders or shipments, any of
which would harm our business.

Because of the scarcity of some components and
our dependence on single suppliers for some other components, we
may be unable to obtain an adequate supply of components, or we
may be required to pay higher prices or to purchase components
of lesser quality.

We currently purchase a number of components,
some from single source suppliers for which alternative sources
may not be readily available, including, but not limited to:



| |   |                                
| | - | -------------------------------
| |  | electronic filters;            
|
| |  | circuit carrier assemblies;    
|
| |  | voltage controlled oscillators;
|
| |  | semiconductor devices;         
|
| |  | yttrium iron garnet components;
|
| |  | magnetic components; and       
|
| |  | frequency references.          

Any delay or interruption in the supply of these
or other components could impair our ability to manufacture and
deliver our products, harm our reputation and cause a reduction
in our revenues. In addition, any increase in the cost of the
components that we use in our products could make our products
less competitive and lower our margins. Our single source
suppliers could enter into exclusive agreements with or be
acquired by one of our competitors, increase their prices,
refuse to sell their products to us, discontinue products or go
out of business. Even to the extent alternative suppliers are
available to us, identifying them and entering into arrangements
with them is difficult and time consuming, and they may not meet
our quality standards. We may not be able to obtain sufficient
quantities of required components on the same or substantially
the same terms. Additionally, consolidations among our suppliers
could result in other sole source suppliers for us in the future.

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Because we do not have long-term commitments
from many of our customers, we must estimate customer demand,
and errors in our estimates would have negative effects on our
inventory levels and revenues.

Our primary market, the telecommunications
industry, has been characterized in recent years by severe
demand fluctuations and down turns. Further, the overall
economic slow down in the U.S. and other economies has
exacerbated these difficulties. This has led to fluctuating
order forecasts from some of our customers. There can be no
certainty as to the degree of the severity or duration of these
fluctuations in demand. We also cannot predict the extent and
timing, of the impact of the economic downturn in the United
States and the worldwide downturn for the telecommunications
industry on economies in Europe and other countries and
geographic regions.

Our sales are generally made on the basis of
formal agreements and purchase orders, which may be later
modified or canceled by the customer, rather than firm long term
purchase commitments. We have historically been required to
place firm orders for products and manufacturing equipment with
our suppliers up to six months prior to the anticipated delivery
date and, on occasion, prior to receiving an order for the
product, based on our forecasts of customer demands. Our sales
process requires us to make multiple demand forecast
assumptions, each of which may introduce error into our
estimates, causing excess inventory to accrue or a lack of
manufacturing capacity when needed. If we overestimate customer
demand, we may allocate resources to manufacturing products that
we may not be able to sell when we expect or at all. As a
result, we would have excess inventory, which would harm our
financial results. Conversely, if we underestimate customer
demand or if insufficient manufacturing capacity were available,
we would lose revenue opportunities, lose market share and
damage our customer relationships. On occasion, we have been
unable to adequately respond to unexpected increases in customer
purchase orders and were unable to benefit from this increased
demand.

Because we may expand our manufacturing
capacity in advance of demand, our manufacturing facilities may
continue to be underutilized, which may harm our operating
results.

As part of our strategy, we may expand our
manufacturing capacity beyond the level required for our current
sales. As a result, our manufacturing facilities in the future
may continue to be underutilized from time to time. We expand
our manufacturing capacity based on industry projections for
future growth. Even if the broadband wireless industry
experiences significant growth, we could still be unsuccessful
in selling our products and growing along with the industry. If
demand for our products does not increase significantly,
underutilization of our manufacturing facilities will likely
continue and could harm our profitability and other operating
results. Conversely, if we do not maintain adequate
manufacturing capacity to meet demand for our products, we will
lose opportunities for additional sales. Any failure to have
sufficient manufacturing capacity to meet demand would harm our
market share and operating results.

Our products may contain component,
manufacturing or design defects or may not meet our
customers performance criteria, which could harm our
customer relationships, industry reputation, revenues and
profitability.

We have experienced manufacturing quality
problems with our products in the past and may have similar
problems in the future. As a result of these problems, we have
replaced components in some products, or replaced the product,
in accordance with our product warranties. Our product
warranties typically last one to three years. As a result of
component, manufacturing or design defects, we may be required
to repair or replace a substantial number of products under our
product warranties. Further, our customers may discover latent
defects in our products that were not apparent when the warranty
period expired. These defects may cause repair or replacement
expenses beyond the normal warranty, the loss of customers or
damage to our reputation. We have experienced this type of
failure in the past and have had to provide reserves for
repairing the affected units. We cannot guarantee that similar
failures will not occur in the future resulting in significant
expenses and charges in future periods.

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Some of the contracts that we have entered
into or assumed during acquisitions may contain clauses making
Endwave liable for consequential damages or other indirect costs
that customers may incur. These indirect costs may be
significantly higher than the cost of repair or replacement of
the Endwave product.

We typically warrant our products for a period of
one to three years, during which time we have the option to
repair or replace any faulty products that are returned to us
during the warranty period. In addition, some contracts require
that if there are hidden or latent defects, or defects that
appear after the warranty period which could not be detected
during normal inspection, we shall undertake any and all
necessary corrective actions, including but not limited to
redesigning the parts and replacing defective parts in the
field. If mutually agreed, repair or replacement of defective
units can be undertaken by the customer, who we shall compensate
for actual costs.

Some radios incorporating our transceivers and
manufactured and shipped by one of our customers are
experiencing degraded performance after installation in the
field. The cause of the degradation has been identified to be a
faulty electronic component supplied by one of our vendors. We
believe the cause of the components out of specification
performance has been identified and corrected. Although the
transceiver products were delivered under a contract between
Endwave and the customer, the component supplier has agreed to
compensate our customer for the indirect costs
associated with the repair and replacement of the degraded
radios and modules. These indirect costs include the costs
associated with removing and replacing the radios in the field
as well as removing and replacing the transceiver module in the
radio. Subsequently we have reached an agreement with the
component supplier to share a portion of these repair and
replacement costs. During 2001, we provided $4.3 million
for warranty charges to cover the actual repair of the
transceivers containing faulty components of which $872,000 has
been used. We believe that this reserve is adequate to both
cover our actual repair costs and to fully cover all liability
for our share of the indirect costs for which our supplier is
responsible.

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

Our success will depend, in part, on our ability
to protect our intellectual property. We rely primarily on a
combination of patent, copyright, trademark and trade secret
laws to protect our proprietary technologies and processes.
Nevertheless, these measures may not be adequate to safeguard
the proprietary technology underlying our products. With regard
to our pending patent applications, no patents may be issued as
a result of these or any future applications. If they are
issued, any patent claims allowed may not be sufficiently broad
to protect our technology. In addition, any existing or future
patents may be challenged, invalidated or circumvented, and any
right granted hereunder may not provide meaningful protection to
us. The failure of any patents to provide protection to our
technology might make it easier for our competitors to offer
similar products and use similar manufacturing techniques.

We generally enter into confidentiality and
assignment of rights to inventions agreements with our
employees, and confidentiality and non-disclosure agreements
with our strategic partners, and generally control access to and
distribution of our documentation and other proprietary
information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use our products or
technology without authorization, develop similar technology
independently or design around our patents. In addition,
effective patent, copyright, trademark and trade secret
protection may be unavailable, limited, or unenforceable outside
of the United States, Europe and Japan. We may not be able to
obtain any meaningful intellectual property protection in other
countries and territories. Additionally, we may, for a variety
of reasons, decide not to file for patent, copyright, or
trademark protection outside of the United States or to
discontinue support of existing patents, copyrights or
trademarks within the United States or foreign countries. We
occasionally agree to incorporate a customers or
suppliers intellectual property into our designs, in which
cases we have obligations with respect to the non-use and
non-disclosure of that intellectual property.

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We also license technology from Velocium, an
operating unit of Northrop Grumman. There are no limitations on
our rights to make, use or sell products we may develop in the
future utilizing the technology licensed to us by Velocium,
provided that the products are for commercial customers and
non-satellite applications.

Steps taken by us to prevent misappropriation or
infringement of our intellectual property or that of our
customers may not be successful. Moreover, litigation may be
necessary in the future to enforce our intellectual property
rights, to protect our trade secrets or to determine the
validity and scope of proprietary rights of others, including
our customers. Litigation of this type could result in
substantial costs and diversion of our resources.

As part of the strategy for the growth and
expansion of our business, we may make additional acquisitions
that could disrupt our business and severely harm our financial
condition.

As part of our business strategy, we may invest
in or acquire other businesses, technologies or assets, or enter
into strategic relationships with third parties. For future
acquisitions, we may issue additional stock, incur debt, assume
liabilities, incur amortization expenses related to goodwill and
other intangible assets or incur large and immediate write-offs.
With the exception of the integration of operations experienced
following our merger with TRW Milliwave, our acquisition of
certain assets of M/ A-COM from Tyco Electronics, our
acquisition of the broadband assets of the Fixed Wireless
division of Signal Technology Corporation, our acquisition of
certain assets of Arcom and our acquisition of certain assets of
Verticom, we have no experience in integrating acquired
businesses with our existing business. Our operation of any
acquired businesses would involve numerous risks, including, but
not limited to:



| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | problems combining any purchased operations with
    our own operations;                       
|
| |  | unanticipated costs;                                                                           
|
| |  | diversion of managements attention from our
    core business;                                
|
| |  | adverse effects on existing business
    relationships with customers;                         
|
| |  | risks associated with entering markets in which
    we have no or limited prior experience; and
|
| |  | the potential loss of key employees, particularly
    those of the purchased organization.     

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 and hire additional
qualified personnel, our ability to develop and successfully
market our products would be harmed.

We believe that our future success will depend
upon our ability to attract, integrate and retain highly skilled
managerial, sales and marketing, research and development and
manufacturing personnel. Skilled personnel in our industry can
be in short supply. To attract and retain qualified personnel,
we may be required to grant large option or other stock-based
incentive awards, which may be highly dilutive to other
stockholders. We may also be required to pay significant base
salaries and cash bonuses, which could harm our operating
results. In addition, prospective employees, given the current
volatility of the stock prices of technology focused companies,
could perceive the stock option component of our compensation
package overly risky and require more significant salary or cash
bonus incentives for that reason.

We are particularly dependent on the continued
employment of our senior management team and other key
personnel. If one or more members of our senior management team
or other key personnel were unable or unwilling to continue in
their present positions, these persons would be very difficult
to replace, and our business could be seriously harmed. We do
not maintain key person life insurance policies.

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Our ability to increase our sales in
international markets may be limited by risks related to
international trade and marketing.

For the years ended December 31, 2003, 2002
and 2001, 75%, 77% and 73%, respectively, of our revenues were
derived from sales invoiced and shipped to customers outside the
United States. In addition, some of our United States based
customers may sell products, which incorporate our products,
into international markets. Adverse international economic
conditions or developments could in the future negatively affect
our revenues and sales by our customers into these regions,
which would impact our revenues. In addition to the uncertainty
as to our ability to maintain and expand our international
presence, there are certain risks inherent in foreign
operations, including, but not limited to:



| |   |                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------
| |  | changing regulations of various countries or
    regulating agencies effecting radio deployments and spectrum use;           
|
| |  | difficulties in complying with foreign laws and
    regulations and obtaining foreign governmental approvals and
    permits;
|
| |  | delays in or prohibitions on exporting products
    resulting from export restrictions for our products and
    technologies;
|
| |  | fluctuations in foreign currencies and the United
    States dollar, especially the Euro;                                    
|
| |  | political and economic instability;                                                                                          
|
| |  | unforeseen effects of terrorism and terrorist
    activities;                                                                
|
| |  | adverse tax consequences; and                                                                                                
|
| |  | seasonal reductions in business activity.                                                                                    

In addition, foreign laws treat the protection of
proprietary rights and intellectual property differently from
laws in the United States and may not protect our proprietary
rights and intellectual property to the same extent as United
States laws.

We currently transact business only in
U.S. dollars. In the future, economic or competitive
situations may require us to conduct business in other
currencies. If this were to happen, we could become subject to
currency exchange rate volatility, which could have an adverse
impact on our operating results and financial
condition.

We conduct all of our current business in
U.S. dollars. In the future, economic conditions or
competitive pressures may require us to sell product in other
currencies, especially the Euro because of the high
concentration of current and potential customers in countries
that have adopted the Euro. If this was to occur and our
contracts did not provide currency protection, we could
experience significant currency exchange rate volatility. That
volatility could have serious impacts on dollar value of our
sales and subsequently on our operating results and financial
condition.

Many of our customers operate in Euro-based
economies. The current rise in the value of the Euro could make
their products noncompetitive in world markets thereby reducing
their revenues and causing Endwave to also lose
revenues.

Many of our customers operate in countries that
have adopted the Euro as their standard currency. The recent
rise in the Euro could make products built in those countries
noncompetitive in world markets due to the relative strength of
the Euro. If this were to happen, it is likely that our
customers would lose sales and Endwave would subsequently see
reduced demand. Further, similar currency effects may require
our customers to reduce their prices, bringing further pressure
on Endwave to reduce its prices. Such price reductions offered
to our customers could harm our margins, operating results and
financial condition.

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Compliance with current or future
environmental laws and regulations could impose significant
burdens on us, which could have an adverse impact on our
operating results and financial condition.

We use a small number of hazardous substances to
produce our products. If we fail to comply with present or
future governmental regulations related to the use, storage,
handling, discharge or disposal of toxic, volatile or otherwise
hazardous chemicals used in our manufacturing processes, we may
have our manufacturing operations suspended and we may be
assessed fines. We may also be required to alter our
manufacturing processes or even cease operations in locations
where we cannot become compliant with applicable government
regulation, which would result in significant costs. In
particular, we face the costs and risks associated with a
transition to lead free solders in our products. Governmental
regulations could also require that we incur expensive
remediation costs or other expenses to comply with environmental
regulations. We could also face future liabilities in civil
actions for violations of environmental laws and regulations.
Liability for cleanup under the Comprehensive Environmental
Response, Compensation and Liability Act is joint and several.
Consequently, if other parties that share responsibility with us
for contamination at any site are unable to pay for their share
of any damages or remediation, we may be held liable to pay for
some or all of their share.

The broadband wireless access industry is
relatively new and its future is uncertain. If significant
demand for this technology does not develop, it will limit our
ability to grow our revenues.

Broadband wireless access technology is one of
several possible ways to provide high-speed infrastructure for
transmission of voice, video and data. However, the level of
demand for high speed access will be at least partially
dependent upon the development of end user applications that
will require higher data rates, and their acceptance and use by
the market. If this demand will be significant and at what rate
it will be created is not known at this time.

Broadband wireless access technology is
relatively new and unproven in the marketplace. This technology
may prove unsuitable for widespread commercial deployment, in
which case it is unlikely we could generate enough revenues to
obtain and sustain profitability. Many factors will influence
the success or failure of broadband wireless access technology,
including, but not limited to:



| |   |                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | its capacity to handle growing demands for faster
    transmission of increasing amounts of video, voice and data;                                       
|
| |  | its cost effectiveness and performance compared
    to other forms of broadband access, the prices and performance
    of which continue to improve;     
|
| |  | its reliability and security;                                                                                                                            
|
| |  | whether the products can be manufactured in
    sufficient volume;                                                                                       
|
| |  | its suitability for a sufficient number of
    geographic regions;                                                                                       
|
| |  | the availability of sufficient frequencies for
    wireless communications service providers to deploy products at
    commercially reasonable rates;    
|
| |  | the availability of sufficient site locations for
    wireless communications service providers to install products at
    commercially reasonable rates;
|
| |  | the development of user applications that will
    create the demand for higher capacity infrastructure for voice,
    video and data traffic;           
|
| |  | safety and environmental concerns regarding
    broadband wireless transmissions; and                                                                    
|
| |  | permission by domestic and international
    regulatory authorities to allow construction of new wireless
    systems.                                   

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Many competing technologies serve our
broadband access market, and if the broadband wireless access
technologies upon which our products are based do not succeed as
a solution for broadband access, we may not be able to sustain
or grow our business.

Providers of broadband wireless access solutions
compete with providers of other high speed solutions, including
digital subscriber lines, cable, fiber and other high-speed
wire, satellite and wireless technologies. Many of these
alternative technologies use existing installed infrastructure
and have achieved significantly greater market acceptance and
penetration than broadband wireless access technologies.
Moreover, current broadband wireless access technology has
inherent technical limitations that may inhibit its widespread
adoption in many areas, including the need for line-of-sight
installation and reduced communication distance in bad weather.
Broadband wireless access technology continues to evolve which
could cause some service providers to delay product purchases or
could result in significant shifts in the products the market
favors. In addition, the need for communications service
providers to obtain the rights to install broadband wireless
access equipment on rooftops and in other locations may inhibit
its widespread adoption. We expect broadband access technologies
to face increasing competitive pressures from both current and
future alternative technologies. In light of these factors, many
communications service providers may be reluctant to invest
heavily in broadband wireless access solutions and, accordingly,
the market for these solutions may fail to develop or may
develop more slowly than we expect. Either outcome would limit
our sales opportunities.

The broadband wireless access infrastructure
equipment industry is intensely competitive, and our failure to
compete effectively could reduce our revenues and
margins.

Competition in the market for RF subsystems for
broadband wireless access systems is intense. In addition, new
entrants to the market can emerge and become significant
competitors. Some new competitors have been formed by acquiring
assets of failed or disbanded companies. Generally, these assets
have been acquired at prices much lower than normally expected
and this may give these new entrants a cost advantage.

We believe that the principal competitive factors
in our industry are:



| |   |                                                                
| | - | ---------------------------------------------------------------
| |  | technical leadership and product performance;                  
|
| |  | time-to-market in the design and manufacturing of
    products;
|
| |  | manufacturing capability and scalable capacity;                
|
| |  | financial stability;                                           
|
| |  | favorable access to semiconductor materials;                   
|
| |  | price;                                                         
|
| |  | the ability to migrate to low cost solutions;                  
|
| |  | product breadth;                                               
|
| |  | logistical flexibility; and                                    
|
| |  | carrier class quality.                                         

There are also wireless systems integrators, for
example, Ericsson, that design and manufacture their own RF
subsystems for internal use. To the extent wireless systems
integrators presently, or may in the future, produce their own
RF subsystems, we lose the opportunity to gain a customer and
the related sales opportunities. Conversely, if they should
decide to outsource their requirements, we may have new
opportunities.

Many of our current and potential competitors are
substantially larger than us and have greater financial,
technical, manufacturing and marketing resources. If we were
unable to compete successfully,

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our future operations and financial results would
be harmed. For more information with reference to competition,
please see the section entitled Competition, above.


We must adapt to the rapid technological
changes inherent in the broadband wireless access industry in
order to succeed.

In order to succeed, we must improve current
products and develop and introduce new products that are
competitive in terms of price, performance and quality and that
adequately address the changing requirements of wireless systems
integrators, their customers and subscribers and emerging
industry standards. To accomplish this, we make substantial
investments in the research and development of new products for
and improvements to existing products. If these investments do
not result in competitive products that generate large volume
orders, we may be unable to generate sufficient revenues to
achieve profitability. Our research and development expenses
were $4.5 million, $9.2 million and $14.2 million
for the years ended December 31, 2003, 2002 and 2001
respectively. We intend to continue to incur substantial
research and development and product development expenses. It is
possible that these investments will not generate product
revenues sufficient to offset the original investment expense.

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.

The markets that we serve are highly regulated.
Communications service providers must obtain regulatory
approvals to operate broadband wireless access networks within
specified licensed bands of the frequency spectrum. The FCC and
foreign regulatory agencies have adopted regulations that impose
stringent RF emissions standards on the communications industry.
Changes to these regulations may require that we alter the
performance of our products.

The enactment by governments of new laws or
regulations or a change in the interpretation of existing
regulations could adversely affect the market for our products.
Although there is a present trend toward deregulation and
current regulatory developments are favorable to the promotion
of new and expanded wireless services, this could change at any
time, and future regulatory changes could have a negative impact
on us. Further, the increasing demand for wireless
communications has exerted pressure on regulatory bodies
worldwide to adopt new standards for broadband wireless access
products, generally following extensive investigation and
deliberation over competing technologies. In the past, the
delays inherent in this governmental approval process have
caused, and in the future may cause, the cancellation,
postponement or rescheduling of the installation of
communications systems by our customers. These delays could
affect our ability to allocate our research and development
resources effectively, cause our existing and potential
customers to delay orders and otherwise harm our ability to
generate revenues.

Our industry is characterized by vigorous
protection and pursuit of intellectual property rights. This
could cause us to become involved in costly and lengthy
litigation, which could subject us to liability, prevent us from
selling our products or force us to redesign our
products.

The wireless access industry is characterized by
vigorous protection and pursuit of intellectual property rights.
We have received and may receive in the future notices of claims
of infringement of other parties proprietary rights. In
addition, the invalidity of our patents may be asserted or
prosecuted against us. Furthermore, in a patent or trade secret
action, we could be required to withdraw the product or products
as to which the infringement was claimed from the market or
redesign products offered for sale or under development. We have
also at times agreed to indemnification obligations in favor of
our customers and strategic partners that could be triggered
upon an allegation or finding of our infringement of other
parties proprietary rights. These indemnification
obligations would be triggered for reasons including our sale or
supply to a customer or strategic partner of a product which was
later discovered to infringe upon another partys
proprietary rights. Irrespective of the validity or successful
assertion of intellectual property claims, we would likely incur
significant costs and diversion of our resources with respect to
the defense of any claims. To address any potential claims or
actions asserted against us, we may seek to obtain a license

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under a third-partys intellectual property
rights. However, in such an instance, a license may not be
available on commercially reasonable terms, if at all.


The market price of our common stock is likely
to fluctuate.

The price of our common stock has fluctuated
widely since our initial public offering in October 2000. The
market price of our common stock can fluctuate significantly for
many reasons, including, but not limited to:



| |   |                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our financial performance or the performance of
    our competitors;                                                                                      
|
| |  | technological innovations or other trends or
    changes in the broadband wireless access industry;                                                       
|
| |  | 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                                                              
|
| |  | because a small percentage of our stock is owned
    by public stockholders, it trades in low volumes which could
    cause volatility in our share price.

In addition, the stock market has experienced
extreme price and volume fluctuations,, including significant
volatility in the market price of our common stock in
particular. These market fluctuations can be unrelated to the
operating performance of particular companies and the market
prices for securities of technology companies have been
especially volatile. Future sales of substantial amounts of our
common stock, or the perception that such sales could occur,
could adversely affect prevailing market prices for our common
stock. Additionally, future stock price volatility for our
common stock could provoke the initiation of securities
litigation, which may divert substantial management resources
and have an adverse effect on our business, operating results
and financial condition. Our existing insurance coverage may not
sufficiently cover all costs and claims that could arise out of
any such securities litigation. We anticipate that prices for
our common stock will continue to be volatile.

The Nasdaq Stock Market has a $1.00 per
share minimum closing bid price requirement, pursuant to which
our common stock could be de-listed from the Nasdaq National
Market if its closing bid price is $1.00 for 30 consecutive
trading days and does not subsequently trade above $1.00 for 10
consecutive trading days. There can be no assurance that our
closing bid price will be above the Nasdaq Stock Market
requirements for the necessary time periods mandated by the
Nasdaq National Market. If we are unable to meet the Nasdaq
requirements to maintain listing on the Nasdaq National Market
our common stock could trade on the Nasdaq SmallCap Market, the
OTC Bulletin Board or in the pink sheets maintained
by the National Quotation Bureau, Inc. Such alternatives
are generally considered to be less efficient markets, and our
stock price, as well as the liquidity of our common stock, will
be adversely impacted as a result.

Our ability to achieve our business goals is
substantially dependent on our access to sufficient
capital.

If we do not have sufficient capital to fund our
operations, we may be forced to discontinue product development,
reduce our sales and marketing efforts and forego attractive
business opportunities, and we may lose the ability to respond
to competitive pressures. It is possible we may need to raise
additional funds in the future, and this additional financing
may not be available to us in favorable terms, if at all. We may
also require additional capital to acquire or invest in
complementary businesses or products or

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obtain the right to use complementary
technologies. If we issue additional equity securities to raise
funds, the ownership percentage of our existing stockholders
would be reduced. New investors may demand rights, preferences
or privileges senior to those of existing holders of our common
stock. If we issue debt securities to raise funds, we may incur
significant interest expense, which would harm our
profitability. The issuance of debt securities may also require
us to agree to various restrictions typical of debt securities,
including limitations on further borrowing and our right to pay
dividends.


Northrop Grumman and our officers and
directors control a large percentage of our common stock and
together are able to control the outcome of matters requiring
stockholder approval.

As of March 1, 2004, directors and holders
of five percent or more of our outstanding common stock
beneficially owned approximately 51% of our common stock. Of
this percentage, Northrop Grumman alone beneficially owns
approximately 36% of our common stock. As a result, our
executive officers, directors and five percent stockholders as a
group are able to effectively control all matters requiring
approval of our stockholders, including the election of
directors and approval of significant corporate transactions.
Northrop Grumman alone is able to significantly influence
matters on which the stockholders vote. This concentration of
ownership may also delay, deter or prevent a change in control
and may make some transactions more difficult or impossible to
complete without the support of these stockholders, even if the
transaction is favorable to our stockholders. In addition,
because of their ownership of our common stock, these
stockholders are in a position to significantly affect our
corporate actions in a manner that could conflict with the
interests of our public stockholders.

Our certificate of incorporation, bylaws and
arrangements with executive officers contain provisions that
could delay or prevent a change in control.

We are subject to certain Delaware anti-takeover
laws by virtue of our status as a Delaware corporation. These
laws prevent us from engaging in a merger or sale of more than
10% of our assets with any stockholder, including all affiliates
and associates of any stockholder, who owns 15% or more of our
outstanding voting stock, for three years following the date
that the stockholder acquired 15% or more of our voting stock
unless the board of directors approved the business combination
or the transaction which resulted in the stockholder becoming an
interested stockholder, or upon consummation of the transaction
which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of
our voting stock of the corporation, or the business combination
is approved by our board of directors and authorized by least
66 2/3% of our outstanding voting stock not owned by the
interested stockholder. A corporation may opt out of the
Delaware anti-takeover laws in its charter documents, however we
have not chosen to do so. Additionally, our certificate of
incorporation and bylaws include a number of provisions that may
deter or impede hostile takeovers or changes of control of
management, including a staggered board of directors, the
elimination of the ability of our stockholders to act by written
consent, discretionary authority given to our board of directors
as to the issuance of preferred stock, and indemnification
rights for our directors and executive officers. In addition, we
have an Officer Retention Plan that provides for the
acceleration of vesting of a percentage of the stock options
granted to our officers under certain conditions. Under this
plan, an unvested portion of each officers stock options
will become vested and, in addition, severance benefits will be
paid to the officer, if we undergo a change in control
transaction or the officer is terminated without cause. This
plan may make us a less attractive acquisition target or may
reduce the amount a potential acquirer may otherwise be willing
to pay for our company.






|        |           
|------- | ----------
|Item 2. | Properties

Our principal executive offices are located in
Sunnyvale, California, where we lease approximately
16,000 square feet, which encompasses our corporate
headquarters and research and development facilities. This lease
expires August 2006. We lease approximately 6,000 square
feet in Andover, Massachusetts for our Northeast operations
under a lease expiring September 2005. We own two buildings
comprising approximately 46,000 square feet on eight acres
of land in Diamond Springs, California, that we use

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primarily for manufacturing purposes. We have
leased approximately half of this space to a third party and we
are actively exploring the sale of this site, subsequent to
which we would lease back the portion of the site we now use. We
believe that our existing facilities are adequate to meet our
current and near term future needs.







|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

Although we may have pending various legal
actions arising in the ordinary course of business from time to
time, we are not currently a party to any material legal
proceedings.






|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

None.




PART II






|        |                                                                         
|------- | ------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Stock
    and Related Stockholder Matters

Our common stock is traded on the Nasdaq National
Market under the symbol ENWV. The following table
sets forth, for the periods indicated, the high and low sales
prices per share of our common stock as reported by the Nasdaq
National Market.

All per-share amounts from all periods have been
restated to reflect the 1 for 4 reverse stock split effective
after the close of business on June 28, 2002.

|      |                |             |   |      |  |  |   |      | 
|----- | -------------- | ----------- | - | ---- |  |  | - | ---- | 
|      |                |            
|      |                | Price Range
|      |                |            
|      |                | High        |   | Low 
|      |                |             |   |     
|2002: |                |             |   |      |  |  |   |     
|      | First Quarter  |             | $ | 5.60 |  |  | $ | 2.64 | 
|      | Second Quarter |             | $ | 3.80 |  |  | $ | 2.00 | 
|      | Third Quarter  |             | $ | 3.10 |  |  | $ | 0.70 | 
|      | Fourth Quarter |             | $ | 1.25 |  |  | $ | 0.32 | 

|      |                |             |   |       |  |  |   |      | 
|----- | -------------- | ----------- | - | ----- |  |  | - | ---- | 
|      |                |            
|      |                | Price Range
|      |                |            
|      |                | High        |   | Low  
|      |                |             |   |      
|2003: |                |             |   |       |  |  |   |     
|      | First Quarter  |             | $ | 1.95  |  |  | $ | 0.82 | 
|      | Second Quarter |             | $ | 3.24  |  |  | $ | 1.00 | 
|      | Third Quarter  |             | $ | 6.91  |  |  | $ | 2.64 | 
|      | Fourth Quarter |             | $ | 10.60 |  |  | $ | 5.39 | 

As of March 12, 2004, there were
approximately 169 holders of record of our common stock.

We have never declared a dividend or paid any
cash dividends on our common stock. Since we currently intend to
retain any future earnings to fund the development and growth of
our business, we do not anticipate paying any cash dividends in
the near future. For information regarding securities authorized
for issuance under equity compensation plans, see Item 12.






|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The following selected consolidated financial
data should be read in conjunction with Item 7.
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated
financial statements and the notes thereto in Item 8.
Financial Statements and Supplementary Data.

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On March 31, 2000, we merged with TRW
Milliwave. We were the surviving corporation in the merger and
TRW Milliwave ceased to exist as a separate legal entity.
However, because we issued more than half of our outstanding
capital stock to TRW Inc. (now owned by Northrop Grumman) in
exchange for all outstanding shares in TRW Milliwave, TRW
Milliwave is treated as the acquiring company for accounting
purposes. As a result, our financial statements prior to the
date of the merger are those of TRW Milliwave.

In March 2000, in connection with the merger, TRW
received convertible preferred stock in exchange for all
outstanding shares of the common stock of TRW Milliwave. Giving
effect to the merger retroactive to March 2000, no shares of
common stock are outstanding. Accordingly, net loss per share
data has not been presented for periods prior to March 2000. The
net loss applicable to common stockholders subsequent to the
merger represents the net loss incurred after March 2000,
including the charge for purchased in-process research and
development. The net loss for the year ended December 31,
2000 was $59.5 million, less the net loss for the three
months ended March 31, 2000 of $2.0 million resulting
in a net loss applicable to common stockholders subsequent to
the merger in March 2000 of $57.5 million. The shares used
in computing net loss per share are the weighted average shares
outstanding since the merger. Since we incurred losses for all
periods presented, the convertible preferred stock would be
anti-dilutive and accordingly, diluted net loss per share is the
same as basic net loss per share.

All per-share amounts from all periods presented
have been restated to reflect the 1 for 4 reverse stock split
effective after the close of business on June 28, 2002.

|                                                                        |                                               |                         |        |                                       |  |         |         |         |   |      |          |         |   |   |         |         |   |   |        |        | 
|----------------------------------------------------------------------- | --------------------------------------------- | ----------------------- | ------ | ------------------------------------- |  | ------- | ------- | ------- | - | ---- | -------- | ------- | - | - | ------- | ------- | - | - | ------ | ------ | 
|                                                                        |                                               |                        
|                                                                        |                                               | Year Ended December 31,
|                                                                        |                                               |                        
|                                                                        |                                               | 2003(1)                 |        | 2002(2)                               |  | 2001(3) |         | 2000    |   | 1999
|                                                                        |                                               |                         |        |                                       |  |         |         |         |   |     
|                                                                        |                                               |                         |        |                                      
|                                                                        |                                               |                         |        | (In thousands, except per share data)
|Revenues                                                                |                                               | $                       | 33,847 |                                       |  | $       | 22,572  |         |   | $    | 34,125   |         |   | $ | 41,232  |         |   | $ | 12,419 |       
|Cost of product revenues                                                |                                               |                         | 24,830 |                                       |  |         | 29,777  |         |   |      | 57,233   |         |   |   | 52,538  |         |   |   | 11,221 |       
|Other operating expenses                                                |                                               |                         | 17,568 |                                       |  |         | 27,995  |         |   |      | 136,463  |         |   |   | 50,437  |         |   |   | 4,232  |       
|Loss from operations                                                    |                                               |                         | (8,551 | )                                     |  |         | (35,200 | )       |   |      | (159,571 | )       |   |   | (61,743 | )       |   |   | (3,034 | )     
|Net loss                                                                |                                               |                         | (7,910 | )                                     |  |         | (31,002 | )       |   |      | (156,746 | )       |   |   | (59,541 | )       |   |   | (2,516 | )     
|Net loss applicable to common stockholders
    subsequent to the merger |                                               |                         | (7,910 | )                                     |  |         | (31,002 | )       |   |      | (156,746 | )       |   |   | (57,536 | )       |   |   |       |       
|Basic and diluted net loss per share                                    |                                               |                         | (0.87  | )                                     |  |         | (3.47   | )       |   |      | (17.90   | )       |   |   | (23.76  | )       |   |   |       |       
|Financial position:                                                     |                                               |                         |        |                                       |  |         |         |         |   |      |          |         |   |   |         |         |   |   |        |       
|                                                                        | Cash and cash equivalents                     |                         |        | 13,408                                |  |         |         | 9,224   |   |      |          | 21,303  |   |   |         | 74,061  |   |   |        | 373    | 
|                                                                        | Short term investments                        |                         |        | 15,890                                |  |         |         | 19,801  |   |      |          | 35,860  |   |   |         | 26,559  |   |   |        |       | 
|                                                                        | Total assets                                  |                         |        | 53,074                                |  |         |         | 60,049  |   |      |          | 99,037  |   |   |         | 250,665 |   |   |        | 25,121 | 
|                                                                        | Long term obligations, less current portion   |                         |        | 363                                   |  |         |         | 1,075   |   |      |          | 3,841   |   |   |         | 5,015   |   |   |        |       | 
|                                                                        | Cash flow generated from (used by) operations |                         |        | 221                                   |  |         |         | (19,889 | ) |      |          | (34,148 | ) |   |         | (27,193 | ) |   |        | 472    | 



---



|    |                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes the following pre-tax items:
    restructuring charges, net and loss on sublease of
    $1.0 million and impairment of long-lived assets of
    $2.6 million.                                                                      
|   
|(2) | Includes the following pre-tax items:
    restructuring charges, net of $8.2 million.                                                                                                                                                       
|   
|(3) | Includes the following pre-tax items:
    restructuring charges, net of $6.8 million, impairment of
    goodwill and other intangible assets of $90.4 million,
    amortization of goodwill and other intangible assets of
    $6.9 million.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The Managements Discussion and Analysis of
Financial Condition and Results of Operations contained in this
Annual Report on Form 10-K contains forward-looking
statements that involve risks and uncertainties, including
statements regarding our expectations, beliefs, intentions or
strategies regarding the future. The following discussion should
be read together with our financial statements and notes to those

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financial statements included elsewhere in this
Annual Report on Form 10-K. All forward-looking statements
included in this document are based on information available to
us on the date hereof, and we assume no obligation to update any
such forward-looking statements. Our actual results could differ
materially from those described in our forward-looking
statements. Readers are cautioned not to place undue reliance on
these forward-looking statements. In the past, our operating
results have fluctuated and are likely to continue to fluctuate
in the future.


Overview

The rapid and severe downturn for the United
States economy and the telecommunications industry, beginning in
late 2000, affected growth in demand for our customers
products. This decreased demand led to fluctuating order
forecasts from some of our customers. Although our revenues
increased 50% from 2002 to 2003, and we expect continuing
increased demand for our products in 2004, the recovery in the
telecommunications market has remained slow and inconsistent.

We depend, and expect to remain dependent, on a
small number of wireless systems integrators for sales of our
products. For the years ended December 31, 2003, 2002 and
2001, total sales to Nokia accounted for 59%, 71%, and 67% of
total revenues, respectively, and total sales to Stratex
Networks accounted for 13% of total revenues for 2003. We had no
other customers greater than 10% of revenues for 2003, 2002 or
2001.

Our demand outlook has led us to restructure our
operating model for cost efficiencies and to better address our
customers needs. We took several additional steps during
2003 and early 2004 to control costs:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In the third quarter of 2003, we reduced our
    headcount by approximately 20% in order to reduce our break-even
    point, and to save approximately $2.3 million per year. We
    believe we are appropriately staffed to execute on our 2004
    operating plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | On October 9, 2003 we entered into a lease
    on a 20,000 square foot building we own, but are not
    utilizing, in Diamond Springs, California. The building was
    formerly used for a portion of our manufacturing operations, and
    was vacated as a result of the move of over 70% of production to
    our subcontract manufacturing partner. The lease has a term of
    5 years, and an inception date of November 1, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Effective January 1, 2004, we have executed
    several agreements related to the leasing arrangements for our
    Sunnyvale headquarters. Due to declining commercial real estate
    lease rates, the original lease executed in August 1991 was at
    an above market rate, and would have expired July 2006. This
    lease has been cancelled, effective January 2004. In
    consideration of the cancellation, we paid our landlord a
    settlement fee of $3 million. We also entered into a new
    lease for 16,000 square feet in Sunnyvale, California at a
    lower, at-market rate. The new lease rate is effective January
    2004 and will expire August 2006. Through this settlement and
    new lease agreement we will realize significant reductions in
    the facility costs for our Sunnyvale headquarters through the
    new lease period.

We have continued to focus on consolidating our
manufacturing at our offshore partner in Southeast Asia. During
the fourth quarter of 2003 over 70% of our shipped products were
manufactured and shipped by our offshore partner. By shifting
our production overseas we have realized cost reductions in the
manufacturing of our products and have increased flexibility to
scale our business. The result has been an increased gross
profit in 2003 and an ability to meet the increased demand we
saw in 2003 and anticipate during 2004.

During 2003 we had two asset purchases, which
furthered our industry consolidation strategy. On
February 26, 2003, we announced the acquisition of certain
broadband assets of Arcom Wireless Inc., a subsidiary of Dover
Corporation. The acquisition included a transceiver design,
equipment and intellectual property licenses required to
manufacture and supply a 58 GHz integrated transceiver
product to an existing Endwave customer. On May 13, 2003,
we completed the acquisition of certain assets of
Verticom, Inc. The asset purchase included the product
design for Verticoms MTS-2000 synthesizer,

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which is used in a military and device
application, as well as the inventory, equipment and
intellectual property licenses required to manufacture and
supply production units to a new Endwave customer. These two
acquisitions build on our industry consolidation strategy,
expand our adjacent market penetration, and are complementary to
our transceiver and synthesizer businesses.


Restructuring Plans

In the first quarter of 2002, we announced and
began to implement a restructuring program (the First
Quarter 2002 Plan) to reduce operating expenses and
further align resources with long-term growth opportunities. We
recorded a restructuring charge of $3.5 million, the
components of which were $1.1 million for severance and
fringe benefit costs related to the elimination of 107 positions
across all functions, $310,000 for lease termination payments,
and $2.1 million for excess equipment. In the fourth
quarter of 2002, we lowered our estimate of the total costs
associated with the First Quarter 2002 Plan and recorded an
adjustment of $142,000, which reflected lower than estimated
severance and related costs. The recovery was included in
restructuring charges, net. With the exception of remaining
lease payments on abandoned facilities payable through 2006, net
of estimated sublease income, we have completed the activities
associated with the First Quarter 2002 Plan as of
December 31, 2003.

During the third quarter of 2002, we announced
and began to implement additional restructuring actions (the
Third Quarter 2002 Plan) consistent with the
objective of the First Quarter 2002 Plan. We recorded a
restructuring charge of $4.9 million, the components of
which were $1.8 million for severance and fringe benefit
costs and $3.1 million for excess equipment. During the
fourth quarter of 2003, we revised our estimates of the number
of positions to be eliminated pursuant to the Third Quarter 2002
Plan based on the most current information available and
reversed approximately $186,000 of the estimated severance
benefits accrual. The recovery was included in restructuring
charges, net. As of December 31, 2003, 102 employees had
been terminated pursuant to the Third Quarter 2002 Plan
resulting in cumulative cash payments of $1.6 million in
severance and employee benefit costs. We have completed the
activities associated with the Third Quarter 2002 Plan as of
December 31, 2003. Below is a table summarizing activity
relating to the plan (in thousands):

|                                       |                                      |           |       |        |   |       |       |        |   |   |       |        |  
|-------------------------------------- | ------------------------------------ | --------- | ----- | ------ | - | ----- | ----- | ------ | - | - | ----- | ------ | -
|                                       |                                      | Severance |       | Fixed  |   |      
|Third Quarter 2002 Plan                |                                      | Benefits  |       | Assets |   | Total
|                                       |                                      |           |       |        |   |      
|2002 provision                         |                                      | $         | 1,750 |        |   | $     | 3,109 |        |   | $ | 4,859 |       
|Settlement of contractual obligations: |                                      |           |       |        |   |       |       |        |   |   |       |       
|                                       | Cash payments                        |           |       | (1,057 | ) |       |       |       |   |   |       | (1,057 | )
|                                       | Non cash amount for excess equipment |           |       |       |   |       |       | (3,120 | ) |   |       | (3,120 | )
|                                       | Cash proceeds from equipment sale    |           |       |       |   |       |       | 11     |   |   |       | 11     |  
|                                       |                                      |           |       |        |   |       |       |        |   |   |       |       
|Balance at December 31, 2002           |                                      |           | 693   |        |   |       |      |        |   |   | 693   |       
|                                       | Cash payments                        |           |       | (507   | ) |       |       |       |   |   |       | (507   | )
|                                       | Adjustment                           |           |       | (186   | ) |       |       |       |   |   |       | (186   | )
|                                       |                                      |           |       |        |   |       |       |        |   |   |       |       
|Balance at December 31, 2003           |                                      | $         | 0     |        |   | $     |      |        |   | $ | 0     |       
|                                       |                                      |           |       |        |   |       |       |        |   |   |       |       

During the third quarter of 2003, we initiated
restructuring actions (the Third Quarter 2003 Plan)
to resize the business in order to reach profitability based on
revenue and margin estimates for the fourth quarter of 2003 and
into 2004. We recorded a restructuring charge of $490,000, the
majority of which was for severance and fringe benefit costs. We
eliminated 18 positions, of which 10 were in operations, 3 were
in engineering, and 5 were in sales, general and administration.
Severance payments were substantially completed by the end of
fiscal 2003. The restructuring is anticipated to result in
approximately $2.3 million of savings during 2004 primarily
in headcount related expenses in our manufacturing expenses,
sales,

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general and administrative expenses and research
and development. Below is a table summarizing activity relating
to the plan (in thousands):


|                                       |               |                    |     |      |  
|-------------------------------------- | ------------- | ------------------ | --- | ---- | -
|Third Quarter 2003 Plan                |               | Severance Benefits
|                                       |               |                   
|2003 provision                         |               | $                  | 490 |     
|Settlement of contractual obligations: |               |                    |     |     
|                                       | Cash payments |                    |     | (470 | )
|                                       |               |                    |     |     
|Balance at December 31, 2003           |               | $                  | 20  |     
|                                       |               |                    |     |     
|Current                                |               | $                  | 20  |     
|Noncurrent                             |               |                    |    |     
|                                       |               |                    |     |     
|                                       |               | $                  | 20  |     
|                                       |               |                    |     |     

During 2003, we subleased 12,700 square feet
of our Sunnyvale, California headquarter building to an
unrelated third party. The rental income for the lease period
was less than the rental expense that would be incurred, and
therefore a loss at sublease inception of $662,000 was incurred.
There have been no other losses on subleases recorded in periods
presented. During 2004, a portion of this loss is expected to be
reversed as the sublease was terminated prior to expiration
date, as a part of an overall lease renegotiation.

Critical Accounting Policies

General

Managements discussion and analysis of its
financial condition and results of operations are based upon our
financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United
States. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates, including those
related to revenue recognition, allowance for doubtful accounts,
inventories, asset impairments, income taxes, warranty
obligations, restructuring charges, and commitments and
contingencies. We base our estimates on historical experience
and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities. Actual results may differ from these
estimates or our estimates may be affected by different
assumptions or conditions. Below, we discuss these policies
further, as well as the estimates and judgments involved.

Revenue
Recognition

Our customers are primarily wireless systems
integrators and equipment manufacturers who integrate our
products into their products. We recognize product revenues at
the time title passes, which is upon product shipment or when
the product is withdrawn from a consignment location. Revenues
related to product sales are recognized when: (1) there is
persuasive evidence that an arrangement exists,
(2) delivery has occurred or services have been rendered,
(3) the sellers price to the buyer is fixed or
determinable, and (4) collectibility is reasonably assured.
There are typically no significant acceptance requirements or
post-shipment obligations on our part. We recognize development
fees ratably over the estimated term of the development period
or when specific milestones are achieved. Up-front fees, if any,
associated with development agreements are recognized over the
estimated development and production period. In no event are
revenues recognized prior to becoming payable by the customer.
The costs incurred under these development agreements are
included in research and development expenses.

Allowance for
Doubtful Accounts

We make ongoing assumptions relating to the
collectibility of our accounts receivable in our calculation of
the allowance for doubtful accounts. In determining the amount
of the allowance, we make judgments about the creditworthiness
of customers based on ongoing credit evaluations and assess
current

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economic trends affecting our customers that
might impact the level of credit losses in the future and result
in different rates of bad debts than previously seen. We also
consider our historical level of credit losses. Our reserves
historically have been adequate to cover our actual credit
losses. If actual credit losses were to be significantly greater
than the reserves we have established, our selling, general and
administrative expenses would increase. Conversely, if actual
credit losses were to be significantly less than our reserves,
our selling, general and administrative expenses would decrease.


Warranty
Reserves

We generally offer a one-year to three-year
warranty on all of our products. We record a liability based on
estimates of the costs that may be incurred under our warranty
obligations and charge to cost of product revenues the amount of
such costs at the time revenue are recognized. While we engage
in product quality programs and processes, including actively
monitoring and evaluating the quality of component suppliers,
our warranty obligation is affected by product failure rates,
material usage, and service delivery costs incurred in
correcting a product failure. Our estimates of anticipated rates
of warranty claims and costs per claim are primarily based on
historical information and future forecasts. We periodically
assess the adequacy of our recorded warranty liabilities and
adjust the amounts as necessary. If actual warranty claims are
significantly higher than forecast, or if the actual costs
incurred to provide the warranty is greater than the forecast,
our gross margins could be adversely affected.

During 2001, some radios incorporating our
transceivers and manufactured and shipped by one of our
customers were experiencing degraded performance after
installation in the field. The cause of the degradation was
identified to be a faulty electronic component supplied by one
of our vendors. We believe the cause of the components out
of specification performance has been identified and corrected.
Although the transceiver products were delivered under a
contract between Endwave and the customer, the component
supplier has agreed to compensate our customer for the
indirect costs associated with the repair and
replacement of the degraded radios and modules. These
indirect costs include the costs associated with
removing and replacing the radios in the field as well as
removing and replacing the transceiver module in the radio.
Subsequently we have reached an agreement with the component
supplier to share a portion of these repair and replacement
costs. During 2001, we provided $4.3 million for warranty
charges to cover the actual repair of the transceivers
containing faulty components of which $872,000 has been used. We
believe that this reserve is adequate to cover our actual repair
costs, and cover any liability for our share of the indirect
costs for which our component supplier may ultimately be
responsible to our customers.



| |                    
| | -------------------
| | Inventory Valuation

We evaluate our ending inventories for excess
quantities and obsolescence at each balance sheet date. This
evaluation includes analysis of sales levels by product and
projections of future demand and market conditions. Inventories
on hand in excess of forecasted demand of generally twelve
months, are not valued. In addition, we write off inventories
that are considered obsolete. Among other factors, management
considers forecasted demand in relation to the inventory on
hand, market conditions, and product life cycles when
determining obsolescence and net realizable value. We adjust
remaining inventory balances to approximate the lower of our
standard manufacturing cost or market value. If actual future
demand or market conditions are less favorable than those
projected by management, additional inventory write-downs may be
required, and would be reflected in cost of product revenues in
the period the revision is made. This would have a negative
impact on our gross margins in that period. If in any period we
are able to sell inventories that were not valued or that had
been written off in a previous period, related revenues would be
recorded without any offsetting charge to cost of product
revenues, resulting in a net benefit to our gross margin in that
period. To the extent these factors materially affect our gross
margins, we would disclose them.



| |                  
| | -----------------
| | Long-Lived Assets

We periodically review our property, plant and
equipment for possible impairment whenever facts and
circumstances indicate that the carrying amount may not be fully
recoverable. Assumptions and estimates

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used in the evaluation of impairment may affect
the carrying value of long-lived assets, which could result in
impairment charges in future periods. Significant assumptions
and estimates include the projected cash flows based upon
estimated revenue and expense growth rates and the discount rate
applied to expected cash flows. In addition, our depreciation
and amortization policies reflect judgments on the estimated
useful lives of assets.




| |                      
| | ---------------------
| | Restructuring Charges

We record and account for our restructuring
activities following formally approved plans that identify the
actions and timeline over which the restructuring activities
will occur. Restructuring charges include estimates pertaining
to employee severance and fringe benefit costs, facility exit
costs, and excess equipment. We review remaining restructuring
accruals on a quarterly basis and adjust these accruals when
changes in facts and circumstances suggest actual amounts will
differ from our estimates. Although we do not anticipate
significant changes, actual costs may be different than our
original or revised estimates. These changes in estimates can
result in increases or decreases to our results of operations in
future periods and would be presented on the restructuring
charges, net, line of our statement of operations.



| |               
| | --------------
| | Deferred Taxes

We currently have significant deferred tax
assets, which are subject to periodic recoverability
assessments. We record a valuation allowance to reduce our
deferred tax assets to the amount that we believe to be more
likely than not realizable. Accordingly, a valuation allowance
in an amount equal to the net deferred tax assets has been
established to reflect uncertainty regarding future realization
of these assets based on past performance and the likelihood of
realization of our deferred tax assets.

Results of Operations



| |                                                                          
| | -------------------------------------------------------------------------
| | Year ended December 31, 2003 compared
    to year ended December 31, 2002

Revenues

Revenues in 2003 were $33.8 million, a 50%
increase from $22.6 million in 2002 and were comprised of
product revenues and development fees. We expect that the
overall market for our products will continue to improve in 2004.

Product revenues were $32.1 million in 2003,
a 45% increase from $22.1 million in 2002. The increase
reflects an increasing number of commercial telecommunications
products sold to Nokia Networks, Siemens and Stratex Networks.
Additionally, we acquired several product lines from competitors
during the previous 18 months that generated revenues
beyond our base business. As we integrated these product lines
into our existing business and manufacturing operation,
quantification of the increase is impractical.

We generate development fees by developing
product prototypes and custom products pursuant to development
agreements that provide for payment of a portion of our research
and development or other expenses. Development fees were
$1.7 million in 2003, an increase from $423,000 in 2002.
The increase in development fees is attributable to increased
development of custom designed products for new and existing
customers, as well as reimbursement for certain research related
expenses. We expect to generate future product revenues as a
result of these development agreements. We do not foresee
development fees to be a significant component of our overall
revenues in the near term.

Cost and Expenses

Cost of product
revenues.Cost of product revenues
consists primarily of the costs of direct materials and labor
utilized to assemble and test our products; equipment
depreciation; costs associated with procurement, production
control, quality assurance, and manufacturing engineering; costs
associated with maintaining our manufacturing facilities; fees
paid to our offshore manufacturing partner; benefit of usage of
previously reserved material; and, costs associated with
warranty returns. Cost of product revenues was
$24.8 million in 2003, a 17% decrease from
$29.8 million in 2002. The improvement is attributable to

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restructuring actions over the past 2 years,
cost reductions within the manufacturing process, including
consolidation of our manufacturing sites, greater utilization of
offshore manufacturing, introduction of lower cost products and
elimination of excess overhead, equipment and capacity. The cost
of product revenues was positively impacted by the utilization
of previously reserved inventory amounting to approximately
$1.0 million. We expect further, although less significant,
improvements in cost of product revenues as a result of our
continued efforts at cost reduction, introduction of new designs
and technology, and further strengthening of our offshore
manufacturing model.


Research and development
expenses.Research and development
expenses in 2003 were $4.5 million, a 52% decrease from
$9.2 million in 2002. The decrease was primarily
attributable to restructuring our engineering team to a more
efficient and cost effective size as well as a reduction in
material and services costs, while still supporting development
for new products and research associated with technology to be
introduced in 2004.

In 2004, we expect a relatively consistent level
of research and development expenses, unless we unexpectedly
have an increase in new customer-specific development projects
for which we could receive some subsidy in the form of
development fees.

Selling, general and administrative
expenses.Selling, general and
administrative expenses consist primarily of salaries and
related expenses for executive, sales, marketing, finance,
accounting, information technology, and human resources
personnel, professional fees, facilities costs and promotional
activities. Selling, general and administrative expense in 2003
was $8.8 million, a 5% decrease from $9.2 million in
2002. The decrease was primarily attributable to our
restructuring actions in the third quarter of 2003, and
continued focus on overall expense control measures aimed at
bringing operating expenses more in line with revenues, offset
with an increase in bonus expense and professional service fees.
In 2004, we expect a further decline in selling, general and
administrative expenses as a result of our renegotiation of our
Sunnyvale facility lease. During the first quarter of 2004, we
expect to take a charge for $3 million for lease
cancellation costs associated with the renegotiation.

Restructuring charges net, and loss on
sublease.As previously discussed, we
have implemented restructuring plans in 2002 and 2003.

During 2003, we recorded restructuring charges of
$490,000 under the Third Quarter 2003 Plan, the majority of
which was for severance costs, partially offset by adjustments
to previously recorded restructuring charges of $186,000
associated with the Third Quarter 2002 Plan. We also recorded
other charges of $662,000 associated with the sublease of our
Sunnyvale, California headquarter building for the excess of the
Companys remaining lease obligations over the anticipated
sublease income. During 2004, a portion of this loss is expected
to be reversed as the sublease was terminated prior to
expiration date as a part of an overall lease negotiation.

During 2002, we recorded charges of
$8.2 million in connection with our restructuring plans in
March and September, which was comprised of $2.9 million
for severance and fringe benefit costs, $310,000 in lease
termination costs and $5.2 million for excess equipment,
partially offset by adjustments of $142,000 for excess severance
and fringe benefits costs and previously recorded restructuring
charges of $490,000 for the settlement of lease obligations.

Impairment of long-lived
assets.During 2003, we evaluated the
carrying value of the long- lived assets utilized in our
manufacturing process. As we moved more of our production to our
offshore partner, we did not need as much manufacturing
equipment, and took an impairment charge of $2.6 million
for excess manufacturing equipment. The impairment charge was
calculated as the difference between the carrying value and the
estimated fair value of the equipment, less selling costs.

Amortization of deferred stock
compensation.Deferred stock
compensation charges consist primarily of charges related to the
difference between deemed fair market values for financial
reporting purposes on the date of employee option grants and the
option price for option awards prior to our initial public
offering, as well as expenses attributable to the acceleration
of options. Deferred stock compensation is represented as a
reduction of stockholders equity. In 2003, amortization of
deferred stock compensation

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and other option-related expenses were $796,000,
a decrease from $1.4 million in 2002. The decrease is
primarily due to using an accelerated method to amortize
deferred stock compensation that results in higher expense in
earlier periods and credits of approximately $399,000 in 2003
from the forfeiture of options by terminated employees as
compared to $2.9 million in 2002. The decrease in credits
is directly related to the decrease in forfeited options by
terminated employees from 2002 to 2003. Remaining deferred
compensation of $221,000 will be amortized in 2004.


Interest income, expense and other,
net.Net interest income and other,
net consists primarily of interest income earned on our cash and
cash equivalents and short-term investments and realized gains
and losses on investments, offset by interest expense on capital
equipment leases. Interest income decreased to $257,000 in 2003
from $1.4 million in 2002. The decrease in interest income
was due to lower interest rates and lower levels of cash
available for investment.

Interest expense decreased to $112,000 as
compared to $399,000 in 2002. The decrease in interest expense
was primarily attributable to the early pay off of financing
leases of manufacturing and engineering equipment.

Other income, net consists of contract
termination fees, unrealized gains and losses on sale or
abandonment of fixed assets. During 2003, we realized other
income of $496,000 primarily due to $272,000 from the gain on
sale of fixed assets and $182,000 from sublease income. During
2002, we realized a gain in the amount of $1.1 million on
contract terminations and $2.2 million resulting from a
settled dispute with one of our customers for expenses incurred
related to cancellations of product deliveries.



| |                                                                          
| | -------------------------------------------------------------------------
| | Year ended December 31, 2002 compared
    to year ended December 31, 2001

Revenues

Revenues in 2002 were $22.6 million, a 34%
decrease from 2001, and were comprised of product revenues and
development fees.

Product revenues were $22.1 million in 2002,
a 34% decrease from $33.5 million in 2001. The decrease
reflected a slow-down in the global economy, and tightening of
financial markets in the telecommunication industry, which
reduced our customers demand for our products. More
specifically, we experienced a decrease in the number of
transceiver products sold to Nokia and Allgon Microwave
partially offset by increased shipments to Stratex Networks and
Lockheed Martin.

Development fees were $423,000 in 2002, a 32%
decrease from $619,000 in 2001. The decrease in development fees
was attributable to lower production of custom designed products.

Cost and Expenses

Cost of product
revenues.Cost of product revenues was
$29.8 million in 2002, a 48% decrease from
$57.2 million in 2001. The improvement was attributable to
restructuring actions over the past 24 months, cost
controls within the manufacturing process, including
consolidation of our manufacturing sites, introduction of lower
cost products and elimination of excess overhead and capacity
and lower product shipments during 2002.

In addition, we recorded charges in 2001 for
excess and obsolete inventory of $6.8 million associated
with the decline in demand of customers in the
point-to-multipoint market, and a special warranty charge of
$4.3 million to cover the recall and repair of transceivers
sold to our largest customer, that were identified to have a
potentially faulty electronic component supplied by one of our
vendors.

Research and development
expenses.Research and development
expenses in 2002 were $9.2 million, a 35% decrease from
$14.2 million in 2001. The decrease was primarily
attributable to cost savings realized from our 2002
Restructuring Plans accompanied by lower development cost for
new products.

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Selling, general and administrative
expenses.Selling, general and
administrative expense in 2002 was $9.2 million, a 21%
decrease from $11.6 million in 2001. The decrease was
primarily attributable to cost savings realized from our 2002
Restructuring Plans, consolidation of facilities and continued
focus on expenses.

Restructuring
charge.We implemented restructuring
plans in 2002 and 2001.

During 2002, we recorded charges of
$8.2 million in connection with our restructuring plans in
March and September, which was comprised of $2.9 million
for severance and fringe benefit costs, $310,000 in lease
termination costs and $5.2 million for excess equipment,
partially offset by adjustments of $142,000 for excess severance
and fringe benefits costs and previously recorded restructuring
charges of $490,000 for the settlement of lease obligations.

During 2001, we recorded restructuring charges of
$6.8 million in connection with our March restructuring
plan, which included $1.9 million for severance and
benefits, $1.6 million for the write-down of excess leased
facilities in Sunnyvale, California, and $3.3 million
related to excess equipment.

Amortization of deferred stock
compensation.Amortization of deferred
stock compensation in 2002 was $1.4 million, a decrease
from $6.5 million in 2001. The decrease was primarily due
to using an accelerated method to amortize deferred stock
compensation that results in higher expense in earlier periods
and credits of approximately $2.9 million in 2002 from the
forfeiture of options by terminated employees.

Interest income, expense and other,
net.Interest income decreased to
$1.4 million in 2002 from $3.3 million in 2001. The
decrease in interest income was due to lower interest rates and
lower levels of cash available for investment.

Interest expense decreased to $399,000 in 2002
from $729,000 in 2001. The decrease in interest expense was
primarily attributable to decreased financing leases of
manufacturing and engineering equipment.

Other income, net consists of contract
termination fees and gains and losses on sale or abandonment of
fixed assets. During 2002, we realized a gain in the amount of
$1.1 million on contract terminations, $2.2 million
resulting from a settled dispute with one of our customers for
expenses incurred related to cancellations of product deliveries
and $67,000 of impairment loss on investments available for sale.

Liquidity and Capital Resources



| |                                      
| | -------------------------------------
| | Selected Financial Liquidity
    Data

|                                                        |  |                         |      |      |  |      |       |   |  |   |       |  
|------------------------------------------------------- |  | ----------------------- | ---- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                        |  |                        
|                                                        |  | Year Ended December 31,
|                                                        |  |                        
|                                                        |  | 2003                    |      | 2002 |  | 2001
|                                                        |  |                         |      |      |  |     
|                                                        |  |                        
|                                                        |  | (In millions)          
|Cash, cash equivalents and short term investments       |  | $                       | 30.1 |      |  | $    | 30.6  |   |  | $ | 57.2  |  
|Net cash provided by (used in) operating
    activities |  |                         | 0.2  |      |  |      | (19.9 | ) |  |   | (34.1 | )
|Net cash provided by (used in) investing
    activities |  |                         | 5.1  |      |  |      | 10.8  |   |  |   | (16.4 | )
|Net cash used in financing activities                   |  |                         | (1.2 | )    |  |      | (3.0  | ) |  |   | (2.2  | )

Our principal source of liquidity as of
December 31, 2003, consisted of approximately
$30.1 million in cash, cash equivalents and short-term
investments. During 2003, we generated $221,000 of cash in
operating activities, as compared to using $19.9 million in
2002. The decrease in the use of cash for the year ended
December 31, 2003 compared to the same period in 2002 was
primarily due to a reduced operating loss net of non-cash items,
decreased expenditures associated with accrued compensation and
other current and long term liabilities, accounts payable and
accounts payable to affiliates. This was partially offset by an
increase in accounts receivable and a lower decrease in
inventory in the current year in comparison with the prior year.
During 2002, we used $19.9 million of cash in operating
activities, as compared to $34.1 million in 2001. The
decrease in the use of cash for the year ended December 31,
2002

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compared to the same period in 2001 was primarily
due to a reduced operating loss, decreased expenditures
associated with inventory purchases and changes in non-cash
items such as deferred stock compensation, restructuring charges
and depreciation. This was partially offset by an increase in
accounts receivable and a decrease in accounts payable, accrued
compensation and other liabilities.


Investing activities provided $5.1 million
in 2003 and $10.8 million in 2002, as compared to using
$16.4 million in 2001. In the years ended December 31,
2003, 2002, and 2001, we made capital expenditures of $8,000,
$614,000 and $2.9 million, respectively. Capital
expenditures in all three years consisted primarily of purchases
of computer and manufacturing equipment and leasehold
improvements. In addition, in 2003, $4.8 million was
provided by the sale or maturity of short-term investments and
reduction of restricted cash and we had net proceeds on sales of
property and equipment of $382,000. In 2002, $3.4 million
was used in connection with the acquisition of the broadband
assets of the Fixed Wireless division of Signal Technology
Corporation and $14.4 million was provided by the sale or
maturity of short-term investments net of usage for restricted
cash. Additionally, in 2002 we had net proceeds on sales of
property and equipment of $384,000. In 2001, $4.7 million
was used in connection with the acquisition of certain assets of
M/ A-COMs broadband wireless business, $9.3 million
was used for the purchase of short-term investments and we had
net proceeds on sales of property and equipment of $559,000.

Financing activities in 2003 used
$1.2 million as compared to $3.0 million in 2002 and
$2.2 million in 2001. Financing activities in 2003 included
payments on capital lease obligations of $1.3 million and
payments on notes payable of $496,000, offset by $493,000 in
proceeds from the exercise of employee stock options and $93,000
in proceeds from stock issuance. Financing activities in 2002
included payments under capital lease obligations of
$4.3 million and $79,000 for the purchase of treasury
shares, offset by an increase in notes payable of
$1.3 million and $168,000 in proceeds from the exercise of
employee stock options and shares purchased under the employee
stock purchase plan. Financing activities in 2001 included
payments under capital lease obligations of $2.9 million,
offset by $721,000 in proceeds from the exercise of employee
stock options and shares purchased under the employee stock
purchase plan.

We believe that our existing cash and investment
balances and anticipated cash flows from operations will be
sufficient to meet our operating and capital requirements for at
least the next 12 months. However, revenues could decline
below our expectations resulting in insufficient cash flow from
operations. As a result, we could be required, or could elect,
to raise additional funds during that period and we may need to
raise additional capital in the future. Additional capital may
not be available at all, or may only be available on terms
unfavorable to us. With the exception of the operating leases
discussed in Note 13 to our financial statements, we have
not entered into any off-balance sheet financing arrangements,
we have not established any variable interest entities, we do
not have any unconditional purchase obligations, nor do we have
non-cancelable commitments for capital expenditures. We have not
guaranteed the debt or obligations of other entities or entered
into options on non-financial assets.

The following table summarizes our future payment
obligations (excluding interest):

|                          |                                 |                  |     |     | 
|------------------------- | ------------------------------- | ---------------- | --- | --- | 
|Years Ending December 31, |                                 | Operating Leases
|                          |                                 |                 
|                          |                                 | (In thousands)  
|2004                      |                                 | $                | 335 |    
|2005                      |                                 |                  | 309 |    
|2006                      |                                 |                  | 131 |    
|                          |                                 |                  |     |    
|                          | Total minimum payments required |                  | $   | 775 | 
|                          |                                 |                  |     |    

|                          |                                 |                |     |     | 
|------------------------- | ------------------------------- | -------------- | --- | --- | 
|Years Ending December 31, |                                 | Notes Payable 
|                          |                                 |               
|                          |                                 | (In thousands)
|2004                      |                                 | $              | 516 |    
|2005                      |                                 |                | 262 |    
|                          |                                 |                |     |    
|                          | Total minimum payments required |                | $   | 778 | 
|                          |                                 |                |     |    

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Related Party Transactions

We maintain a supply agreement and a technology
services agreement with Velocium, a business unit of Northrop
Grumman, who is a principal stockholder of Endwave. The supply
agreement specifies volume and price commitments and is
effective through December 31, 2005. For purchases made
under these agreements, we recorded charges to operating
expenses of $3.1 million, $7.2 million, and
$11.6 million for 2003, 2002, and 2001, respectively.

We also sell various products and services under
purchase orders and agreements to Northrop Grumman, and
recognized revenues of $345,000, $837,000 and $1.3 million
in 2003, 2002 and 2001, respectively. In the years ended
December 31, 2003, 2002 and 2001, we incurred costs related
to these revenues of approximately $124,000, $235,000 and
$1.6 million.

At December 31, 2003, we had accounts
receivable of $105,000 and accounts payable of
$1.4 million, related to our supplier and customer
relationships with Northrop Grumman, respectively.

At December 31, 2002, we had accounts
receivable of $100,000 and accounts payable of
$1.0 million, related to our supplier and customer
relationships with Northrop Grumman, respectively.

Recent Accounting Pronouncements

In January 2003, the Financial Accounting
Standards Board (FASB) issued Interpretation
No. 46, Consolidation of Variable Interest
Entities (FIN 46). Variable interest
entities are often created for a single specified purpose, for
example, to facilitate securitization, leasing, hedging,
research and development, or other transactions or arrangements.
In December 2003, the FASB issued Interpretation No. 46
(revised December 2003) (FIN 46R) which
replaces FIN 46. This interpretation of Accounting Research
Bulletin No. 51, Consolidated Financial
Statements, defines what these variable interest entities
are and provides guidelines on identifying them and assessing an
enterprises interests in a variable interest entity to
decide whether to consolidate that entity. FIN 46R applies
at different dates to different types of enterprises and
entities, and special provisions apply to enterprises that have
fully or partially applied FIN 46 prior to issuance of
FIN 46R. Generally, application of FIN 46R is required
in financial statements of public entities that have interests
in variable interest entities or potential variable interest
entities commonly referred to as special-purpose entities for
periods ending after December 15, 2003. Application by
public entities for all other types of entities is required in
financial statements for periods ending after March 15,
2004. The adoption of FIN 46 or FIN 46R did not have a
material impact on the Companys results of operations or
financial condition.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

Our exposure to market risk for changes in
interest rates relates primarily to our investment portfolio. In
order to reduce this interest rate risk, we usually invest our
cash in investments with short maturities. As of
December 31, 2003, all of our investments in our portfolio
were cash equivalents or short-term investments and consisted
primarily of commercial paper and government securities. Due to
the short duration of these investments, a change in interest
rates would not have a material effect on our financial
condition or results of operations. Declines in interest rates
over time will, however, reduce interest income.

We do not have any material equity investments.
Therefore, we do not currently have any direct equity price
risks.

Currently, all sales to international customers
are denominated in United States dollars and, accordingly we are
not exposed to foreign currency rate risks in connection with
these sales. However, a strengthening dollar could make our
products less competitive in foreign markets and thereby lead to
a decrease in revenues attributable to international customers.

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|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

INDEX TO FINANCIAL STATEMENTS

|                                             |  |        |    | 
|-------------------------------------------- |  | ------ | -- | 
|                                             |  | Page  
|                                             |  | Number
|                                             |  |       
|Report of Independent Auditors               |  |        | 41 | 
|Balance Sheets                               |  |        | 42 | 
|Statements of Operations                     |  |        | 43 | 
|Statement of Changes in Stockholders Equity |  |        | 44 | 
|Statements of Cash Flows                     |  |        | 45 | 
|Notes to Financial Statements                |  |        | 46 | 

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REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders

Endwave Corporation


We have audited the accompanying balance sheets
of Endwave Corporation as of December 31, 2003 and 2002,
and the related statements of operations, stockholders
equity and cash flows for each of the three years in the period
ended December 31, 2003. Our audits also included the
financial statement schedule listed in the Index at
Item 15(a). These financial statements and schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of Endwave Corporation at December 31, 2003 and
2002, and the results of its operations and its cash flows for
each of the three years in the period ended December 31,
2003 in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

As discussed in Note 3 to the financial
statements, effective January 1, 2002, the Company adopted
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets.



| |                  
| | -----------------
| | ERNST & YOUNG LLP

Palo Alto, California

February 3, 2004


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ENDWAVE CORPORATION

BALANCE SHEETS

|                                                |                                                                                                                                                                |                             |        |          |        |   |        |          |        | 
|----------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ------ | -------- | ------ | - | ------ | -------- | ------ | 
|                                                |                                                                                                                                                                |                            
|                                                |                                                                                                                                                                | December 31,               
|                                                |                                                                                                                                                                |                            
|                                                |                                                                                                                                                                | 2003                        |        | 2002    
|                                                |                                                                                                                                                                |                             |        |         
|                                                |                                                                                                                                                                |                            
|                                                |                                                                                                                                                                | (In thousands, except share
|                                                |                                                                                                                                                                | and per share data)        
|ASSETS                                         
|Current assets:                                 |                                                                                                                                                                |                             |        |          |        |   |        |         
|                                                | Cash and cash equivalents                                                                                                                                      |                             | $      | 13,408   |        |   | $      | 9,224    |       
|                                                | Restricted cash                                                                                                                                                |                             |        | 778      |        |   |        | 1,560    |       
|                                                | Short-term investments                                                                                                                                         |                             |        | 15,890   |        |   |        | 19,801   |       
|                                                | Accounts receivable, net of allowance for
    doubtful accounts of $284 in 2003 and $324 in 2002                                                               |                             |        | 6,476    |        |   |        | 4,001    |       
|                                                | Accounts receivable, from affiliates                                                                                                                           |                             |        | 105      |        |   |        | 100      |       
|                                                | Inventories                                                                                                                                                    |                             |        | 8,119    |        |   |        | 11,784   |       
|                                                | Equipment held-for-sale                                                                                                                                        |                             |        | 306      |        |   |        |         |       
|                                                | Other current assets                                                                                                                                           |                             |        | 592      |        |   |        | 718      |       
|                                                |                                                                                                                                                                |                             |        |          |        |   |        |         
|                                                |                                                                                                                                                                | Total current assets        |        |          | 45,674 |   |        |          | 47,188 | 
|Property, plant and equipment, net              |                                                                                                                                                                |                             | 7,260  |          |        |   | 12,713 |         
|Other assets                                    |                                                                                                                                                                |                             | 140    |          |        |   | 148    |         
|                                                |                                                                                                                                                                |                             |        |          |        |   |        |         
|Total assets                                    |                                                                                                                                                                | $                           | 53,074 |          |        | $ | 60,049 |         
|                                                |                                                                                                                                                                |                             |        |          |        |   |        |         
|LIABILITIES AND STOCKHOLDERS
    EQUITY       
|Current liabilities:                            |                                                                                                                                                                |                             |        |          |        |   |        |         
|                                                | Accounts payable                                                                                                                                               |                             | $      | 1,733    |        |   | $      | 1,009    |       
|                                                | Accounts payable to affiliates                                                                                                                                 |                             |        | 1,355    |        |   |        | 1,029    |       
|                                                | Accrued warranty                                                                                                                                               |                             |        | 5,835    |        |   |        | 5,583    |       
|                                                | Accrued compensation                                                                                                                                           |                             |        | 1,139    |        |   |        | 847      |       
|                                                | Capital lease obligations, current                                                                                                                             |                             |        |         |        |   |        | 1,146    |       
|                                                | Notes payable, current                                                                                                                                         |                             |        | 516      |        |   |        | 491      |       
|                                                | Restructuring liabilities, current                                                                                                                             |                             |        | 98       |        |   |        | 773      |       
|                                                | Other current liabilities                                                                                                                                      |                             |        | 992      |        |   |        | 590      |       
|                                                |                                                                                                                                                                |                             |        |          |        |   |        |         
|                                                |                                                                                                                                                                | Total current liabilities   |        |          | 11,668 |   |        |          | 11,468 | 
|Capital lease obligations, less current portion |                                                                                                                                                                |                             |       |          |        |   | 113    |         
|Notes payable, less current portion             |                                                                                                                                                                |                             | 262    |          |        |   | 783    |         
|Other long-term liabilities                     |                                                                                                                                                                |                             | 101    |          |        |   | 179    |         
|                                                |                                                                                                                                                                |                             |        |          |        |   |        |         
|                                                |                                                                                                                                                                | Total liabilities           |        |          | 12,031 |   |        |          | 12,543 | 
|Commitments and contingencies
    (Note 13)     |                                                                                                                                                                |                             |        |          |        |   |        |         
|Stockholders equity:                           |                                                                                                                                                                |                             |        |          |        |   |        |         
|                                                | Convertible preferred stock $0.001 par
    value; 27,000,000 shares authorized and none issued and
    outstanding                                             |                             |        |         |        |   |        |         |       
|                                                | Common stock, $0.001 par value per share;
    100,000,000 shares authorized, 9,347,585 and 9,014,661
    issued and outstanding in 2003 and 2002, respectively |                             |        | 9        |        |   |        | 9        |       
|                                                | Additional paid-in capital                                                                                                                                     |                             |        | 302,427  |        |   |        | 302,116  |       
|                                                | Treasury stock, at cost (39,150 shares in
    2003 and 2002)                                                                                                   |                             |        | (79      | )      |   |        | (79      | )     
|                                                | Deferred stock compensation                                                                                                                                    |                             |        | (221     | )      |   |        | (1,292   | )     
|                                                | Accumulated other comprehensive loss                                                                                                                           |                             |        | (2       | )      |   |        | (67      | )     
|                                                | Accumulated deficit                                                                                                                                            |                             |        | (261,091 | )      |   |        | (253,181 | )     
|                                                |                                                                                                                                                                |                             |        |          |        |   |        |         
|                                                |                                                                                                                                                                | Total stockholders equity  |        |          | 41,043 |   |        |          | 47,506 | 
|                                                |                                                                                                                                                                |                             |        |          |        |   |        |         
|Total liabilities and stockholders equity      |                                                                                                                                                                | $                           | 53,074 |          |        | $ | 60,049 |         
|                                                |                                                                                                                                                                |                             |        |          |        |   |        |         

See accompanying notes.

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ENDWAVE CORPORATION

STATEMENTS OF OPERATIONS

|                                                   |                                                                                          |                                     |        |           |        |      |         |           |        |   |          |           |         | 
|-------------------------------------------------- | ---------------------------------------------------------------------------------------- | ----------------------------------- | ------ | --------- | ------ | ---- | ------- | --------- | ------ | - | -------- | --------- | ------- | 
|                                                   |                                                                                          |                                    
|                                                   |                                                                                          | Year Ended December 31,            
|                                                   |                                                                                          |                                    
|                                                   |                                                                                          | 2003                                |        | 2002      |        | 2001
|                                                   |                                                                                          |                                     |        |           |        |     
|                                                   |                                                                                          |                                    
|                                                   |                                                                                          | (In thousands, except share        
|                                                   |                                                                                          | and per share data)                
|Revenues:                                          |                                                                                          |                                     |        |           |        |      |         |           |        |   |          |          
|                                                   | Product revenues ($345, $837, and $1,259 from
    related parties, respectively)         |                                     | $      | 32,135    |        |      | $       | 22,149    |        |   | $        | 33,506    |        
|                                                   | Development fees                                                                         |                                     |        | 1,712     |        |      |         | 423       |        |   |          | 619       |        
|                                                   |                                                                                          |                                     |        |           |        |      |         |           |        |   |          |          
|                                                   |                                                                                          | Total revenues                      |        |           | 33,847 |      |         |           | 22,572 |   |          |           | 34,125  | 
|Costs and expenses:                                |                                                                                          |                                     |        |           |        |      |         |           |        |   |          |          
|                                                   | Cost of product revenues ($124, $235, and $1,632
    from related parties, respectively) |                                     |        | 24,830    |        |      |         | 29,777    |        |   |          | 57,233    |        
|                                                   | Research and development                                                                 |                                     |        | 4,462     |        |      |         | 9,205     |        |   |          | 14,151    |        
|                                                   | Selling, general and administrative                                                      |                                     |        | 8,755     |        |      |         | 9,223     |        |   |          | 11,649    |        
|                                                   | Restructuring charges, net and loss on sublease                                          |                                     |        | 966       |        |      |         | 8,210     |        |   |          | 6,820     |        
|                                                   | Impairment of long-lived assets, goodwill and
    other intangible assets                |                                     |        | 2,589     |        |      |         |          |        |   |          | 90,411    |        
|                                                   | Amortization of goodwill and other intangible
    assets                                 |                                     |        |          |        |      |         |          |        |   |          | 6,908     |        
|                                                   | Amortization of deferred stock compensation*                                             |                                     |        | 796       |        |      |         | 1,357     |        |   |          | 6,524     |        
|                                                   |                                                                                          |                                     |        |           |        |      |         |           |        |   |          |          
|                                                   |                                                                                          | Total costs and expenses            |        |           | 42,398 |      |         |           | 57,772 |   |          |           | 193,696 | 
|                                                   |                                                                                          |                                     |        |           |        |      |         |           |        |   |          |          
|Loss from operations                               |                                                                                          |                                     | (8,551 | )         |        |      | (35,200 | )         |        |   | (159,571 | )        
|Interest income and other, net                     |                                                                                          |                                     | 753    |           |        |      | 4,597   |           |        |   | 3,554    |          
|Interest expense                                   |                                                                                          |                                     | (112   | )         |        |      | (399    | )         |        |   | (729     | )        
|                                                   |                                                                                          |                                     |        |           |        |      |         |           |        |   |          |          
|Net loss                                           |                                                                                          | $                                   | (7,910 | )         |        | $    | (31,002 | )         |        | $ | (156,746 | )        
|                                                   |                                                                                          |                                     |        |           |        |      |         |           |        |   |          |          
|                                                   | Basic and diluted net loss per share                                                     |                                     | $      | (0.87     | )      |      | $       | (3.47     | )      |   | $        | (17.90    | )      
|                                                   |                                                                                          |                                     |        |           |        |      |         |           |        |   |          |          
|                                                   | Shares used in computing of basic and diluted net
    loss per share                     |                                     |        | 9,134,626 |        |      |         | 8,937,417 |        |   |          | 8,754,374 |        
|                                                   |                                                                                          |                                     |        |           |        |      |         |           |        |   |          |          
|                                                   |                                                                                          |                                     |        |           |        |      |         |           |        |   |          |          
|* Amortization of deferred stock
    compensation: |                                                                                          |                                     |        |           |        |      |         |           |        |   |          |          
|                                                   |                                                                                          | Cost of product revenues            |        | $         | 193    |      |         | $         | (358   | ) |          | $         | 1,864   | 
|                                                   |                                                                                          | Research and development            |        |           | 225    |      |         |           | 724    |   |          |           | 1,643   | 
|                                                   |                                                                                          | Selling, general and administrative |        |           | 378    |      |         |           | 991    |   |          |           | 3,017   | 
|                                                   |                                                                                          |                                     |        |           |        |      |         |           |        |   |          |          
|                                                   |                                                                                          | $                                   | 796    |           |        | $    | 1,357   |           |        | $ | 6,524    |          
|                                                   |                                                                                          |                                     |        |           |        |      |         |           |        |   |          |          

See accompanying notes.

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ENDWAVE CORPORATION

STATEMENT OF CHANGES IN STOCKHOLDERS
EQUITY

|                                |                                                                                                               |           |           |         |   |            |   |          |  |              |         |               |   |             |     |       |   |   |         |       |   |   |     |     |   |   |          |          |   |   |         |          |  
|------------------------------- | ------------------------------------------------------------------------------------------------------------- | --------- | --------- | ------- | - | ---------- | - | -------- |  | ------------ | ------- | ------------- | - | ----------- | --- | ----- | - | - | ------- | ----- | - | - | --- | --- | - | - | -------- | -------- | - | - | ------- | -------- | -
|                                |                                                                                                               |           |           |         |   |            |   |          |  |              |         | Accumulated   |   |             |     |      
|                                |                                                                                                               |           |           |         |   |            |   |          |  |              |         | Other         |   |             |     |      
|                                |                                                                                                               | Shares of |           |         |   | Additional |   |          |  | Deferred     |         | Comprehensive |   |             |     |      
|                                |                                                                                                               | Common    |           | Common  |   | Paid-In    |   | Treasury |  | Stock        |         | Income        |   | Accumulated |     |      
|                                |                                                                                                               | Stock     |           | Stock   |   | Capital    |   | Stock    |  | Compensation |         | (Loss)        |   | Deficit     |     | Total
|                                |                                                                                                               |           |           |         |   |            |   |          |  |              |         |               |   |             |     |      
|Balance as of December 31, 2000 |                                                                                                               |           | 8,530,439 |         |   | $          | 9 |          |  | $            | 304,097 |               |   |             |    |       |   | $ | (14,043 | )     |   |   |    |     |   | $ | (65,433  | )        |   | $ | 224,630 |         
|                                | Exercise of stock options                                                                                     |           |           | 11,798  |   |            |   |         |  |              |         | 59            |   |             |     |      |   |   |         |      |   |   |     |    |   |   |          |         |   |   |         | 59       |  
|                                | Issuance of common stock in connection with the
    acquisition of M/ A Com                                   |           |           | 229,106 |   |            |   |         |  |              |         | 2,000         |   |             |     |      |   |   |         |      |   |   |     |    |   |   |          |         |   |   |         | 2,000    |  
|                                | Deferred compensation on stock options granted to
    consultants and on variable awards granted to employees |           |           |        |   |            |   |         |  |              |         | 373           |   |             |     |      |   |   |         | (373  | ) |   |     |    |   |   |          |         |   |   |         |         |  
|                                | Amortization of deferred stock compensation                                                                   |           |           |        |   |            |   |         |  |              |         |              |   |             |     |      |   |   |         | 6,524 |   |   |     |    |   |   |          |         |   |   |         | 6,524    |  
|                                | Issuance of common stock under employee stock
    purchase plan                                               |           |           | 133,034 |   |            |   |         |  |              |         | 662           |   |             |     |      |   |   |         |      |   |   |     |    |   |   |          |         |   |   |         | 662      |  
|                                | Reversal of deferred stock compensation due to
    forfeited options                                          |           |           |        |   |            |   |         |  |              |         | (2,376        | ) |             |     |      |   |   |         | 2,376 |   |   |     |    |   |   |          |         |   |   |         |         |  
|                                | Net loss and comprehensive loss                                                                               |           |           |        |   |            |   |         |  |              |         |              |   |             |     |      |   |   |         |      |   |   |     |    |   |   |          | (156,746 | ) |   |         | (156,746 | )
|                                |                                                                                                               |           |           |         |   |            |   |          |  |              |         |               |   |             |     |       |   |   |         |       |   |   |     |     |   |   |          |          |   |   |         |         
|Balance as of December 31, 2001 |                                                                                                               |           | 8,904,377 |         |   |            | 9 |          |  |              | 304,815 |               |   |             |    |       |   |   | (5,516  | )     |   |   |    |     |   |   | (222,179 | )        |   |   | 77,129  |         
|                                | Unrealized loss on short-term investments                                                                     |           |           |        |   |            |   |         |  |              |         |              |   |             |     |      |   |   |         |      |   |   |     | (67 | ) |   |          |         |   |   |         | (67      | )
|                                | Net loss                                                                                                      |           |           |        |   |            |   |         |  |              |         |              |   |             |     |      |   |   |         |      |   |   |     |    |   |   |          | (31,002  | ) |   |         | (31,002  | )
|                                |                                                                                                               |           |           |         |   |            |   |          |  |              |         |               |   |             |     |       |   |   |         |       |   |   |     |     |   |   |          |          |   |   |         |         
|                                | Comprehensive loss                                                                                            |           |           |         |   |            |   |          |  |              |         |               |   |             |     |       |   |   |         |       |   |   |     |     |   |   |          |          |   |   |         | (31,069  | )
|                                | Exercise of stock options                                                                                     |           |           | 1,000   |   |            |   |         |  |              |         | 5             |   |             |     |      |   |   |         |      |   |   |     |    |   |   |          |         |   |   |         | 5        |  
|                                | Amortization of deferred stock compensation                                                                   |           |           |        |   |            |   |         |  |              |         |              |   |             |     |      |   |   |         | 1,357 |   |   |     |    |   |   |          |         |   |   |         | 1,357    |  
|                                | Reversal of deferred stock compensation due to
    forfeited options                                          |           |           |         |   |            |   |         |  |              |         | (2,867        | ) |             |     |      |   |   |         | 2,867 |   |   |     |    |   |   |          |         |   |   |         |         |  
|                                | Issuance of common stock under employee stock
    purchase plan                                               |           |           | 109,354 |   |            |   |          |  |              |         | 163           |   |             |     |      |   |   |         |      |   |   |     |    |   |   |          |         |   |   |         | 163      |  
|                                | Fractional shares relating to stock split                                                                     |           |           | (70     | ) |            |   |         |  |              |         |              |   |             |     |      |   |   |         |      |   |   |     |    |   |   |          |         |   |   |         |         |  
|                                | Purchase of treasury stock                                                                                    |           |           |        |   |            |   |         |  |              |         |              |   |             |     | (79   | ) |   |         |      |   |   |     |    |   |   |          |         |   |   |         | (79      | )
|                                |                                                                                                               |           |           |         |   |            |   |          |  |              |         |               |   |             |     |       |   |   |         |       |   |   |     |     |   |   |          |          |   |   |         |         
|Balance as of December 31, 2002 |                                                                                                               |           | 9,014,661 |         |   |            | 9 |          |  |              | 302,116 |               |   |             | (79 | )     |   |   | (1,292  | )     |   |   | (67 | )   |   |   | (253,181 | )        |   |   | 47,506  |         
|                                | Change in unrealized loss on short-term
    investments                                                       |           |           |        |   |            |   |         |  |              |         |              |   |             |     |      |   |   |         |      |   |   |     | 65  |   |   |          |         |   |   |         | 65       |  
|                                | Net loss                                                                                                      |           |           |        |   |            |   |         |  |              |         |              |   |             |     |      |   |   |         |      |   |   |     |     |   |   |          | (7,910   | ) |   |         | (7,910   | )
|                                |                                                                                                               |           |           |         |   |            |   |          |  |              |         |               |   |             |     |       |   |   |         |       |   |   |     |     |   |   |          |          |   |   |         |         
|                                | Comprehensive loss                                                                                            |           |           |         |   |            |   |          |  |              |         |               |   |             |     |       |   |   |         |       |   |   |     |     |   |   |          |          |   |   |         | (7,845   | )
|                                | Exercise of stock options                                                                                     |           |           | 211,776 |   |            |   |         |  |              |         | 493           |   |             |     |      |   |   |         |      |   |   |     |    |   |   |          |         |   |   |         | 493      |  
|                                | Compensation recognized under employee stock plans                                                            |           |           |        |   |            |   |         |  |              |         | 124           |   |             |     |      |   |   |         |      |   |   |     |    |   |   |          |         |   |   |         | 124      |  
|                                | Amortization of deferred stock compensation                                                                   |           |           |        |   |            |   |         |  |              |         |              |   |             |     |      |   |   |         | 672   |   |   |     |    |   |   |          |         |   |   |         | 672      |  
|                                | Reversal of deferred stock compensation due to
    forfeited options                                          |           |           |        |   |            |   |         |  |              |         | (399          | ) |             |     |      |   |   |         | 399   |   |   |     |    |   |   |          |         |   |   |         |         |  
|                                | Issuance of common stock under employee stock
    purchase plan                                               |           |           | 121,148 |   |            |   |         |  |              |         | 93            |   |             |     |      |   |   |         |      |   |   |     |    |   |   |          |         |   |   |         | 93       |  
|                                |                                                                                                               |           |           |         |   |            |   |          |  |              |         |               |   |             |     |       |   |   |         |       |   |   |     |     |   |   |          |          |   |   |         |         
|Balance as of December 31, 2003 |                                                                                                               |           | 9,347,585 |         |   | $          | 9 |          |  | $            | 302,427 |               |   | $           | (79 | )     |   | $ | (221    | )     |   | $ | (2  | )   |   | $ | (261,091 | )        |   | $ | 41,043  |         
|                                |                                                                                                               |           |           |         |   |            |   |          |  |              |         |               |   |             |     |       |   |   |         |       |   |   |     |     |   |   |          |          |   |   |         |         

See accompanying notes.

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##### Table of Contents



ENDWAVE CORPORATION

STATEMENTS OF CASH FLOWS

(In thousands)


|                                                            |                                                                                               |                                                                           |                                                                      |        |        |        |   |         |        |        |   |          |        |        |  
|----------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | -------------------------------------------------------------------- | ------ | ------ | ------ | - | ------- | ------ | ------ | - | -------- | ------ | ------ | -
|                                                            |                                                                                               |                                                                          
|                                                            |                                                                                               | Year Ended December 31,                                                  
|                                                            |                                                                                               |                                                                          
|                                                            |                                                                                               | 2003                                                                      |                                                                      | 2002   |        | 2001  
|                                                            |                                                                                               |                                                                           |                                                                      |        |        |       
|Operating activities:                                       |                                                                                               |                                                                           |                                                                      |        |        |        |   |         |        |        |   |         
|                                                            | Net loss                                                                                      |                                                                           | $                                                                    | (7,910 | )      |        | $ | (31,002 | )      |        | $ | (156,746 | )     
|                                                            | Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities: |                                                                           |                                                                      |        |        |        |   |         |        |        |   |          |       
|                                                            |                                                                                               | Depreciation and amortization                                             |                                                                      |        | 2,444  |        |   |         | 4,357  |        |   |          | 5,870  |       
|                                                            |                                                                                               | Restructuring charge  non-cash portion                                   |                                                                      |        | 304    |        |   |         | 7,891  |        |   |          | 4,469  |       
|                                                            |                                                                                               | Deferred loss on building sublease                                        |                                                                      |        | 662    |        |   |         |       |        |   |          |       |       
|                                                            |                                                                                               | Impairment of long-lived assets, goodwill and
    other intangible assets |                                                                      |        | 2,589  |        |   |         |       |        |   |          | 90,411 |       
|                                                            |                                                                                               | Amortization of goodwill and other intangible
    assets                  |                                                                      |        |       |        |   |         |       |        |   |          | 6,908  |       
|                                                            |                                                                                               | Compensation recognized under employee stock plans                        |                                                                      |        | 124    |        |   |         |       |        |   |          |       |       
|                                                            |                                                                                               | Amortization of deferred stock compensation                               |                                                                      |        | 672    |        |   |         | 1,357  |        |   |          | 6,524  |       
|                                                            |                                                                                               | Loss (gain) on disposal of fixed assets, net                              |                                                                      |        | (260   | )      |   |         | 13     |        |   |          | 219    |       
|                                                            |                                                                                               | Changes in operating assets and liabilities:                              |                                                                      |        |        |        |   |         |        |        |   |          |        |       
|                                                            |                                                                                               |                                                                           | Accounts receivable                                                  |        |        | (2,480 | ) |         |        | (1,307 | ) |          |        | 8,574  |  
|                                                            |                                                                                               |                                                                           | Inventories                                                          |        |        | 3,665  |   |         |        | 7,538  |   |          |        | 4,906  |  
|                                                            |                                                                                               |                                                                           | Other assets                                                         |        |        | 134    |   |         |        | 381    |   |          |        | 853    |  
|                                                            |                                                                                               |                                                                           | Accounts payable                                                     |        |        | 724    |   |         |        | (1,813 | ) |          |        | (5,042 | )
|                                                            |                                                                                               |                                                                           | Accounts payable to affiliates                                       |        |        | 326    |   |         |        | (2,048 | ) |          |        | (3,553 | )
|                                                            |                                                                                               |                                                                           | Accrued compensation and other current and long
    term liabilities |        |        | (773   | ) |         |        | (5,256 | ) |          |        | 2,962  |  
|                                                            |                                                                                               |                                                                           | Deferred revenues                                                    |        |        |       |   |         |        |       |   |          |        | (503   | )
|                                                            |                                                                                               |                                                                           |                                                                      |        |        |        |   |         |        |        |   |         
|                                                            | Net cash provided by (used in) operating
    activities                                       |                                                                           |                                                                      | 221    |        |        |   | (19,889 | )      |        |   | (34,148  | )     
|Investing activities:                                       |                                                                                               |                                                                           |                                                                      |        |        |        |   |         |        |        |   |         
|                                                            | Purchases of property, plant and equipment                                                    |                                                                           |                                                                      | (8     | )      |        |   | (614    | )      |        |   | (2,948   | )     
|                                                            | Cash paid for the acquisition of businesses and
    assets of other businesses                |                                                                           |                                                                      |       |        |        |   | (3,421  | )      |        |   | (4,721   | )     
|                                                            | Proceeds on sale of property and equipment                                                    |                                                                           |                                                                      | 382    |        |        |   | 384     |        |        |   | 559      |       
|                                                            | Restricted cash                                                                               |                                                                           |                                                                      | 782    |        |        |   | (1,560  | )      |        |   |          |       
|                                                            | Proceeds from (purchases of) short-term
    investments, net                                  |                                                                           |                                                                      | 3,976  |        |        |   | 15,992  |        |        |   | (9,301   | )     
|                                                            |                                                                                               |                                                                           |                                                                      |        |        |        |   |         |        |        |   |         
|                                                            | Net cash provided by (used in) investing
    activities                                       |                                                                           |                                                                      | 5,132  |        |        |   | 10,781  |        |        |   | (16,411  | )     
|Financing activities:                                       |                                                                                               |                                                                           |                                                                      |        |        |        |   |         |        |        |   |         
|                                                            | Payments on capital lease obligations                                                         |                                                                           |                                                                      | (1,259 | )      |        |   | (4,334  | )      |        |   | (2,920   | )     
|                                                            | Payments on notes payable                                                                     |                                                                           |                                                                      | (496   | )      |        |   |        |        |        |   |         |       
|                                                            | Issuance of notes payable                                                                     |                                                                           |                                                                      |       |        |        |   | 1,274   |        |        |   |         |       
|                                                            | Proceeds from exercises of stock options                                                      |                                                                           |                                                                      | 493    |        |        |   | 168     |        |        |   | 59       |       
|                                                            | Proceeds from issuance of stock                                                               |                                                                           |                                                                      | 93     |        |        |   |        |        |        |   | 662      |       
|                                                            | Purchase of treasury shares                                                                   |                                                                           |                                                                      |       |        |        |   | (79     | )      |        |   |         |       
|                                                            |                                                                                               |                                                                           |                                                                      |        |        |        |   |         |        |        |   |         
|                                                            | Net cash used in financing activities                                                         |                                                                           |                                                                      | (1,169 | )      |        |   | (2,971  | )      |        |   | (2,199   | )     
|                                                            |                                                                                               |                                                                           |                                                                      |        |        |        |   |         |        |        |   |         
|                                                            | Net increase (decrease) in cash and cash
    equivalents                                      |                                                                           |                                                                      | 4,184  |        |        |   | (12,079 | )      |        |   | (52,758  | )     
|                                                            |                                                                                               | Cash and cash equivalents at beginning of year                            |                                                                      |        | 9,224  |        |   |         | 21,303 |        |   |          | 74,061 |       
|                                                            |                                                                                               |                                                                           |                                                                      |        |        |        |   |         |        |        |   |         
|                                                            |                                                                                               | Cash and cash equivalents at end of year                                  |                                                                      | $      | 13,408 |        |   | $       | 9,224  |        |   | $        | 21,303 |       
|                                                            |                                                                                               |                                                                           |                                                                      |        |        |        |   |         |        |        |   |         
|Supplemental disclosure of cash flow
    information:       |                                                                                               |                                                                           |                                                                      |        |        |        |   |         |        |        |   |         
|                                                            | Cash paid for interest                                                                        |                                                                           | $                                                                    | 112    |        |        | $ | 399     |        |        | $ | 729      |       
|                                                            |                                                                                               |                                                                           |                                                                      |        |        |        |   |         |        |        |   |         
|Supplemental non-cash investing and financing
    activity: |                                                                                               |                                                                           |                                                                      |        |        |        |   |         |        |        |   |         
|                                                            | Property and equipment acquired under capital
    leases                                      |                                                                           | $                                                                    |       |        |        | $ |        |        |        | $ | 1,043    |       
|                                                            |                                                                                               |                                                                           |                                                                      |        |        |        |   |         |        |        |   |         

See accompanying notes.

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ENDWAVE CORPORATION

NOTES TO FINANCIAL STATEMENTS



|   |                      
|-- | ---------------------
|1. | Basis of Presentation

Endwave Corporation (referred to below as Endwave
or the Company) designs, manufactures and markets RF (radio
frequency) subsystems that enable the transmission, reception
and processing of high-speed electromagnetic signals in
broadband wireless telecommunications systems, cellular
telephone infrastructure networks, defense electronics systems
and other similar systems requiring RF, microwave and millimeter
wave technology.

The Company designs products to best satisfy its
customers technical, inventory, logistical, and cost
requirements by using proprietary technologies, RF design, and
manufacturing expertise. Endwave offers a broad range of
products at multiple levels of integration that are optimized
for a customers specific product and performance needs.
Products include RF modules such as power amplifiers, low noise
amplifiers, up and down converters, frequency multipliers,
oscillators, synthesizers, integrated transceivers, and power
amplifier switch combiners used in cellular base stations. The
Companys proprietary circuit and manufacturing
technologies enables it to design and manufacture RF subsystems
that minimize the use of expensive gallium arsenide and reduce
manual labor. The Company uses third-party semiconductor
fabrication facilities for the manufacturing of the gallium
arsenide and other semiconductor devices, which it designs.



|   |                                               
|-- | ----------------------------------------------
|2. | Summary of Significant Accounting
    Policies

Use of Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.

Reclassification

Certain prior period amounts have been
reclassified to conform to the current period presentation.
These reclassifications have not changed previously reported
operating loss.

Revenue Recognition

The Companys customers are primarily
wireless systems integrators and equipment manufacturers who
integrate the Companys products into their products. The
Company recognizes product revenue at the time title passes,
which is upon product shipment or when withdrawn from a
consignment location. Revenues related to product sales are
recognized, when: persuasive evidence that an arrangement
exists, delivery has occurred or services have been rendered,
the sellers price to the buyer is fixed or determinable,
and collectibility is reasonably assured. The Company recognizes
development fees ratably over the estimated term of the
development period or when specific milestones are achieved.
Up-front fees, if any, associated with development agreements
are recognized over the estimated development and production
period. In no event are revenues recognized prior to becoming
payable by the customer. The costs incurred under these
development agreements are included in research and development
expenses.

Warranty

The warranty periods for the Companys
products are generally between one and three years from date of
shipment. The Company provides for estimated warranty expense at
the time of shipment. While the Company engages in extensive
product quality programs and processes, including actively
monitoring and evaluating the quality of component suppliers,
its warranty obligation is affected by product failure rates,
material usage, and service delivery costs incurred in
correcting a product failure. Should actual

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ENDWAVE CORPORATION


NOTES TO
FINANCIAL STATEMENTS  (Continued)

product failure rates, material usage, or service
delivery costs differ from the estimates, revisions to the
estimated warranty accrual and related costs may be required.

Changes in the Companys product warranty
liability during the years ended December 31, 2003 and 2002
are as follows:

|                             |  |                |       |  
|---------------------------- |  | -------------- | ----- | -
|                             |  | (In thousands)
|Balance at December 31, 2001 |  | $              | 5,615 |  
|Warranties accrued           |  |                | 670   |  
|Warranties settled           |  |                | (702  | )
|                             |  |                |       |  
|Balance at December 31, 2002 |  |                | 5,583 |  
|Warranties accrued           |  |                | 582   |  
|Warranties settled           |  |                | (330  | )
|                             |  |                |       |  
|Balance at December 31, 2003 |  | $              | 5,835 |  
|                             |  |                |       |  

Allowance for Doubtful Accounts

The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of
its customers to make required payments. The Company provides an
allowance for specific customer accounts where collection is
doubtful and also provides an allowance for other accounts based
on historical collection and write-off experience. If the
financial condition of customers were to deteriorate, resulting
in an impairment of their ability to make payments, additional
allowances may be required.

Cash Equivalents and Short-Term
Investments

The Company invests its excess cash primarily in
highly liquid investment grade commercial paper and money market
accounts with United States banks.

The Company considers all highly liquid
investments with maturities of 90 days or less from the
date of purchase to be cash equivalents. Management has
classified the Companys short-term investments as
available-for-sale securities in the accompanying financial
statements. Available-for-sale securities are carried at fair
value based on quoted market prices, with unrealized gains and
losses included in accumulated other comprehensive income (loss)
in stockholders equity. Realized gains and losses and
declines in the value of securities determined to be
other-than-temporary are included in other income (expense). The
cost of securities sold is based on the specific identification
method.

Restricted Cash

Restricted cash represents a compensating balance
maintained by the Company in connection with its notes payable.
The compensating balance declines as the Company makes monthly
payments of principal and interest on the note.

Inventory Valuation

Inventories are stated at the lower of standard
cost or market (net realizable value). Standard costs
approximate average actual costs. The Company makes inventory
provisions for estimated excess and obsolete inventory, based on
managements assessment of future demand and market
conditions. If actual future demand or market conditions are
less favorable than those projected by management, additional
inventory write-downs may be required.

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ENDWAVE CORPORATION


NOTES TO
FINANCIAL STATEMENTS  (Continued)

Property, Plant and Equipment

Property, plant and equipment is stated at cost.
Depreciation is computed on a straight-line basis over the
useful lives of the assets, ranging from three to thirty years.

|                        |  |             
|----------------------- |  | ------------
|                        |  | Depreciable 
|                        |  | Life        
|                        |  |             
|Buildings               |  | 30 years    
|Software                |  | 3 years     
|Leasehold improvements  |  | 3 years     
|Machinery and equipment |  | 5 to 7 years

Impairment of Long-Lived Assets

For long-lived assets used in operations, the
Company records impairment losses when events and circumstances
indicate that these assets might be impaired and the
undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. If
less, the impairment losses are based on the excess of the
carrying amounts of these assets over their respective fair
values. Their fair values would then become the new cost basis.
Fair value is determined by discounted future cash flows,
appraisals, or other methods. For assets held for sale,
impairment losses are measured at the lower of the carrying
amount of the assets or the fair value of the assets less costs
to sell. For assets to be disposed of other than by sale,
impairment losses are measured as their carrying amount less
salvage value, if any, at the time the assets cease to be used.

Income Taxes

Income taxes have been provided using the
liability method. Deferred tax assets and liabilities are
determined based on the differences between financial reporting
and tax bases of assets and liabilities and are measured using
the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.

Restructuring Charges

The Company accounted for restructuring charges
in accordance with EITF Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring) (EITF 94-3) for exit and disposal
activities initiated prior to January 1, 2003. Under
EITF 94-3 restructuring charges are recorded upon approval
of a formal management plan and are included in the operating
results of the period in which such plans have been approved.
The Company reviews remaining restructuring accruals on a
quarterly basis and adjusts these accruals when changes in facts
and circumstances suggest actual amounts will differ from the
initial estimates. Changes in estimates occur when it is
apparent that exit and other costs accrued will be more or less
than originally estimated.

In July 2002, the FASB issued Statement of
Financial Accounting Standards No. 146, Accounting
for Costs associated with Exit or Disposal Activities
(SFAS 146). SFAS 146 addresses financial
accounting and reporting for costs associated with exit or
disposal activities and nullifies EITF 94-3. The principal
difference between SFAS 146 and EITF 94-3 relates to
the timing for recognition of a liability for a cost associated
with an exit or disposal activity. SFAS 146 requires that a
liability for an exit cost associated with an exit or disposal
activity be recognized when the liability is incurred. The
Company adopted SFAS 146 prospectively as of
January 1, 2003, and the adoption did not have a material
impact on the Companys operating results.

48



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ENDWAVE CORPORATION


NOTES TO
FINANCIAL STATEMENTS  (Continued)

Stock-Based Compensation

The Company has elected to use the intrinsic
value method under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employee
(APB 25), as permitted by Statement of Financial Accounting
Standard No. 123, Accounting for Stock-Based
Compensation (SFAS 123), subsequently amended by
SFAS 148, Accounting for Stock-Based
Compensation  Transition and Disclosure to
account for stock-based awards issued to its employees under its
stock option plans and stock purchase plans, which are described
more fully in Note 12. Deferred stock compensation is
amortized using the graded vesting method over the vesting
period of the related options, generally four years.

For purposes of pro forma disclosures, the
Company estimates the fair value of its stock options to
employees using a Black-Scholes option pricing model based with
the following weighted-average assumptions:

|                                  |  |                         |          |      |  |      |          |   |  |  |          |  
|--------------------------------- |  | ----------------------- | -------- | ---- |  | ---- | -------- | - |  |  | -------- | -
|                                  |  |                        
|                                  |  | Year Ended December 31,
|                                  |  |                        
|                                  |  | 2003                    |          | 2002 |  | 2001
|                                  |  |                         |          |      |  |     
|Expected dividend yield           |  |                         | 0.0      | %    |  |      | 0.0      | % |  |  | 0.0      | %
|Expected stock price volatility   |  |                         | 1.16     |      |  |      | 1.40     |   |  |  | 1.17     |  
|Risk free interest rate           |  |                         | 4.02     | %    |  |      | 3.60     | % |  |  | 4.50     | %
|Expected life of options in years |  |                         | 7  years |      |  |      | 7  years |   |  |  | 7  years |  

The weighted average fair market value for
stock-based awards during 2003, 2002 and 2001 was $1.84, $1.76
and $1.85, per share, respectively. The effects of applying
SFAS 123 on pro forma disclosures are not likely to be
representative of the effects on pro forma disclosures of future
years.

The pro forma net loss and net loss per share
listed below include expense related to the Companys
employee stock purchase plan. The fair value of issuances under
the employee stock purchase plan is estimated on the date of
issuance using the Black-Scholes option-pricing model, with the
following weighted-average assumptions for issuances made in
2003, 2002 and 2001:

|                                  |  |                         |            |      |  |      |            |   |  |  |            |  
|--------------------------------- |  | ----------------------- | ---------- | ---- |  | ---- | ---------- | - |  |  | ---------- | -
|                                  |  |                        
|                                  |  | Year Ended December 31,
|                                  |  |                        
|                                  |  | 2003                    |            | 2002 |  | 2001
|                                  |  |                         |            |      |  |     
|Expected dividend yield           |  |                         | 0.0        | %    |  |      | 0.0        | % |  |  | 0.0        | %
|Expected stock price volatility   |  |                         | 1.12       |      |  |      | 1.05       |   |  |  | 1.14       |  
|Risk free interest rate           |  |                         | 1.16       | %    |  |      | 1.53       | % |  |  | 2.76       | %
|Expected life of options in years |  |                         | 0.5  years |      |  |      | 0.5  years |   |  |  | 0.5  years |  

The weighted average fair value of purchase
rights granted during the year was $0.56, $0.89 and $7.05 for
2003, 2002 and 2001, respectively.

49



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ENDWAVE CORPORATION


NOTES TO
FINANCIAL STATEMENTS  (Continued)

Following is the pro forma effect on net loss and
net loss per share for all periods presented had the Company
applied SFAS 123s fair value method of accounting for
stock-based awards issued to its employees. The effects on pro
forma disclosure of applying SFAS 123 are not likely to be
representative of the effects on pro forma disclosure of future
years.

|                                                  |                                                                                                                                                                      |                         |       |      |   |      |       |      |   |   |        |       |  
|------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------- | ----- | ---- | - | ---- | ----- | ---- | - | - | ------ | ----- | -
|                                                  |                                                                                                                                                                      |                        
|                                                  |                                                                                                                                                                      | Year Ended December 31,
|                                                  |                                                                                                                                                                      |                        
|                                                  |                                                                                                                                                                      | 2003                    |       | 2002 |   | 2001
|                                                  |                                                                                                                                                                      |                         |       |      |   |     
|                                                  |                                                                                                                                                                      |                        
|                                                  |                                                                                                                                                                      | (In millions)          
|Net loss, as reported                             |                                                                                                                                                                      | $                       | (7.9  | )    |   | $    | (31.0 | )    |   | $ | (156.7 | )    
|                                                  | Add: Stock-based employee compensation expense
    included in reported net loss                                                                                     |                         |       | 0.8  |   |      |       | 1.4  |   |   |        | 6.5   |  
|                                                  | Deduct: Total stock-based employee compensation
    expense determined under fair value based method for stock
    options awards and employee stock purchase rights |                         |       | (3.9 | ) |      |       | (6.4 | ) |   |        | (19.9 | )
|                                                  |                                                                                                                                                                      |                         |       |      |   |      |       |      |   |   |        |      
|Net loss, pro forma                               |                                                                                                                                                                      | $                       | (11.0 | )    |   | $    | (36.0 | )    |   | $ | (170.1 | )    
|                                                  |                                                                                                                                                                      |                         |       |      |   |      |       |      |   |   |        |      
|Basic and diluted net loss per share, as reported |                                                                                                                                                                      | $                       | (0.87 | )    |   | $    | (3.47 | )    |   | $ | (17.90 | )    
|Basic and diluted net loss per share, pro forma   |                                                                                                                                                                      | $                       | (1.20 | )    |   | $    | (4.03 | )    |   | $ | (19.43 | )    

Research and Development Expenses

Research and development expenses are charged to
operating expenses as incurred.

Concentration of Risk

Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist
principally of cash equivalents, investments, and trade
receivables.

The Company sells its products primarily to
wireless systems integrators and equipment manufacturers. The
Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains
reserves for potential credit losses and such losses have
historically been immaterial and within managements
expectations. Concentrations of credit risk with respect to
trade accounts receivable are due to the few number of entities
comprising the Companys customer base.

Product revenue in 2003 was substantially
attributable to three major customers, totaling 78% of revenues,
and as of December 31, 2003, the Companys accounts
receivable from these customers totaled $4.9 million.
Product revenue in 2002 and 2001 was substantially attributable
to one major customer, totaling 71%, and 67%, respectively. For
the years ended December 31, 2003, 2002 and 2001, 75%, 77%
and 71%, respectively, of product revenues were derived from
sales invoiced and shipped to customers outside the United
States. In addition, some United States based customers may sell
products, which incorporate the Companys products, into
international markets.

The Company does not own or operate a
semiconductor fabrication facility and relies on the
semiconductor fabrication facilities of Velocium and other third
parties to manufacture substantially all of the gallium arsenide
and other semiconductor devices incorporated in its products.
The loss of the Companys relationship with any of these
third parties or the Companys use of their semiconductor
fabrication facilities, particularly Velociums facility,
and any resulting delay or reduction in the supply of gallium
arsenide devices, could impact the Companys ability to
fulfill customer orders and could damage its relationships with
customers. The Company has a supply agreement with Velocium, for
these devices. The Company expects to obtain a substantial
portion of needed gallium arsenide devices from Velocium in the
foreseeable future.

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ENDWAVE CORPORATION


NOTES TO
FINANCIAL STATEMENTS  (Continued)

The Company also may not be successful in forming
alternative supply arrangements that provide a sufficient supply
of gallium arsenide devices. Because there are limited numbers
of third-party semiconductor fabrication facilities that use the
particular process technologies the Company uses for its
products and that have sufficient capacity to meet its needs,
using alternative or additional third-party semiconductor
fabrication facilities would require an extensive qualification
process that could prevent or delay product shipments.

Since the Company does not own or control any of
these third party semiconductor suppliers, any change in the
corporate structure or ownership of the corporations that own
these foundries, could have a negative effect on future
relationships and ability to negotiate favorable supply
agreements.

Fair Value of Financial Instruments

The amounts reported as cash and cash
equivalents, accounts receivable, accounts payable and accrued
liabilities approximate fair value due to their short-term
maturities. The fair value for the Companys investments in
marketable debt and equity securities is estimated based on
quoted market prices.

The fair value of short-term and long-term
capital lease and debt obligations is estimated based on current
interest rates available to us for debt instruments with similar
terms, degrees of risk and remaining maturities. The carrying
values of these obligations, as of each period presented
approximate their respective fair values.

The following estimated fair value amounts have
been determined using available market information.

|                              |       |                   |       |            |  |            |   |            |  |   |    |    |   |   |       |        | 
|----------------------------- | ----- | ----------------- | ----- | ---------- |  | ---------- | - | ---------- |  | - | -- | -- | - | - | ----- | ------ | 
|                              |       |                  
|                              |       | December 31, 2003
|                              |       |                  
|                              |       |                   |       | Gross      |  | Gross      |   |           
|                              |       | Amortized         |       | Unrealized |  | Unrealized |   | Estimated 
|Short-term investments        |       | Cost              |       | Gains      |  | Losses     |   | Fair Value
|                              |       |                   |       |            |  |            |   |           
|                              |       |                  
|                              |       | (In thousands)   
|Commercial paper              |       | $                 | 7,092 |            |  | $          |  |            |  | $ | (3 | )  |   | $ | 7,089 |       
|Government agency obligations |       |                   | 8,800 |            |  |            | 1 |            |  |   |   |    |   |   | 8,801 |       
|                              |       |                   |       |            |  |            |   |            |  |   |    |    |   |   |       |       
|                              | Total |                   | $     | 15,892     |  |            | $ | 1          |  |   | $  | (3 | ) |   | $     | 15,890 | 
|                              |       |                   |       |            |  |            |   |            |  |   |    |    |   |   |       |       
|Cash equivalents              |       |                   |       |            |  |            |   |            |  |   |    |    |   |   |       |       
|                             
|Government agency obligations |       | $                 | 7,000 |            |  | $          |  |            |  | $ |   |    |   | $ | 7,000 |       
|                              |       |                   |       |            |  |            |   |            |  |   |    |    |   |   |       |       

|                                  |       |                   |        |            |  |            |   |            |  |   |     |     |   |   |        |        | 
|--------------------------------- | ----- | ----------------- | ------ | ---------- |  | ---------- | - | ---------- |  | - | --- | --- | - | - | ------ | ------ | 
|                                  |       |                  
|                                  |       | December 31, 2002
|                                  |       |                  
|                                  |       |                   |        | Gross      |  | Gross      |   |           
|                                  |       | Amortized         |        | Unrealized |  | Unrealized |   | Estimated 
|Short-term investments            |       | Cost              |        | Gains      |  | Losses     |   | Fair Value
|                                  |       |                   |        |            |  |            |   |           
|                                  |       |                  
|                                  |       | (In thousands)   
|Fixed income corporate securities |       | $                 | 6,148  |            |  | $          |  |            |  | $ | (55 | )   |   | $ | 6,093  |       
|Government agency obligations     |       |                   | 13,720 |            |  |            |  |            |  |   | (12 | )   |   |   | 13,708 |       
|                                  |       |                   |        |            |  |            |   |            |  |   |     |     |   |   |        |       
|                                  | Total |                   | $      | 19,868     |  |            | $ | 0          |  |   | $   | (67 | ) |   | $      | 19,801 | 
|                                  |       |                   |        |            |  |            |   |            |  |   |     |     |   |   |        |       
|Cash equivalents                  |       |                   |        |            |  |            |   |            |  |   |     |     |   |   |        |       
|                                 
|Government agency obligations     |       | $                 | 3,200  |            |  | $          |  |            |  | $ |    |     |   | $ | 3,200  |       
|                                  |       |                   |        |            |  |            |   |            |  |   |     |     |   |   |        |       

Realized gains and losses were insignificant for
each of the years in the period ended December 31, 2003.

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ENDWAVE CORPORATION


NOTES TO
FINANCIAL STATEMENTS  (Continued)

Recent Accounting Pronouncements

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest
Entities (FIN 46). Variable interest
entities are often created for a single specified purpose, for
example, to facilitate securitization, leasing, hedging,
research and development, or other transactions or arrangements.
In December 2003, the FASB issued Interpretation No. 46
(revised December 2003) (FIN 46R) which
replaces FIN 46. This interpretation of Accounting Research
Bulletin No. 51, Consolidated Financial
Statements, defines what these variable interest entities
are and provides guidelines on identifying them and assessing an
enterprises interests in a variable interest entity to
decide whether to consolidate that entity. FIN 46R applies
at different dates to different types of enterprises and
entities, and special provisions apply to enterprises that have
fully or partially applied FIN 46 prior to issuance of
FIN 46R. Generally, application of FIN 46R is required
in financial statements of public entities that have interests
in variable interest entities or potential variable interest
entities commonly referred to as special-purpose entities for
periods ending after December 15, 2003. Application by
public entities for all other types of entities is required in
financial statements for periods ending after March 15,
2004. The adoption of FIN 46 or FIN 46R did not have a
material impact on the Companys results of operations or
financial condition.



|   |                                     
|-- | ------------------------------------
|3. | Goodwill and Other Intangible Assets

In the first quarter of 2001, the Company
determined it would be unable to successfully negotiate a new
contract with Nortel and was informed by Hughes that orders for
the following few quarters would be effectively eliminated.
Sales to Hughes and Nortel represented approximately 43% of 2000
sales. Also in 2001, the Company decided to consolidate
manufacturing in the Diamond Springs, California facility. This
plan resulted in a majority of prior Endgate employees being
terminated. In addition, the Company came to believe that the
downturn in the industry would be significantly longer than
originally expected as a result of earnings warnings of both
customers and peers. These events were considered to be
indicators of potential impairment and the Company evaluated the
carrying value of its long-lived assets. The Companys
forecast of future cash flows indicated that the long-lived
assets were impaired. The Company estimated the fair value of
long-lived assets by discounting the cash flow forecast using a
discount rate of 14%, which represented the Companys
weighted average cost of capital. As a result of the evaluation,
the Company concluded that unamortized goodwill and other
intangible assets of $90.4 million were fully impaired, and
accordingly, this amount was charged to operations in the first
quarter of 2001.

The Company adopted SFAS No. 142,
Goodwill and Other Intangible Assets,
(SFAS 142) on January 1, 2002.
SFAS 142 prohibits the amortization of goodwill and
intangible assets with indefinite useful lives. The following
pro forma information reflects the impact on net loss and net
loss per share assuming the adoption of SFAS No. 142
had occurred on January 1, 2001 (in thousands except per
share data):

|                   |                                                                                               |      |        |      |  |             |         |   |  |   |          |        |  
|------------------ | --------------------------------------------------------------------------------------------- | ---- | ------ | ---- |  | ----------- | ------- | - |  | - | -------- | ------ | -
|                   |                                                                                               |      |        |      |  | 2001       
|                   |                                                                                               | 2003 |        | 2002 |  | (Pro Forma)
|                   |                                                                                               |      |        |      |  |            
|Reported net loss  |                                                                                               | $    | (7,910 | )    |  | $           | (31,002 | ) |  | $ | (156,746 | )     
|                   | Amortization of goodwill and intangible assets
    with indefinite lives                      |      |        |     |  |             |         |  |  |   |          | 6,237  |  
|                   | Additional loss due to impairment of goodwill and
    intangible assets with indefinite lives |      |        |     |  |             |         |  |  |   |          | (6,237 | )
|                   |                                                                                               |      |        |      |  |             |         |   |  |   |          |       
|Pro forma net loss |                                                                                               | $    | (7,910 | )    |  | $           | (31,002 | ) |  | $ | (156,746 | )     
|                   |                                                                                               |      |        |      |  |             |         |   |  |   |          |       

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ENDWAVE CORPORATION


NOTES TO
FINANCIAL STATEMENTS  (Continued)

|                                      |                                                                                                |      |       |       |   |             |       |       |   |   |        |        |  
|------------------------------------- | ---------------------------------------------------------------------------------------------- | ---- | ----- | ----- | - | ----------- | ----- | ----- | - | - | ------ | ------ | -
|                                      |                                                                                                |      |       |       |   | 2001       
|                                      |                                                                                                | 2003 |       | 2002  |   | (Pro Forma)
|                                      |                                                                                                |      |       |       |   |            
|Basic and diluted net loss per share: |                                                                                                |      |       |       |   |             |       |       |   |   |        |       
|                                      | Reported net loss                                                                              |      | $     | (0.87 | ) |             | $     | (3.47 | ) |   | $      | (17.90 | )
|                                      | Adjustment related to amortization of goodwill
    and intangible assets with indefinite lives |      |       |      |   |             |       |      |   |   |        | .71    |  
|                                      | Additional loss due to impairment of goodwill and
    intangible assets with indefinite lives  |      |       |      |   |             |       |      |   |   |        | (.71   | )
|                                      |                                                                                                |      |       |       |   |             |       |       |   |   |        |       
|Pro forma net loss per share          |                                                                                                | $    | (0.87 | )     |   | $           | (3.47 | )     |   | $ | (17.90 | )     
|                                      |                                                                                                |      |       |       |   |             |       |       |   |   |        |       

As of December 31, 2003 and 2002, the
Company has no goodwill or other intangible assets on its
balance sheet.



|   |            
|-- | -----------
|4. | Inventories

Inventories are comprised of the following at
December 31 (in thousands):

|                |  |      |       |      |  |   |        | 
|--------------- |  | ---- | ----- | ---- |  | - | ------ | 
|                |  | 2003 |       | 2002
|                |  |      |       |     
|Raw materials   |  | $    | 7,298 |      |  | $ | 10,250 | 
|Work in process |  |      | 153   |      |  |   | 441    | 
|Finished goods  |  |      | 668   |      |  |   | 1,093  | 
|                |  |      |       |      |  |   |        | 
|                |  | $    | 8,119 |      |  | $ | 11,784 | 
|                |  |      |       |      |  |   |        | 

5.     Property,
Plant and Equipment

Property, plant and equipment consists of the
following at December 31 (in thousands):

|                                                                                               |  |      |        |      |  |   |        |  
|---------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                                                                                               |  | 2003 |        | 2002
|                                                                                               |  |      |        |     
|Land                                                                                           |  | $    | 391    |      |  | $ | 391    |  
|Buildings                                                                                      |  |      | 3,951  |      |  |   | 3,951  |  
|Software                                                                                       |  |      | 503    |      |  |   | 503    |  
|Leasehold improvements                                                                         |  |      | 170    |      |  |   | 170    |  
|Machinery and equipment                                                                        |  |      | 10,473 |      |  |   | 16,593 |  
|                                                                                               |  |      |        |      |  |   |        |  
|                                                                                               |  |      | 15,488 |      |  |   | 21,608 |  
|Less accumulated depreciation (including
    amortization of assets held under capital leases) |  |      | (8,228 | )    |  |   | (8,895 | )
|                                                                                               |  |      |        |      |  |   |        |  
|Property, plant and equipment, net                                                             |  | $    | 7,260  |      |  | $ | 12,713 |  
|                                                                                               |  |      |        |      |  |   |        |  

Property, plant and equipment includes the
following amounts under capital leases at December 31 (in
thousands):

|                                      |  |      |   |      |  |   |        |  
|------------------------------------- |  | ---- | - | ---- |  | - | ------ | -
|                                      |  | 2003 |   | 2002
|                                      |  |      |   |     
|Assets held under capital leases      |  | $    |  |      |  | $ | 5,735  |  
|Less accumulated amortization         |  |      |  |      |  |   | (2,945 | )
|                                      |  |      |   |      |  |   |        |  
|Assets held under capital leases, net |  | $    |  |      |  | $ | 2,790  |  
|                                      |  |      |   |      |  |   |        |  

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ENDWAVE CORPORATION


NOTES TO
FINANCIAL STATEMENTS  (Continued)



|   |                        
|-- | -----------------------
|6. | Equipment Held for Sale

The Company evaluates the carrying value of
property, plant and equipment, whenever certain events or
changes in circumstances indicate that the carrying amount of
these assets may not be recoverable. Such events or
circumstances include, but are not limited to, a prolonged
industry downturn, or a significant reduction in projected
future cash flows.

Based on its evaluation performed in the first
quarter of 2003, the Company recorded a charge of
$2.4 million to reduce manufacturing equipment based on the
amounts by which the carrying value of these assets exceeded
their fair value. The evaluation took into consideration the
movement of production to the Companys offshore supplier
which increased during 2003. The Companys estimate of fair
value of the assets was based on estimated salvage value of the
equipment, less selling costs.

During the third quarter of 2003, the Company
recorded an additional charge of $139,000 to reduce engineering
equipment based on the amounts by which the carrying value of
these assets exceeded their realizable value. The evaluation
took in to consideration the reduction in engineering headcount
that occurred during the third quarter of 2003. The
Companys estimate of the fair value of the assets was
based on estimated salvage value of the equipment less selling
costs.

At December 31, 2003, the Company has
$306,000 of equipment held for sale recorded on the balance
sheet as a result of the above actions.



|   |              
|-- | -------------
|7. | Notes Payable

On May 29, 2002, the Company obtained a
loan, secured by fixed assets, in the amount of
$1.5 million from U.S. Bancorp Finance Inc. This loan
has a term of 3 years and has a variable interest rate. The
rate is 25 basis points above Libor and is reviewed
quarterly. The weighted average cost of debt is approximately
4.5% for 2003.

The following summarizes the future cash
payments, excluding interest, in thousands:

|                          |                                 |   |     |     | 
|------------------------- | ------------------------------- | - | --- | --- | 
|Years ending December 31, |                                 |   |     |    
|2004                      |                                 | $ | 516 |    
|2005                      |                                 |   | 262 |    
|                          |                                 |   |     |    
|                          | Total minimum payments required |   | $   | 778 | 
|                          |                                 |   |     |    



|   |                                                    
|-- | ---------------------------------------------------
|8. | Restructuring Charges, Net and Loss on
    Sublease

In the first quarter of 2002, the Company
announced and began to implement a restructuring program (the
First Quarter 2002 Plan) to reduce operating
expenses and further align resources with long-term growth
opportunities. The Company recorded a restructuring charge of
$3.5 million, the components of which were
$1.1 million for severance and fringe benefit costs related
to the elimination of 107 positions across all functions,
$310,000 for lease termination payments, and $2.1 million
for excess equipment. In the fourth quarter of 2002, the Company
lowered its estimate of the total costs associated with the
First Quarter 2002 Plan and recorded an adjustment of $142,000,
which reflected lower than estimated severance and related
costs. With the exception of remaining lease payments on
abandoned facilities payable through 2006, net of estimated
sublease income, we have completed the activities associated
with the First Quarter 2002 Plan as of December 31, 2003.

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ENDWAVE CORPORATION


NOTES TO
FINANCIAL STATEMENTS  (Continued)

During the third quarter of 2002, the Company
announced and began to implement additional restructuring
actions (the Third Quarter 2002 Plan) consistent
with the objective of the First Quarter 2002 Plan. The Company
recorded a restructuring charge of $4.9 million the
components of which were $1.8 million for severance and
fringe benefit costs and $3.1 million for excess equipment.
During the fourth quarter of 2003, the Company revised its
estimates of the number of positions to be eliminated pursuant
to the Third Quarter 2002 Plan based on the most current
information available and reversed approximately $186,000 of the
estimated severance benefits accrual. The recovery was included
in restructuring charges, net. As of December 31, 2003, 102
employees had been terminated pursuant to the Third Quarter 2002
Plan resulting in cumulative cash payments of $1.6 million
in severance and employee benefit costs. The Company has
completed the activities associated with the Third Quarter 2002
Plan as of December 31, 2003. Below is a table summarizing
activity relating to the plan (in thousands):

|                                       |                                      |           |       |        |   |       |       |        |   |   |       |        |  
|-------------------------------------- | ------------------------------------ | --------- | ----- | ------ | - | ----- | ----- | ------ | - | - | ----- | ------ | -
|                                       |                                      | Severance |       | Fixed  |   |      
|Third Quarter 2002 Plan                |                                      | Benefits  |       | Assets |   | Total
|                                       |                                      |           |       |        |   |      
|2002 provision                         |                                      | $         | 1,750 |        |   | $     | 3,109 |        |   | $ | 4,859 |       
|Settlement of contractual obligations: |                                      |           |       |        |   |       |       |        |   |   |       |       
|                                       | Cash payments                        |           |       | (1,057 | ) |       |       |       |   |   |       | (1,057 | )
|                                       | Non cash amount for excess equipment |           |       |       |   |       |       | (3,120 | ) |   |       | (3,120 | )
|                                       | Cash proceeds from equipment sale    |           |       |       |   |       |       | 11     |   |   |       | 11     |  
|                                       |                                      |           |       |        |   |       |       |        |   |   |       |       
|Balance at December 31, 2002           |                                      |           | 693   |        |   |       |      |        |   |   | 693   |       
|                                       | Cash payments                        |           |       | (507   | ) |       |       |       |   |   |       | (507   | )
|                                       | Adjustment                           |           |       | (186   | ) |       |       |       |   |   |       | (186   | )
|                                       |                                      |           |       |        |   |       |       |        |   |   |       |       
|Balance at December 31, 2003           |                                      | $         | 0     |        |   |       |      |        |   | $ | 0     |       
|                                       |                                      |           |       |        |   |       |       |        |   |   |       |       

During the third quarter of 2003, the Company
initiated restructuring actions (the Third Quarter 2003
Plan) to resize the business in order to reach
profitability based on revenue and margin estimates for the
fourth quarter of 2003 and into 2004. The Company recorded a
restructuring charge of $490,000, the majority of which was for
severance and fringe benefit costs. The Company eliminated 18
positions, of which 10 were in operations, 3 were in engineering
and 5 were in sales, general and administration. Severance
payments were substantially completed by the end of fiscal 2003.
Below is a table summarizing activity relating to the plan (in
thousands):

|                                       |               |                    |     |      |  
|-------------------------------------- | ------------- | ------------------ | --- | ---- | -
|Third Quarter 2003 Plan                |               | Severance Benefits
|                                       |               |                   
|2003 provision                         |               | $                  | 490 |     
|Settlement of contractual obligations: |               |                    |     |     
|                                       | Cash payments |                    |     | (470 | )
|                                       |               |                    |     |     
|Balance at December 31, 2003           |               | $                  | 20  |     
|                                       |               |                    |     |     
|Current                                |               | $                  | 20  |     
|Noncurrent                             |               |                    |    |     
|                                       |               |                    |     |     
|                                       |               | $                  | 20  |     
|                                       |               |                    |     |     

Loss on Sublease

During 2003, the Company subleased
12,700 square feet of its Sunnyvale, California headquarter
building to an unrelated third party. The rental income for the
lease period was less than the rental expense that would be
incurred, and therefore a loss at sublease inception of $662,000
was incurred. There have been no other

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ENDWAVE CORPORATION


NOTES TO
FINANCIAL STATEMENTS  (Continued)

losses on subleases recorded in periods
presented. During 2004, a portion of this loss is expected to be
reversed as the sublease was terminated prior to expiration
date, as a part of an overall lease renegotiation.



|   |                   
|-- | ------------------
|9. | Net Loss Per Share

As the Company incurred net losses for all
periods presented, diluted net loss per share is the same as
basic net loss per share. Potential dilutive common shares of
approximately 397,000, 244,000 and 128,000 in 2003, 2002 and
2001, respectively (computed using the treasury stock method),
from the assumed exercise of stock options and warrants were not
included in the net loss per share calculations as their
inclusion would have been anti-dilutive.



|    |                            
|--- | ---------------------------
|10. | Comprehensive Income (Loss)

The Company had $2,000 and $67,000 of other
comprehensive loss in the years ended December 31, 2003 and
2002, respectively, 2002 resulting from unrealized income and
losses on its available for sale investments. There were no
items of other comprehensive income (loss) during the year ended
December 31, 2001, and accordingly, comprehensive income
(loss) is the same as the net loss.



|    |                    
|--- | -------------------
|11. | Segment Disclosures

The Company operates in a single business
segment. Although we sell to customers in various geographic
regions throughout the world, the end customers may be located
elsewhere. The Companys total revenues by location for the
years ended December 31 were as follows (in thousands):

|              |       |      |        |        |  |      |      |       |   |   |        |        |  |  |      |       |   |   |        |        |  |  |      |       |  
|------------- | ----- | ---- | ------ | ------ |  | ---- | ---- | ----- | - | - | ------ | ------ |  |  | ---- | ----- | - | - | ------ | ------ |  |  | ---- | ----- | -
|              |       |      |        |        |  |     
|              |       | 2003 |        | 2002   |  | 2001
|              |       |      |        |        |  |     
|              |       |      |        |        |  |      |      |       |   |  
|United States |       | $    | 8,375  |        |  |      | 24.8 | %     |   | $ | 5,617  |        |  |  | 24.9 | %     |   | $ | 9,807  |        |  |  | 28.7 | %    
|Finland       |       |      | 20,083 |        |  |      | 59.3 | %     |   |   | 15,924 |        |  |  | 70.5 | %     |   |   | 22,683 |        |  |  | 66.5 | %    
|Other         |       |      | 5,389  |        |  |      | 15.9 | %     |   |   | 1,031  |        |  |  | 4.6  | %     |   |   | 1,635  |        |  |  | 4.8  | %    
|              |       |      |        |        |  |      |      |       |   |   |        |        |  |  |      |       |   |   |        |        |  |  |      |      
|              | Total |      | $      | 33,847 |  |      |      | 100.0 | % |   | $      | 22,572 |  |  |      | 100.0 | % |   | $      | 34,125 |  |  |      | 100.0 | %
|              |       |      |        |        |  |      |      |       |   |   |        |        |  |  |      |       |   |   |        |        |  |  |      |      

For the year ended December 31, 2003, Nokia
and Stratex Networks accounted for 59% and 13% of total product
revenues, respectively. Nokia, located in Finland, was the only
customer in Finland in 2003, 2002 and 2001.



|    |                     
|--- | --------------------
|12. | Stockholders Equity

Common Stock

On June 26, 2002, the Board of Directors
approved a 1 for 4 reverse split of the Companys common
stock. All share numbers have been adjusted to reflect the
reverse stock split, for all periods presented.

At December 31, 2003, the Company had
reserved 3,346,935 shares of common stock for issuance in
connection with its stock option plans,136,606 shares in connection with its employee stock
purchase plan.

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ENDWAVE CORPORATION


NOTES TO
FINANCIAL STATEMENTS  (Continued)

A summary of common stock activity in number of
shares during 2001, 2002 and 2003 is as follows:

|                                                                            |  |        |           |  
|--------------------------------------------------------------------------- |  | ------ | --------- | -
|                                                                            |  | Common
|                                                                            |  | Stock 
|                                                                            |  |       
|As of December 31, 2000                                                     |  |        | 8,530,439 |  
|Exercise of stock options                                                   |  |        | 11,798    |  
|Issuance of common stock in connection with the
    acquisition of M/ A-COM |  |        | 229,106   |  
|Issuance of common stock under employee stock
    purchase plan             |  |        | 133,034   |  
|                                                                            |  |        |           |  
|As of December 31, 2001                                                     |  |        | 8,904,377 |  
|Exercise of stock options                                                   |  |        | 1,000     |  
|Issuance of common stock under employee stock
    purchase plan             |  |        | 109,354   |  
|Paid out for fractional shares relating to 1 to 4
    reverse stock split   |  |        | (70       | )
|                                                                            |  |        |           |  
|As of December 31, 2002                                                     |  |        | 9,014,661 |  
|Exercise of stock options                                                   |  |        | 211,776   |  
|Issuance of common stock under employee stock
    purchase plan             |  |        | 121,148   |  
|                                                                            |  |        |           |  
|As of December 31, 2003                                                     |  |        | 9,347,585 |  
|                                                                            |  |        |           |  

Employee Stock Purchase Plan

In October 2000, the Company established the
Endwave Corporation Employee Stock Purchase Plan. All employees
who work a minimum of 20 hours per week and are customarily
employed by the Company (or an affiliate thereof) for at least
five months per calendar year are eligible to participate. Under
this plan, employees may purchase shares of common stock through
payroll deductions of up to 15% of their earnings with a limit
of 3,000 shares per an offering period under the plan. The
price paid for the Companys common stock purchased under
the plan is equal to 85% of the lower of the fair market value
of the Companys common stock on the date of commencement
of participation by an employee in an offering under the plan or
the date of purchase. During 2003, there were
121,148 shares issued under the Purchase Plan at a weighted
average price of $0.77 per share. During 2002, there were
109,354 shares issued under the Purchase Plan at a
weighted-average price of $1.49 per share. During 2001,
there were 133,034 shares issued under the Purchase Plan at
a weighted-average price of $4.96 per share.

Stock Option Plans

The Companys 1992 Stock Option Plan (the
1992 Plan) was adopted in September 1992, amended in
April 1999, and terminated in March 2000, such that no further
options could be granted thereunder, however previously granted
and unexercised options remain outstanding and governed by the
terms of the 1992 Plan. The 1992 Plan provides for the issuance
of up to 131,583 shares of common stock to directors, employees,
and consultants upon the exercise of options outstanding under
the 1992 Plan as of December 31, 2003.

The Companys 2000 Stock Option Plan (the
2000 Plan) was adopted in March 2000, amended in
July 2000, and provides for the issuance of options to purchase
common stock to directors, employees, and consultants. The 2000
Plan provides for annual reserve increases to the number of
authorized shares. During 2003, authorized shares were increased
by 554,000 to 3,245,588 shares. Under the 2000 Plan,
incentive stock options are granted under the plan at exercise
prices not less than fair value and non statutory stock options
are granted at an exercise price not less than 85% of the fair
value on the date of grant, as determined by the closing sales
price of the Companys common stock. Options granted under
the 2000 Plan generally have a ten-year term. Options vest and
become exercisable as specified in each

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ENDWAVE CORPORATION


NOTES TO
FINANCIAL STATEMENTS  (Continued)

individuals option agreement, generally
over a four-year period. Subject to approval by the
Companys board of directors, options may be exercised
early, however, unvested shares are subject to a repurchase
option by the Company upon termination of the individuals
employment or services.

On October 25, 2001, the Company completed a
voluntary stock option exchange program for its employees. Under
the program, employees had the option to cancel outstanding
stock options previously granted with an exercise price of
$24.00 per share or greater in exchange for two new
nonqualified stock options to be granted on two separate dates.
Approximately 747,151 options were cancelled and 224,146 options
were reissued with an option price of $3.40. These options vest
monthly over a one-year period and have an 18-month contractual
life. The Company granted 493,201 options to active employees
who participated in the program at an option price of
$3.20 per share on April 26, 2002. These options vest
annually over a four-year period and have a 10-year contractual
life.

Non-Employee Directors Stock Option
Plan

The Companys 2000 Non-Employee
Directors Stock Option Plan was adopted in October 2000.
The plan provides for non-statutory stock option grants to
non-employee directors, consisting of an initial grant of
10,000 shares when an individual first becomes a
non-employee director of the Company, and annual automatic
grants of 2,500 shares (which will be reduced pro-rata if
an individual did not serve as a director for the full year of
the preceding fiscal year). Options granted under the plan to
non-employee directors must be granted at fair market value on
the date of grant, provide for monthly vesting over a four-year
period and have a ten-year term. The Company granted 10,000,
18,750 and 24,375 options under the Director Plan during the
years ended December 31, 2003, 2002 and 2001, respectively.
The total number of shares authorized for this plan is 150,000.

A summary of stock option activity for all plans
described above, is as follows:

|                                 |                   |           |           |            |   |   |       |       | 
|-------------------------------- | ----------------- | --------- | --------- | ---------- | - | - | ----- | ----- | 
|                                 |                   |           |           | Weighted- 
|                                 |                   |           |           | Average   
|                                 |                   | Number of |           | Exercise  
|                                 |                   | Shares    |           | Price     
|                                 |                   |           |           |           
|Outstanding at December 31, 2000 |                   |           | 1,234,959 |            |   | $ | 23.20 |      
|                                 |                   |           |           |            |   |   |       |      
|                                 | Options granted   |           |           | 904,090    |   |   |       | 8.24  | 
|                                 | Options exercised |           |           | (11,798    | ) |   |       | 4.84  | 
|                                 | Options cancelled |           |           | (1,058,407 | ) |   |       | 23.84 | 
|                                 |                   |           |           |            |   |   |       |      
|Outstanding at December 31, 2001 |                   |           | 1,068,844 |            |   | $ | 10.16 |      
|Exercisable at December 31, 2001 |                   |           | 436,206   |            |   | $ | 12.36 |      
|                                 | Options granted   |           |           | 1,740,057  |   |   |       | 1.76  | 
|                                 | Options exercised |           |           | (1,000     | ) |   |       | 4.80  | 
|                                 | Options cancelled |           |           | (469,650   | ) |   |       | 9.41  | 
|                                 |                   |           |           |            |   |   |       |      
|Outstanding at December 31, 2002 |                   |           | 2,338,251 |            |   | $ | 4.05  |      
|Exercisable at December 31, 2002 |                   |           | 708,724   |            |   | $ | 6.88  |      
|                                 | Options granted   |           |           | 725,574    |   |   | $     | 1.84  | 
|                                 | Options exercised |           |           | (211,776   | ) |   |       | 2.34  | 
|                                 | Options cancelled |           |           | (917,388   | ) |   |       | 3.86  | 
|                                 |                   |           |           |            |   |   |       |      
|Outstanding at December 31, 2003 |                   |           | 1,934,661 |            |   | $ | 3.50  |      
|                                 |                   |           |           |            |   |   |       |      
|Exercisable at December 31, 2003 |                   |           | 1,215,137 |            |   | $ | 3.83  |      
|                                 |                   |           |           |            |   |   |       |      

58



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ENDWAVE CORPORATION


NOTES TO
FINANCIAL STATEMENTS  (Continued)

The following table summarizes information
concerning outstanding and exercisable options:

|                         |       |                        |         |           |  |                        |       |        |  |           |      |      |  |  |         |           |  |   |       |      | 
|------------------------ | ----- | ---------------------- | ------- | --------- |  | ---------------------- | ----- | ------ |  | --------- | ---- | ---- |  |  | ------- | --------- |  | - | ----- | ---- | 
|                         |       |                        |         |           |  |                       
|                         |       | Options Outstanding at |         |           |  | Options Exercisable at
|                         |       | December 31, 2003      |         |           |  | December 31, 2003     
|                         |       |                        |         |           |  |                       
|                         |       |                        |         | Weighted- |  | Weighted-              |       |        |  | Weighted-
|                         |       |                        |         | Average   |  | Average                |       |        |  | Average  
|                         |       |                        |         | Exercise  |  | Remaining              |       |        |  | Exercise 
|Exercise Price Per Share |       | Shares                 |         | Price     |  | Contractual Life       |       | Shares |  | Price    
|                         |       |                        |         |           |  |                        |       |        |  |          
|$ 0.76 - $ 1.17          |       |                        | 303,439 |           |  | $                      | 0.93  |        |  |           | 8.89 |      |  |  | 144,109 |           |  | $ | 0.85  |     
|$ 1.18 - $ 1.18          |       |                        | 13,000  |           |  | $                      | 1.18  |        |  |           | 9.31 |      |  |  | 12,125  |           |  | $ | 1.18  |     
|$ 1.21 - $ 1.21          |       |                        | 580,535 |           |  | $                      | 1.21  |        |  |           | 8.56 |      |  |  | 565,756 |           |  | $ | 1.21  |     
|$ 1.93 - $ 1.93          |       |                        | 455,818 |           |  | $                      | 1.93  |        |  |           | 9.43 |      |  |  | 83,615  |           |  | $ | 1.93  |     
|$ 2.68 - $ 2.92          |       |                        | 15,901  |           |  | $                      | 2.78  |        |  |           | 8.26 |      |  |  | 4,517   |           |  | $ | 2.73  |     
|$ 3.20 - $ 3.20          |       |                        | 227,519 |           |  | $                      | 3.20  |        |  |           | 8.32 |      |  |  | 141,854 |           |  | $ | 3.20  |     
|$ 3.52 - $ 8.16          |       |                        | 196,069 |           |  | $                      | 5.31  |        |  |           | 6.16 |      |  |  | 158,144 |           |  | $ | 5.21  |     
|$ 9.60 - $24.00          |       |                        | 112,080 |           |  | $                      | 12.36 |        |  |           | 6.74 |      |  |  | 80,382  |           |  | $ | 12.48 |     
|$52.00 - $52.00          |       |                        | 300     |           |  | $                      | 52.00 |        |  |           | 6.50 |      |  |  | 262     |           |  | $ | 52.00 |     
|$56.00 - $56.00          |       |                        | 30,000  |           |  | $                      | 56.00 |        |  |           | 6.72 |      |  |  | 24,373  |           |  | $ | 56.00 |     
|                         |       |                        |         |           |  |                        |       |        |  |           |      |      |  |  |         |           |  |   |       |     
|                         | Total |                        |         | 1,934,661 |  |                        | $     | 3.50   |  |           |      | 8.41 |  |  |         | 1,215,137 |  |   | $     | 3.83 | 
|                         |       |                        |         |           |  |                        |       |        |  |           |      |      |  |  |         |           |  |   |       |     

Deferred Stock Compensation

In connection with the deferred compensation
totaling approximately $20,218,000 related to the grant of stock
options to employees prior to the initial public offering, the
Company amortized approximately $672,000, $1.4 million and
$6.5 million in 2003, 2002 and 2001, respectively. The
Company also incurred compensation expense of $124,000 during
2003, for the acceleration of certain stock options to
terminating employees. In addition, during 2003 and 2002, the
Company recorded approximately $399,000 and $2.9 million
respectively as a reduction in deferred compensation and
additional paid in capital related to the forfeiture of unvested
shares for terminated employees. Remaining deferred compensation
of $221,000 will be amortized in 2004.



|    |                       
|--- | ----------------------
|13. | Leases and Commitments

The Company leases its office, manufacturing and
design facilities in Sunnyvale, California, Torrance, California
and Andover, Massachusetts under non-cancelable lease
agreements, which expire in various periods through August 2006.
Expenses under operating leases were approximately
$1.7 million, $2.0 million, and $1.4 million for
December 31, 2003, 2002 and 2001, respectively.

During 2003, the Company subleased
12,700 square feet of its Sunnyvale, California headquarter
building, subleased 5,000 square feet of development space
in Torrance California and leased 20,000 square feet of
manufacturing space in Diamond Springs California, to unrelated
third parties. For the sublease in Sunnyvale, the rental income
for the lease period is less than the rental expense that will
be incurred, and therefore a loss at the sublease inception of
$662,000 was incurred. Rental income was approximately $212,000,
$0 and $0 for the years ending December 31, 2003, 2002 and
2001, respectively.

59



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ENDWAVE CORPORATION


NOTES TO
FINANCIAL STATEMENTS  (Continued)

Future annual minimum lease receipts under
non-cancelable operating leases with initial terms of one year
or more as of December 31, 2003 are as follows (in
thousands):

|                          |                                 |                |     |       | 
|------------------------- | ------------------------------- | -------------- | --- | ----- | 
|Years Ending December 31, |                                 | Rental income 
|                          |                                 |               
|                          |                                 | (In thousands)
|2004                      |                                 | $              | 274 |      
|2005                      |                                 |                | 250 |      
|2006                      |                                 |                | 212 |      
|2007                      |                                 |                | 204 |      
|2008                      |                                 |                | 174 |      
|                          |                                 |                |     |      
|                          | Total minimum payments required |                | $   | 1,114 | 
|                          |                                 |                |     |      

Future annual minimum lease payments under
non-cancelable operating leases with initial terms of one year
or more as of December 31, 2003 are as follows (in
thousands):

|                          |                                 |                |     |     | 
|------------------------- | ------------------------------- | -------------- | --- | --- | 
|                          |                                 | Operating     
|Years Ending December 31, |                                 | Leases        
|                          |                                 |               
|                          |                                 | (In thousands)
|2004                      |                                 | $              | 335 |    
|2005                      |                                 |                | 309 |    
|2006                      |                                 |                | 131 |    
|                          |                                 |                |     |    
|                          | Total minimum payments required |                | $   | 775 | 
|                          |                                 |                |     |    



|    |                           
|--- | --------------------------
|14. | Related Party Transactions

The Company maintains a supply agreement and a
technology services agreement with Velocium, a business unit of
Northrop Grumman, who is a principal stockholder of the Company.
The supply agreement specifies volume and price commitments, and
is effective through December 31, 2005. For purchases made
under these agreements, the Company recorded charges to
operating expenses of $3.1 million, $7.2 million, and
$11.6 million for 2003, 2002, and 2001, respectively.

The Company also sells various products and
services under purchase orders and agreements to Northrop
Grumman, and recognized revenues of $345,000, $837,000 and
$1.3 million in 2003, 2002 and 2001, respectively. In the
years ended December 31, 2003, 2002 and 2001, the Company
incurred costs related to these revenues of approximately
$124,000, $235,000 and $1.6 million.

At December 31, 2003, the Company had
accounts receivable of $105,000 and accounts payable of
$1.4 million, related to its supplier and customer
relationships with Northrop Grumman, respectively.

At December 31, 2002, the Company had
accounts receivable of $100,000 and accounts payable of
$1.0 million, related to its supplier and customer
relationships with Northrop Grumman, respectively.



|    |             
|--- | ------------
|15. | Income Taxes

As of December 31, 2003, the Company had a
federal net operating loss carryforward of approximately
$166 million. The Company also had federal research and
development tax credit carryforwards of approximately
$1.3 million. These net operating loss and credit
carryforwards will expire at various dates beginning in 2007
through 2023, if not utilized.

Utilization of the net operating loss and credits
may be subject to a substantial annual limitation due to the
change in ownership provisions of the Internal
Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses
and credits before utilization.

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ENDWAVE CORPORATION


NOTES TO
FINANCIAL STATEMENTS  (Continued)

Due to changes in California tax legislation, net
operating losses will not be available to offset income earned
in 2004, if any, for California state income tax purposes.

Deferred tax assets and liabilities reflect the
net tax effects of net operating loss and credit carryforwards
and temporary differences between the carrying amounts of assets
for financial reporting and the amount used for income tax
purposes. Significant components of the Companys deferred
tax assets for federal and state income taxes are as follows at
December 31 (in thousands):

|                                            |                                      |      |         |        |  |   |         |        | 
|------------------------------------------- | ------------------------------------ | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                            |                                      | 2003 |         | 2002  
|                                            |                                      |      |         |       
|Deferred tax assets:                        |                                      |      |         |        |  |   |         |       
|                                            | Net operating loss carryforwards     |      | $       | 60,200 |  |   | $       | 57,900 | 
|                                            | Research credit                      |      |         | 2,500  |  |   |         | 2,300  | 
|                                            | Capitalized research and development |      |         | 1,700  |  |   |         | 1,800  | 
|                                            | Other                                |      |         | 5,200  |  |   |         | 5,800  | 
|                                            |                                      |      |         |        |  |   |         |       
|Net deferred tax assets                     |                                      |      | 69,600  |        |  |   | 67,800  |       
|Valuation allowance for deferred tax assets |                                      |      | (69,600 | )      |  |   | (67,800 | )     
|                                            |                                      |      |         |        |  |   |         |       
|Net deferred tax asset (liabilities)        |                                      | $    |        |        |  | $ |        |       
|                                            |                                      |      |         |        |  |   |         |       

Realization of deferred taxes assets is dependent
upon future earnings, if any, the timing and amount of which are
uncertain. Accordingly, the net deferred tax assets have been
fully offset by a valuation allowance. The valuation allowance
increased by $1.8 million, $9.1 million, and
$32.1 million during 2003, 2002 and 2001 respectively.

Endwave has no provision for U.S. federal or
state income taxes for any period as it has incurred operating
losses.

The reconciliation of income tax at the
U.S. federal statutory rate to recorded income taxes is as
follows for the year ended December 31:

|                                      |  |      |     |      |  |      |     |    |  |  |     |   
|------------------------------------- |  | ---- | --- | ---- |  | ---- | --- | -- |  |  | --- | --
|                                      |  | 2003 |     | 2002 |  | 2001
|                                      |  |      |     |      |  |     
|Income tax benefit at statutory rate: |  |      | (35 | )%   |  |      | (35 | )% |  |  | (35 | )%
|State, net of federal effect          |  |      | (6  | )    |  |      | (6  | )  |  |  | (6  | ) 
|Nondeductible goodwill                |  |      |    |      |  |      |    |    |  |  | 19  |   
|Change in valuation allowance         |  |      | 37  |      |  |      | 39  |    |  |  | 20  |   
|Nondeductible deferred compensation   |  |      | 4   |      |  |      | 2   |    |  |  | 2   |   
|                                      |  |      |    | %    |  |      |    | %  |  |  |    | % 



|    |            
|--- | -----------
|16. | 401(k) Plan

Substantially all regular employees of the
company meeting certain service requirements, are eligible to
participate in the Companys 401(k) employee retirement
plan. Employee contributions are limited to a percentage of
their compensation, as defined in the plan. The Company may
match contributions based upon a percentage of employee
contributions up to a maximum of 6% of employee compensation.
Company contributions under these plans for 2003, 2002 and 2001
were $0, $129,000, and $467,000, respectively. The Company
suspended the matching of contributions effective April 7,
2002.



|    |                      
|--- | ---------------------
|17. | Purchase Acquisitions

On May 13, 2003, the Company completed the
acquisition of certain assets of Verticom, Inc. for
$250,000 in cash. The asset purchase included the product design
for Verticoms MTS-2000 synthesizer,

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ENDWAVE CORPORATION


NOTES TO
FINANCIAL STATEMENTS  (Continued)

which is used in a military and device
application, as well as the inventory, equipment and
intellectual property licenses required to manufacture and
supply production units to a new Endwave customer.

On September 24, 2002, the Company acquired
the broadband assets of the Fixed Wireless division of Signal
Technology Corporation for $3.6 million in cash, inclusive
of acquisition costs. The acquisition was accounted for using
the purchase method of accounting. The purchase price was
allocated to inventory ($2.1 million) and property, plant
and equipment ($1.5 million).

On April 24, 2001 the Company completed the
acquisition of certain assets from Tyco Electronics related to
their M/ A-COM broadband wireless business. The acquisition was
accounted for using the purchase method of accounting. The total
consideration paid by the Company in the acquisition,
$4.0 million in cash and the issuance of
229,106 shares of the Companys common stock, valued
at $2.0 million, liabilities assumed of approximately
$2.7 million and acquisition expenses of approximately
$700,000 was allocated to the of the assets acquired and
liabilities assumed as follows (in thousands):

|                              |  |   |       | 
|----------------------------- |  | - | ----- | 
|Accounts receivable           |  | $ | 3,607 | 
|Inventory                     |  |   | 2,244 | 
|Property, plant and equipment |  |   | 1,576 | 
|Goodwill                      |  |   | 2,040 | 
|                              |  |   |       | 
|Total                         |  | $ | 9,467 | 
|                              |  |   |       | 

The $2.0 million allocated to goodwill was
amortized on a straight-line basis over an 8-month period and
was fully amortized at December 31, 2001.

The results of operations of the Verticom, M/
A-Com and Signal Technology acquisitions have been included in
the results of the Company from the dates of acquisition. Pro
forma results of operations have not been presented, as the
effects of these acquisitions were not material to the
Companys financial position, results of operations or cash
flows for the period presented.



|    |                  
|--- | -----------------
|18. | Subsequent Events

Effective January 1, 2004, the Company
executed several agreements related to leasing arrangements for
its Sunnyvale headquarters. The existing lease was cancelled,
effective January 2004. In consideration of the cancellation,
the Company paid its landlord a settlement fee of
$3 million. The Company also entered into a new lease for
15,000 square feet in Sunnyvale, California at a lower,
at-market rate. The new lease rate is effective January 2004 and
will expire July 2006.

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ENDWAVE CORPORATION


NOTES TO
FINANCIAL STATEMENTS  (Continued)



|    |                                                
|--- | -----------------------------------------------
|19. | Quarterly Financial Information
    (unaudited)

|      |                                               |                                       |   |         |   |         |   |         |   |  |   |         |   |  |   |       | 
|----- | --------------------------------------------- | ------------------------------------- | - | ------- | - | ------- | - | ------- | - |  | - | ------- | - |  | - | ----- | 
|      |                                               | First                                 |   | Second  |   | Third   |   | Fourth 
|      |                                               | Quarter                               |   | Quarter |   | Quarter |   | Quarter
|      |                                               |                                       |   |         |   |         |   |        
|      |                                               |                                      
|      |                                               | (In thousands, except per share data)
|2003: |                                               |                                       |   |         |   |         |   |         |   |  |   |         |   |  |   |      
|      | Net revenues                                  |                                       | $ | 7,657   |   |         | $ | 8,470   |   |  | $ | 8,204   |   |  | $ | 9,516 | 
|      | Cost of revenues                              |                                       |   | 7,002   |   |         |   | 6,190   |   |  |   | 5,898   |   |  |   | 5,740 | 
|      | Net income (loss)(1)                          |                                       |   | (6,473  | ) |         |   | (1,896  | ) |  |   | (735    | ) |  |   | 1,194 | 
|      | Basic net income (loss) per share             |                                       | $ | (0.72   | ) |         | $ | (0.21   | ) |  |   | (0.08   | ) |  | $ | 0.13  | 
|      | Diluted net income (loss) per share           |                                       | $ | (0.72   | ) |         | $ | (0.21   | ) |  |   | (0.08   | ) |  | $ | 0.12  | 
|2002: |                                               |                                       |   |         |   |         |   |         |   |  |   |         |   |  |   |      
|      | Net revenues                                  |                                       | $ | 4,378   |   |         | $ | 6,245   |   |  | $ | 4,954   |   |  | $ | 6,995 | 
|      | Cost of revenues                              |                                       |   | 6,535   |   |         |   | 7,479   |   |  |   | 9,782   |   |  |   | 5,981 | 
|      | Net income (loss)(2)(3)                       |                                       |   | (11,446 | ) |         |   | (6,100  | ) |  |   | (13,934 | ) |  |   | 95    | 
|      | Basic and diluted net income (loss) per share |                                       | $ | (1.28   | ) |         | $ | (0.68   | ) |  | $ | (1.56   | ) |  | $ | 0.01  | 



---



|    |                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Net income (loss) for the first quarter, third
    quarter and fourth quarter of 2003 includes charges of
    $3.1 million, $629,000 and a benefit of $145,000,
    respectively, for restructuring activities, loss on sublease
    agreements and asset impairments.       
|   
|(2) | Net income (loss) for the first quarter of 2002
    and the third quarter of 2002 includes charges of
    $3.5 million and $4.9 million, respectively, for
    restructuring activities and asset impairments.                                                               
|   
|(3) | Net income for the fourth quarter of 2002
    includes recovery of $389,000 related to termination of
    employees subsequent to prior quarter restructuring charges and
    a benefit of $142,000 related to the reversal of previously
    expensed restructuring charges.

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##### Table of Contents








|        |                                                                                              
|------- | ---------------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements With
    Accountants on Accounting and Financial
    Disclosure.

Not applicable.






|         |                         
|-------- | ------------------------
|Item 9A. | Controls and Procedures.

(a) Evaluation of disclosure controls and
procedures.

Based on their evaluation as of the end of the
period covered by this Annual Report on Form 10-K, our
chief executive officer and chief financial officer have
concluded that our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange
Act)) were effective as of the end of the period covered
by this report to ensure that information that we are required
to disclose in reports that we file or submits under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange
Commission rules and forms.

Our disclosure controls and procedures are
designed to provide reasonable assurance of achieving their
objectives, and our chief executive officer and our chief
financial officer have concluded that these controls and
procedures are effective at the reasonable assurance
level. We believe that a control system, no matter how well
designed and operated, cannot provide absolute assurance that
the objectives of the control system are met, and no evaluation
of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within a company have
been detected.



|    |                              
|--- | -----------------------------
|(b) | Changes in internal controls.

In connection with various restructuring plans,
there were significant changes to our internal controls over
financial reporting (as defined in Rule 13a-15(f) of the
Exchange Act). We believe that these changes, although
significant, did not materially affect and are not reasonably
likely to materially affect our internal controls over financial
reporting.

Our independent auditor, Ernst & Young
LLP, issued comments related to its annual management letter to
our audit committee and management which included a reportable
condition related to the operation of certain internal controls.
At December 31, 2003, certain account reconciliations,
analyses and supporting documentation were not prepared or
reviewed on a timely basis due to multiple priorities as a
result of employee turnover and transition, and the
implementation of a restructuring plan.

Prior to the issuance of our financial
statements, we completed the account reconciliations, analyses
and our management review such that we can certify that the
information contained in our financial statements as of and for
each of the three years in the period ended December 31,
2003 fairly presents in all material respects the financial
condition and results of operations of Endwave.

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##### Table of Contents






PART III






|         |                                                        
|-------- | -------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant.

Our directors and executive officers, including
their ages and their positions with us, as well as certain
biographical information of these individuals, as of
December 31, 2003, are as follows:

|                      |  |     |    |          |  |                                                                                             
|--------------------- |  | --- | -- | -------- |  | --------------------------------------------------------------------------------------------
|Name                  |  | Age |    | Position
|                      |  |     |    |         
|Edward A. Keible, Jr. |  |     | 60 |          |  | Chief Executive Officer, President and Director                                             
|Julianne M. Biagini   |  |     | 41 |          |  | Chief Financial Officer, Senior Vice President,
    Finance and Administration and Secretary
|John J. Mikulsky      |  |     | 58 |          |  | Chief Marketing Officer and Senior Vice
    President, Marketing and Business Development   
|Randolph Blotky       |  |     | 58 |          |  | Director                                                                                    
|Joseph J. Lazzara     |  |     | 52 |          |  | Director                                                                                    
|Wade Meyercord        |  |     | 63 |          |  | Director                                                                                    
|Carol Herod Sharer    |  |     | 52 |          |  | Director                                                                                    
|Edward C.V. Winn      |  |     | 65 |          |  | Director                                                                                    

Edward A.
Keible, Jr.has served as our
President and Chief Executive Officer and as a director since
January 1994. From 1973 until 1993, Mr. Keible held various
positions at Raychem Corporation, culminating in the position of
Senior Vice President with specific oversight of Raychems
International and Electronics Groups. Mr. Keible has been
awarded three patents in the fields of electronics and
communications. Mr. Keible holds a B.A. in engineering
sciences and a B.E. and an M.E. in materials science from
Dartmouth College and an M.B.A. from Harvard Business School.

Julianne M. Biaginihas served as our Chief Financial
Officer and Senior Vice President of Finance and Administration
and Corporate Secretary since May 2001. From March 1994 until
April 2001, Ms Biagini served in various capacities for the
Company, most recently as Vice President of Finance and
Administration and Corporate Secretary. From 1992 until 1994,
Ms. Biagini was the manager of Accounting and Tax at
Exponent, Inc., an engineering and scientific consulting
firm. Prior to 1992, Ms. Biagini worked at KPMG as a tax
specialist. Ms. Biagini serves as a member of the Board of
Directors of the American Electronics Association.
Ms. Biagini is a C.P.A. in California with a B.S. in
business administration from San Jose State University and
an M.B.A. from Santa Clara University.

John J. Mikulskyhas
served as our Chief Marketing Officer and Senior Vice President,
Marketing and Business Development since May 2001. From May 1996
until April 2001, Mr. Mikulsky served as Vice President of
Product Development. From 1993 until 1996, Mr. Mikulsky
worked as a Technology Manager for Balazs Analytical Laboratory,
a provider of analytical services to the semiconductor and disk
drive industries. Prior to 1993, Mr. Mikulsky worked at
Raychem Corporation, most recently as a Division Manager for the
Electronic Systems Division. Mr. Mikulsky holds a B.S. in
electrical engineering from Marquette University, an M.S. in
electrical engineering from Stanford University and an M.S. in
Management from the Sloan School at the Massachusetts Institute
of Technology.

Randolph Blotkyhas
served as a director of Endwave since October 2001. Since July
2001, Mr. Blotky has served as the Chairman and Chief
Executive Officer of Technology Convergence Partners LLC, a
management consulting firm specializing in the technology,
media, marketing, communications and entertainment industries.
From 1992 to 2001, Mr. Blotky served as the Senior Vice
President and then Executive Vice President Worldwide Consumer
Products, for Warner Bros., a media and entertainment company.
Prior to working for Warner Bros., Mr. Blotky held various
executive positions in the media and entertainment industry at
MGM/ UA, United Artists Television and CBS. Prior,
Mr. Blotky was an attorney and partner in the Los Angeles
law firm of Mitchell, Silberberg & Knupp.
Mr. Blotky holds a B.S. in engineering physics from the
University of California Berkeley, attended graduate school in

65



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##### Table of Contents



astrophysics at Massachusetts Institute of
Technology, and holds a J.D. from the University of California,
Los Angeles School of Law.


Joseph J. Lazzarawas elected in February 2004 to serve
as a director of Endwave. Mr. Lazzara has served as the
Chief Executive Officer of Scientific Technologies Inc.
(STI), a manufacturer and supplier of machine
safeguarding products, since June 1993, President of STI since
June 1989, and Treasurer and a director of STI since September
1984. Mr. Lazzara served as a Vice President of STI from
September 1984 until June 1989. He has also served as Treasurer
and a director of STIs parent company, Scientific
Technology, Inc., since August 1981. Prior to 1981,
Mr. Lazzara was employed by Hewlett-Packard Company, a
global technology solutions provider, in Process and Engineering
Management. Mr. Lazzara received a B.S. in engineering from
Purdue University and an M.B.A. from Santa Clara
University. Mr. Lazzara serves as a member of the Board of
Directors of Scientific Technologies Inc.

Wade Meyercordwas
elected in March 2004 to serve as a director of Endwave. From
1987 to present, Mr. Meyercord has served as President of
Meyercord and Associates, a consulting firm specializing in
Board and Executive Compensation. From 1999 to 2002,
Mr. Meyercord served as Senior Vice President and Chief
Financial Officer of RioPort.com, Inc. From 1998 to 1999,
Mr. Meyercord Served as Senior Vice President, e-commerce
of Diamond Multimedia. Prior to 1998, Mr. Meyercord held
various management and/or executive level positions with
Read-Rite Corporation, Memorex Corporation and IBM Corporation.
Mr. Meyercord received a B.S. in mechanical engineering
from Purdue University and an M.B.A. in engineering
administration from Syracuse University. Mr. Meyercord
serves as a member on the Board of Directors of Microchip, Magma
Design Automation and California Micro Devices.

Carol Herod Sharerhas served as a director of Endwave
since April 2001. From 1996 to December 2003, Ms. Sharer
was the Chief Executive Officer of McKinley Marketing
Partners, Inc., a company she founded. From 1993 to 1995,
Ms. Sharer was an independent contractor, working primarily
with regional Bell operating companies. From 1991 to 1993
Ms. Sharer held various positions at MCI, a
telecommunications company, most recently as Senior Vice
President for Program Management and Planning. Ms. Sharer
holds a B.A. in Economics from Florida International University
and an M.B.A. from George Washington University with a
concentration in finance.

Edward C.V. Winnhas
served as a director of Endwave since July 2000. From March 1992
to January 2000, Mr. Winn served in various capacities with
TriQuint Semiconductor, Inc., a semiconductor manufacturer,
most recently as Executive Vice President, Finance and
Administration and Chief Financial Officer. Previously,
Mr. Winn served in various capacities with
Avantek, Inc., a microwave component and subsystem
manufacturer, most recently as Product Group Vice President.
Mr. Winn received a B.S. in Physics from Rensselaer
Polytechnic Institute and an M.B.A. from Harvard Business
School. Mr. Winn serves as a member on the Board of
Directors of OmniVision Technologies, Inc. and NASSDA Corp.

Executive officers serve at the discretion of our
Board of Directors. There are no family relationships between
any of our executive officers and members of the Board. No
director has a contractual right to serve as a member of our
Board of Directors.

The Board of Directors has an Audit Committee.
During 2003, the Audit Committee was composed of three
directors: Mr. Winn, Chairman of the Committee,
Ms. Sharer and Mr. Pavey. In February 2004,
Mr. Pavey resigned as a member of the Board of Directors
and as a member of the Committee. In March 2004,
Mr. Lazzara was elected to the Audit Committee. The Board
of Directors has determined that Edward C.V. Winn is an audit
committee financial expert and is independent (as independence
is currently defined in Rule 4200(a)(15) of the National
Association of Securities Dealers listing standards).

The Board of Directors has a Compensation
Committee. During 2003, the Compensation Committee was composed
of two directors: Mr. Pavey, Chairman of the Committee and
Ms. Sharer. In February 2004, Mr. Pavey resigned as a
member of the Board of Directors and as a member of the
Committee. In February 2004, Mr. Winn was elected to the
Compensation Committee.

66



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The Board of Directors is currently in the
process of reviewing and discussing a proposed code of ethics.
The Board of Directors will adopt a code of ethics prior to the
May deadline of the Nasdaq and at such time we will post the
text of the code of ethics on our website.

Section 16(a) Beneficial Ownership
Reporting Compliance

Section 16(a) of the Exchange Act requires
our directors and executive officers, and persons who own more
than ten percent of our Common Stock, to file with the
Commission initial reports of ownership and reports of changes
in ownership of Common Stock of Endwave. Officers, directors and
greater than ten percent stockholders are required by the
Commissions regulations to furnish us with copies of all
Section 16(a) forms they file.

To our knowledge, based solely on a review of the
copies of such reports furnished to us and written
representations that no other reports were required, during the
fiscal year ended December 31, 2003, Endwaves
officers, directors and greater than ten percent beneficial
owners complied with all applicable Section 16(a) filing
requirements.






|         |                        
|-------- | -----------------------
|Item 11. | Executive Compensation.

Compensation of Directors

In April 2001, we adopted a policy whereby each
of our non-employee directors would thereafter receive a fee of
$1,000 for each Board meeting attended, and for each committee
meeting attended in person by those Board members serving on
committees of the Board of Directors occurring apart from a
meeting of the full Board. In January 2004, we increased the fee
to be paid for each Board meeting to $1,500. Additionally,
effective January 2004, annual retainer payments will be made as
follows: non-employee Board membership  $5,000, each
committee membership  $2,000, and each committee or
Board chairmanship  $1,000. The members of the Board
of Directors are eligible for reimbursement for their travel
expenses incurred in connection with attendance at Board and
committee meetings in accordance with Company policy.

Non-employee directors are eligible to
participate in our 2000 Non-Employee Director Plan (the
Director Plan). Pursuant to the Director Plan, all
non-employee directors are automatically granted an option to
purchase 10,000 shares of Common Stock upon their election
to our Board of Directors. Our non-employee directors will also
be granted an option to purchase an additional 2,500 shares
of Common Stock each year following the date of our annual
stockholders meeting, provided that if any non-employee director
has not served in that capacity for the entire period since the
preceding annual stockholders meeting, then the number of shares
subject to the annual grant will be reduced, pro rata, for each
full quarter the person did not serve during the previous
period. All options under this plan expire after ten years and
have an exercise price equal to the fair market value on the
date of grant. These options vest over four years at the rate of
1/48 of the total grant per month. In January 2004, we approved
increases to the Director Plan such that the automatic grant
upon election to our Board of Directors will be an option to
purchase 20,000 shares of Common Stock and the annual grant
will be an option to purchase 5,000 shares of Common Stock.
These increases will be effective only upon approval by our
stockholders. Our directors are also eligible to participate in
our 2000 Equity Incentive Plan and our employee directors are
eligible to participate in our 2000 Employee Stock Purchase Plan.

During the last fiscal year, we granted options
covering an aggregate of 10,000 shares to our non-employee
directors at an exercise price of $4.75. The fair market of such
Common Stock on the date of grant was the same as the exercise
price per share (based on the closing sales price reported on
the Nasdaq National Market for the date of grant). As of
March 1, 2004, 5,000 shares of Common Stock have been
exercised under the Director Plan.

67



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##### Table of Contents



Compensation of Executive Officers

Summary of Compensation

The following table shows, for the years ended
December 31, 2003, 2002 and 2001, compensation awarded or
paid to or earned by our Chief Executive Officer and our two
other executive officers and our two most highly compensated
non-executive officers (the Named Officers) for
services rendered by them as our executive officers.

Summary Compensation Table

|                            |                                 |      |      |                        |  |              |         |              |     |            |        |              |  |  |        |       |     |  |         |         |  |  |   |       |    
|--------------------------- | ------------------------------- | ---- | ---- | ---------------------- |  | ------------ | ------- | ------------ | --- | ---------- | ------ | ------------ |  |  | ------ | ----- | --- |  | ------- | ------- |  |  | - | ----- | ---
|                            |                                 |      |      |                        |  | Long Term    |         |             
|                            |                                 |      |      | Annual Compensation(1) |  | Compensation |         |             
|                            |                                 |      |      |                        |  | Awards       |         |             
|                            |                                 |      |      |                        |  | Other Annual |         | Securities   |     | All Other 
|                            |                                 |      |      | Salary                 |  | Bonus        |         | Compensation |     | Underlying |        | Compensation
|Name and Principal Position |                                 | Year |      | ($)                    |  | ($)          |         | ($)(2)       |     | Options(#) |        | ($)         
|                            |                                 |      |      |                        |  |              |         |              |     |            |        |             
|Edward A. Keible, Jr.       |                                 |      | 2003 |                        |  |              | 318,000 |              |     |            | 95,400 |              |  |  | 1,974  |       |     |  | 512,014 |         |  |  |  |      
|                            | President, Chief Executive      |      |      | 2002                   |  |              |         | 318,000      |     |            |        |             |  |  |        | 874   |     |  |         | 317,174 |  |  |   | 1,712 | (5)
|                            | Officer and Director            |      |      | 2001                   |  |              |         | 309,161      |     |            |        |             |  |  |        | 2,006 |     |  |         | 74,777  |  |  |   | 3,060 | (5)
|Julianne M. Biagini         |                                 |      | 2003 |                        |  |              | 195,000 |              |     |            | 48,750 |              |  |  | 963    |       |     |  | 208,505 |         |  |  |  |      
|                            | Chief Financial Officer, Senior |      |      | 2002                   |  |              |         | 195,000      |     |            |        |             |  |  |        | 401   |     |  |         | 140,248 |  |  |   | 1,800 | (5)
|                            | Vice President, Finance and     |      |      | 2001                   |  |              |         | 180,874      |     |            |        |             |  |  |        | 1,099 |     |  |         | 62,560  |  |  |   | 3,060 | (5)
|                            | Administration, and Corporate   |      |      |                        |  |              |         |              |     |            |        |              |  |  |        |       |     |  |         |         |  |  |   |       |    
|                            | Secretary                       |      |      |                        |  |              |         |              |     |            |        |              |  |  |        |       |     |  |         |         |  |  |   |       |    
|John J. Mikulsky            |                                 |      | 2003 |                        |  |              | 225,000 |              |     |            | 56,250 |              |  |  | 1,573  |       |     |  | 242,616 |         |  |  |  |      
|                            | Chief Marketing Officer and     |      |      | 2002                   |  |              |         | 225,000      |     |            |        |             |  |  |        | 583   |     |  |         | 143,750 |  |  |   | 1,696 | (5)
|                            | Senior Vice President,          |      |      | 2001                   |  |              |         | 211,971      |     |            |        |             |  |  |        | 1,595 |     |  |         | 66,387  |  |  |   | 3,060 | (5)
|                            | Market and Business             |      |      |                        |  |              |         |              |     |            |        |              |  |  |        |       |     |  |         |         |  |  |   |       |    
|                            | Development                     |      |      |                        |  |              |         |              |     |            |        |              |  |  |        |       |     |  |         |         |  |  |   |       |    
|Mark A. Hebeisen(3)         |                                 |      | 2003 |                        |  |              | 164,451 |              |     |            | 30,000 |              |  |  | 1,400  |       |     |  | 70,100  |         |  |  |  |      
|                            | Vice President, Marketing       |      |      | 2002                   |  |              |         | 41,851       |     |            |        | 11,000       |  |  |        | 350   |     |  |         | 57,500  |  |  |   |       |    
|Steven C. Polaski(4)        |                                 |      | 2003 |                        |  |              | 189,869 | (7)          |     |            | 26,000 |              |  |  | 28,175 |       |     |  | 41,000  |         |  |  |  |      
|                            | Director, Asian Manufacturing   |      |      | 2002                   |  |              |         | 40,724       | (7) |            |        | 7,000        |  |  |        | 340   | (6) |  |         | 30,000  |  |  |   |       |    



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In accordance with rules promulgated by the
    Commission, other annual compensation in the form of perquisites
    and other personal benefits has been omitted where the aggregate
    amount of such perquisites and other personal benefits
    constitutes less than the lesser of $50,000 or 10% of the total
    annual salary and bonus for the Named Officer for the fiscal
    year.
|   
|(2) | Represents insurance premiums paid by Endwave
    with respect to group life insurance for the benefit of the
    Named Officers.                                                                                                                                                                                                                                                              
|   
|(3) | Mr. Hebeisen commenced employment with us in
    September 2002.                                                                                                                                                                                                                                                                                                                               
|   
|(4) | Mr. Polaski commenced employment with us in
    September, 2002.                                                                                                                                                                                                                                                                                                                               
|   
|(5) | Represents matching contributions paid by Endwave
    under our 401(k) plan to the Named Officers.                                                                                                                                                                                                                                                                                             
|   
|(6) | Includes $27,000 for per diem amounts paid to
    Mr. Polaski in connection with his employment in Thailand
    in 2003.                                                                                                                                                                                                                                                                       
|   
|(7) | Includes foreign service pay premium.                                                                                                                                                                                                                                                                                                                                                          

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Stock Option Grants and Exercises

The following table sets forth information
regarding options granted to each Named Officer during the year
ended December 31, 2003. The information regarding stock
options granted to Named Officers as a percentage of total
options granted to employees in 2003 is based on options to
purchase a total of 725,574 shares that were granted to
employees, consultants and directors in 2003, under our 2000
Equity Incentive Plan. No stock appreciation rights, stock
purchase rights or restricted stock awards were granted during
2003.

Option Grants in Fiscal Year 2003

|                      |  |            |        |            |  |          |       |            |  |                      |      |     |  |  |          |  |  |  |        |  |  |  |         | 
|--------------------- |  | ---------- | ------ | ---------- |  | -------- | ----- | ---------- |  | -------------------- | ---- | --- |  |  | -------- |  |  |  | ------ |  |  |  | ------- | 
|                      |  |            |        |            |  |          |       |            |  |                     
|                      |  |            |        |            |  |          |       |            |  | Potential Realizable
|                      |  |            |        | % of Total |  |          |       |            |  | Value at Assumed    
|                      |  | Number of  |        | Options    |  |          |       |            |  | Annual Rates of     
|                      |  | Securities |        | Granted to |  |          |       |            |  | Stock Price         
|                      |  | Underlying |        | Employees  |  |          |       |            |  | Appreciation for    
|                      |  | Options    |        | in Fiscal  |  | Exercise |       |            |  | Option Term($)(2)   
|                      |  | Granted    |        | Year       |  | Price    |       | Expiration |  |                     
|Name                  |  | (#)(1)     |        | (%)        |  | ($/Sh)   |       | Date       |  | 5%                   |      | 10%
|                      |  |            |        |            |  |          |       |            |  |                      |      |    
|Edward A. Keible, Jr. |  |            | 33,075 |            |  |          | 4.56  |            |  |                      | 1.17 |     |  |  | 1/29/13  |  |  |  | 24,876 |  |  |  | 62,532  | 
|                      |  |            | 77,702 |            |  |          | 10.71 |            |  |                      | 1.93 |     |  |  | 6/4/13   |  |  |  | 94,312 |  |  |  | 239,005 | 
|Julianne M. Biagini   |  |            | 17,249 |            |  |          | 2.38  |            |  |                      | 1.17 |     |  |  | 1/29/13  |  |  |  | 12,973 |  |  |  | 32,611  | 
|                      |  |            | 29,410 |            |  |          | 4.05  |            |  |                      | 1.93 |     |  |  | 6/4/13   |  |  |  | 35,697 |  |  |  | 90,463  | 
|John J. Mikulsky      |  |            | 18,750 |            |  |          | 2.58  |            |  |                      | 1.17 |     |  |  | 1/29/13  |  |  |  | 14,102 |  |  |  | 35,449  | 
|                      |  |            | 37,049 |            |  |          | 5.11  |            |  |                      | 1.93 |     |  |  | 6/4/13   |  |  |  | 44,969 |  |  |  | 113,960 | 
|Mark A. Hebeisen      |  |            | 12,600 |            |  |          | 1.74  |            |  |                      | 1.93 |     |  |  | 6/4/13   |  |  |  | 15,293 |  |  |  | 38,757  | 
|Steven C. Polaski     |  |            | 9,000  |            |  |          | 1.24  |            |  |                      | 1.93 |     |  |  | 6/4/13   |  |  |  | 10,924 |  |  |  | 27,683  | 
|                      |  |            | 2,000  |            |  |          | .28   |            |  |                      | 5.78 |     |  |  | 10/25/13 |  |  |  | 7,333  |  |  |  | 18,520  | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Options granted under the 2000 Equity Incentive
    Plan and under the Companys 1992 Stock Option Plan will
    vest in accordance with the Companys Officer Retention
    Plan, detailed in Employment Contracts, Termination of
    Employment and Change-in-Control Arrangements below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(2) | The potential realizable value is based on the
    term of the option at its time of grant. It is calculated by
    assuming that the stock price on the date of grant appreciates
    at the indicated rate, compounded annually for the entire term
    of the option and the option is exercised solely on the last day
    of its term for the appreciated price. These amounts represent
    certain assumed rates of appreciation less the exercise price,
    in accordance with the rules of the Commission, and do not
    reflect our estimate or projection of future stock price
    performance. Actual gains, if any, are dependent on the actual
    future performance of our Common Stock and no gain to the
    optionee is possible unless the stock price increases over the
    option term, which will benefit all stockholders.

Aggregated Option Exercises in the Last Fiscal
Year and Fiscal Year-End Option Values

|                      |  |                 |   |             |  |                |   |                      |  |  |                |  |  |   |                 | 
|--------------------- |  | --------------- | - | ----------- |  | -------------- | - | -------------------- |  |  | -------------- |  |  | - | --------------- | 
|                      |  |                 |   |             |  | Number of      |   |                     
|                      |  |                 |   |             |  | Securities     |   |                     
|                      |  |                 |   |             |  | Underlying     |   | Value of Unexercised
|                      |  |                 |   |             |  | Unexercised    |   | In-the-Money        
|                      |  |                 |   |             |  | Options at FY- |   | Options at          
|                      |  |                 |   |             |  | End(#)         |   | FY-End($)           
|                      |  | Shares Acquired |   | Value       |  | Exercisable/   |   | Exercisable/        
|Name                  |  | on Exercise(#)  |   | Realized($) |  | Unexercisable  |   | Unexercisable       
|                      |  |                 |   |             |  |                |   |                     
|Edward A. Keible, Jr. |  |                 |  |             |  |                |  |                      |  |  | 521,014/ 0     |  |  | $ | 3,527,736/0     | 
|Julianne M. Biagini   |  |                 |  |             |  |                |  |                      |  |  | 208,505/ 0     |  |  | $ | 1,447,115/0     | 
|John J. Mikulsky      |  |                 |  |             |  |                |  |                      |  |  | 242,616/ 0     |  |  | $ | 1,671,949/0     | 
|Mark A. Hebeisen      |  |                 |  |             |  |                |  |                      |  |  | 70,100/ 0      |  |  | $ | 515,936/0       | 
|Steven C. Polaski     |  |                 |  |             |  |                |  |                      |  |  | 18,175/ 22,825 |  |  | $ | 133,768/167,992 | 

69



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##### Table of Contents



Employment Contracts, Termination of
Employment and Change-in-Control Arrangements

In March 2000, in connection with our merger with
TRW Milliwave Inc. (TRW Milliwave), our Board of
Directors approved an Officer Retention Plan providing for the
acceleration of vesting, under certain circumstances, of a
portion of stock options granted to our officers under our 1992
Stock Option Plan and 2000 Equity Incentive Plan. The Officer
Retention Plan was amended in March 2002 and in October 2003 and
renamed the Executive Officer Severance and Retention Plan.
Under the Executive Officer Severance and Retention Plan, as
amended, if an officer is terminated without cause, or resigns
for certain specified reasons, not in connection with a change
of control, the officer will receive (i) salary and
benefits continuation based on the officers length of
service with us, (ii) full acceleration of vesting on the
unvested portion of the officers stock options granted
prior to our merger with TRW Milliwave, and
(iii) acceleration of vesting on the unvested portion of
the officers stock options granted after our merger with
TRW Milliwave, based on the officers length of service
with us. Upon a change of control, an officer will receive
(i) full acceleration of vesting on the unvested portion of
the officers stock options granted prior to our merger
with TRW Milliwave and (ii) acceleration of vesting on the
unvested portion of the officers stock options granted
after our merger with TRW Milliwave, based on the officers
length of service with us. Finally, if, in connection with a
change of control, an officer is terminated without cause, or
resigns for certain specified reasons, the officer will receive
(i) twice the salary and benefits continuation described
above, (ii) full acceleration of vesting on the unvested
portion of the officers stock options granted prior to the
merger with TRW Milliwave, and (iii) twice the acceleration
of vesting described above on the unvested portion of the
officers stock options granted after the merger with TRW
Milliwave.

In 2003, our Board of Directors approved a
Transaction Incentive Plan. Under the Transaction Incentive
Plan, an eligible employee will receive a cash bonus if the
employee remains employed by us at the time of a change of
control. The amount of the bonus will be based upon the amount
of proceeds received by our stockholders in the transaction
(including certain dividends), reduced by profits received by
the eligible employee on certain vested stock options.

Compensation Committee Interlocks and Insider
Participation

No member of our compensation committee is or has
been an officer or employee of Endwave. In addition, no member
of our compensation committee serves as a member of a Board of
Directors or Compensation Committee of any entity that has one
or more executive officers serving as a member of our Board of
Directors.

70



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##### Table of Contents








|         |                                                                                                        
|-------- | -------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters.

SECURITY OWNERSHIP OF

CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT


The following table sets forth certain
information regarding the ownership of our Common Stock as of
March 1, 2004 by: (i) each of the Named Officers;
(ii) each director; (iii) our Named Officers and
directors as a group; and (iv) all those known by us to be
beneficial owners of more than five percent of our Common Stock.

|                                                                 |                            |                         |           |          |  |  |       |   | 
|---------------------------------------------------------------- | -------------------------- | ----------------------- | --------- | -------- |  |  | ----- | - | 
|                                                                 |                            |                        
|                                                                 |                            | Beneficial Ownership(1)
|                                                                 |                            |                        
|                                                                 |                            | Number of               |           | % of    
|Name and Address                                                 |                            | Shares                  |           | Total(2)
|                                                                 |                            |                         |           |         
|Northrop Grumman S&MS(3)                                         |                            |                         | 3,473,312 |          |  |  | 36.31 | %
|                                                                 | 1840 Century Park          |                         |           |          |  |  |       |   | 
|                                                                 | East Los Angeles, CA 90067 |                         |           |          |  |  |       |   | 
|Edward A. Keible, Jr.(4)                                         |                            |                         | 702,613   |          |  |  | 7.35  | %
|                                                                 | c/o Endwave                |                         |           |          |  |  |       |   | 
|                                                                 | 990 Almanor Avenue         |                         |           |          |  |  |       |   | 
|                                                                 | Sunnyvale, CA 94085        |                         |           |          |  |  |       |   | 
|Julianne M. Biagini(5)                                           |                            |                         | 228,265   |          |  |  | 2.39  | %
|John J. Mikulsky(6)                                              |                            |                         | 284,681   |          |  |  | 2.98  | %
|Mark A. Hebeisen(7)                                              |                            |                         | 62,981    |          |  |  | *     |  
|Steve Polaski(8)                                                 |                            |                         | 26,069    |          |  |  | *     |  
|Randolph Blotky(9)                                               |                            |                         | 2,316     |          |  |  | *     |  
|Joseph J. Lazzara(10)                                            |                            |                         | 982       |          |  |  | *     |  
|Wade Meyercord(9)                                                |                            |                         | 416       |          |  |  | *     |  
|Carol Herod Sharer(9)                                            |                            |                         | 9,165     |          |  |  | *     |  
|Edward C.V. Winn(11)                                             |                            |                         | 19,243    |          |  |  | *     |  
|All directors and Named Officers as a group (10
    persons)(12) |                            |                         | 1,336,731 |          |  |  | 13.97 | %



---



| |   |                       
| | - | ----------------------
| | * | Less than one percent.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | This table is based upon information supplied to
    us by our officers, directors and principal stockholders and
    upon any Schedules 13D or 13G filed with the Securities and
    Exchange Commission (the Commission). Unless
    otherwise indicated in the footnotes to this table and subject
    to community property laws where applicable, we believe that
    each of the stockholders named in this table has sole voting and
    investment power with respect to the shares indicated as
    beneficially owned.
|
| | (2) | Applicable percentages are based on
    9,565,654 shares outstanding on March 1, 2004,
    adjusted as required by rules promulgated by the Commission.                                                                                                                                                                                                                                                                                                                                                                           
|
| | (3) | The shares are held by Northrop Grumman
    Space & Mission Systems Corp. (formerly TRW Inc.)
    (Northrop Grumman S&MS), a wholly owned
    subsidiary of Northrop Grumman Corporation. Northrop Grumman
    S&MS has the direct power to vote and direct the disposition
    of the shares. Northrop Grumman Corporation, as the sole parent
    of Northrop Grumman S&MS has the indirect power to vote and
    dispose of the shares.                                                                                      
|
| | (4) | Includes 589,014 shares issuable upon
    exercise of options exercisable within 60 days of the date
    of this table. If exercised in full within 60 days of the
    date of this table, 180,989 shares would be subject to
    repurchase by us. Also includes 104,703 shares held by the
    Keible Family Trust of which Mr. Keible is co-trustee and
    625 shares held by Mr. Keibles father-in-law.
    Mr. Keibles spouse shares voting and investment power
    over the shares held by Mr. Keibles father-in-law.  

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| |     |                                                                                                                                                                                                                                                                                                                                             
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) | Includes 233,503 shares issuable upon
    exercise of options exercisable within 60 days of the date
    of this table. If exercised in full within 60 days of the
    date of this table, 87,284 shares would be subject to
    repurchase by us. Also includes 1,234 shares held in a
    trust for the benefit of Ms. Biaginis daughter.
|
| | (6) | Includes 282,616 shares issuable upon
    exercise of options exercisable within 60 days of the date
    of this table. If exercised in full within 60 days of the
    date of this table, 95,835 shares would be subject to
    repurchase by us.                                                                                          
|
| | (7) | Includes 60,807 shares issuable upon
    exercise of options exercisable within 60 days of the date
    of this table. If exercised in full within 60 days of the
    date of this table, 57,676 shares would be subject to
    repurchase by us.                                                                                           
|
| | (8) | Includes 20,137 shares issuable upon
    exercise of options exercisable within 60 days of the date
    of this table.                                                                                                                                                                                                                      
|
| | (9) | Represents shares issuable upon exercise of
    options exercisable within 60 days of the date of this
    table.                                                                                                                                                                                                                           



|     |                                                                                                                                                                                                                                                                                                                   
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Includes 832 shares issuable upon exercise
    of options exercisable within 60 days of the date of this
    table.                                                                                                                                                                                               
|    
|(11) | Includes 17,993 shares issuable upon
    exercise of options exercisable within 60 days of the date
    of this table.                                                                                                                                                                                            
|    
|(12) | See footnotes 4 through 11 above, as
    applicable. Includes 1,206,801 shares issuable upon
    exercise of options exercisable within 60 days of the date
    of this table. If exercised in full within 60 days of the
    date of this table, 421,784 shares would be subject to a
    repurchase right by us.

Equity Compensation Plan Information

The following table provides certain information
with respect to all of our equity compensation plans in effect
as of the end of December 31, 2003.

|                                                               |       |                      |           |                   |  |                         |      |      |  |  |           |           | 
|-------------------------------------------------------------- | ----- | -------------------- | --------- | ----------------- |  | ----------------------- | ---- | ---- |  |  | --------- | --------- | 
|                                                               |       | Number of            |           |                   |  | Number of Securities   
|                                                               |       | Securities to be     |           | Weighted-Average  |  | Remaining Available    
|                                                               |       | Issued Upon          |           | Exercise Price of |  | for Issuance Under     
|                                                               |       | Exercise of          |           | Outstanding       |  | Equity Compensation    
|                                                               |       | Outstanding Options, |           | Options,          |  | Plans (Excluding       
|                                                               |       | Warrants and         |           | Warrants and      |  | Securities Reflected in
|Plan Category                                                  |       | Rights(a)            |           | Rights(b)         |  | Column(a))(c)(1)       
|                                                               |       |                      |           |                   |  |                        
|Equity compensation plans approved by security
    holders     |       |                      | 1,934,661 |                   |  | $                       | 3.50 |      |  |  | 1,548,880 | (2)      
|Equity compensation plans not approved by
    security holders |       |                      | 0         |                   |  |                         | 0    |      |  |  | 0         |          
|                                                               |       |                      |           |                   |  |                         |      |      |  |  |           |          
|                                                               | Total |                      |           | 1,934,661         |  |                         | $    | 3.50 |  |  |           | 1,548,880 | 
|                                                               |       |                      |           |                   |  |                         |      |      |  |  |           |          



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Each year on October 17, starting 2001 and
    continuing through 2005, the aggregate number of shares of
    common stock that may be issued pursuant to stock awards under
    the 2000 Equity Incentive Plan is automatically increased by the
    lesser of 3,000,000 shares or 6% of the total number of
    shares of common stock outstanding on that date or such lesser
    amount as may be determined by the Board of Directors. In
    addition, each year on October 17, starting in 2001 and
    continuing through 2005, the aggregate number of shares of
    common stock that may be issued pursuant to stock awards under
    the 2000 Employee Stock Purchase Plan is automatically increased
    by the lesser of 350,000 shares or 1.5% of the total number
    of shares of common stock outstanding on that date or such
    lesser amount as may be determined by the Board of Directors.
|   
|(2) | Includes 136,606 shares issuable under the
    2000 Employee Stock Purchase Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

72



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|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

Indemnification

Our By-Laws provide that we will indemnify our
directors and executive officers and may indemnify our other
officers, employees and other agents to the extent not
prohibited by Delaware law. The By-Laws also require us to
advance litigation expenses in the case of stockholder
derivative actions or other actions. The indemnified party must
repay such advances if it is ultimately determined that the
indemnified party is not entitled to indemnification.

Transactions with Northrop Grumman
Corporation, TRW Inc. and Velocium

In connection with our merger with TRW Milliwave
Inc. (TRW Milliwave) in March 2000, Endwave also
entered into agreements with TRW Inc., which was subsequently
acquired by Northrop Grumman Corporation. As a result of the
acquisition, TRW Inc. is now named Northrop Grumman
Space & Mission Systems Corp (Northrop
Grumman). Northrop Grumman is a stockholder of Endwave
owning more than 5% of our Common Stock.

We maintain a supply agreement and a technology
services agreement with Velocium, a business unit of Northrop
Grumman, who is a principal stockholder of Endwave. The supply
agreement specifies volume and price commitments, and is
effective through December 31, 2005. For purchases made
under these agreements, we recorded charges to operating
expenses of $3.1 million, $7.2 million, and
$11.6 million for 2003, 2002, and 2001, respectively.

We also sell various products and services under
purchase orders and agreements to Northrop Grumman, and
recognized revenues of $345,000, $837,000 and $1.3 million
in 2003, 2002 and 2001, respectively. In the years ended
December 31, 2003, 2002 and 2001, the Company incurred
costs related to these revenues of approximately $124,000,
$235,000 and $1.6 million.

At December 31, 2003, we had accounts
receivable of $105,000 and accounts payable of
$1.4 million, related to our supplier and customer
relationships with Northrop Grumman, respectively.

At December 31, 2002, we had accounts
receivable of $100,000 and accounts payable of
$1.0 million, related to its supplier and customer
relationships with Northrop Grumman, respectively.

During 2001, we provided a $4.3 million
warranty charge to cover the actual repair of the transceivers
containing faulty components of which $872,000 has been used. We
believe that the cause of the components out of
specification performance has been identified and corrected, and
that this reserve is adequate to cover our actual repair costs.
Additionally, this reserve will cover any liability for our
share of the indirect costs for which our component supplier may
ultimately be responsible to our customer.

Other Transactions

Effective January 1, 2004, the Company
executed several agreements related to leasing arrangements for
its Sunnyvale headquarters. Due to declining commercial real
estate lease rates, the original lease executed in August 1991
was at an above market rate, and would have expired July 2006.
This lease has been cancelled, effective January 2004. In
consideration of the cancellation, the Company paid its landlord
a settlement fee of $3 million. The Company also entered
into a new lease for 15,000 square feet in Sunnyvale,
California at a lower, at-market rate. The new lease rate is
effective January 2004 and will expire July 2006.

73



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|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

The following table shows the fees paid or
accrued by Endwave for the audit and other services provided by
our auditors Ernst & Young LLP for fiscal 2003 and 2002
(in thousands):

|                      |  |      |     |      |  |   |     | 
|--------------------- |  | ---- | --- | ---- |  | - | --- | 
|                      |  | 2003 |     | 2002
|                      |  |      |     |     
|Audit Fees(1)         |  | $    | 352 |      |  | $ | 292 | 
|Audit Related Fees(2) |  |      | 22  |      |  |   | 19  | 
|Tax Fees(3)           |  |      | 30  |      |  |   | 10  | 
|All Other Fees(4)     |  |      | 3   |      |  |   |    | 
|                      |  |      |     |      |  |   |     | 
|Total                 |  | $    | 407 |      |  | $ | 321 | 
|                      |  |      |     |      |  |   |     | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Audit fees represent fees for professional
    services provided in connection with the audit of our annual
    financial statements and review of our quarterly financial
    statements, and advice on accounting matters that arose during
    the audit. Fiscal 2002 audit fees have been amended from the
    Companys 2002 Form 10-K to include approximately
    $52,000 of audit services which had not been billed to the
    Company at the time of the filing.
|   
|(2) | Audit-related fees consisted principally of
    employee benefit plan audits.                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(3) | Tax fees consisted primarily of income tax
    compliance and related services.                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(4) | Represents fees for services provided in
    connection with other miscellaneous items not otherwise included
    in the categories above.                                                                                                                                                                                                                                                                                                                                

The Audit Committee has determined that the
provision by Ernst & Young LLP of non-audit services is
compatible with maintaining the independence of Ernst &
Young LLP. During fiscal 2003, all services provided by
Ernst & Young LLP were pre-approved by the Audit
Committee.

74



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PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K

(a) Financial Statements Schedules and
Exhibits.

(1) The following financial statements are
included in Item 8:



| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | Report of Ernst & Young
    LLP, Independent Auditors                                                 
| | Balance Sheets as of December 31, 2003 and
    2002                                                   
| | Statements of Operations for the years ended
    December 31, 2003, 2002, and 2002                    
| | Statement of Changes in Stockholders Equity
    for the years ended December 31, 2003, 2002, and 2001
| | Statements of Cash Flows for years ended
    December 31, 2003, 2002, and 2001                        
| | Notes to Financial Statements                                                                         

(2) The following financial statement
schedule is included in item 14(d):



| |                                                    
| | ---------------------------------------------------
| | Schedule II  Valuation and
    Qualifying Accounts

All other schedules not listed above have been
omitted because they are inapplicable or are not required.

(3) Listing of Exhibits:

|       |           |             |  |                                                                                                                                                                                                                                  
|------ | --------- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |           | Description
|       |           |            
|       | 2.1(iii)  |             |  | Asset Purchase Agreement by and among M/ A-COM
    Tech, Inc., Tyco Electronics Logistics AG and the
    Registrant dated as of April 24, 2001.                                                                                  
|       | 2.2(v)    |             |  | Asset Purchase Agreement by and among Signal
    Technology Corporation and the Registrant dated as of
    September 24, 2002.                                                                                                   
|       | 3.1(i)    |             |  | Amended and Restated Certificate of Incorporation
    effective October 20, 2000.                                                                                                                                                
|       | 3.2(i)    |             |  | Amended and Restated Bylaws effective
    October 20, 2000.                                                                                                                                                                      
|       | 4.1(i)    |             |  | Form of specimen Common Stock Certificate.                                                                                                                                                                                       
|       | 4.2(i)    |             |  | Investors Rights Agreement dated
    March 31, 2000 by and among the Registrant and certain
    investors named therein.                                                                                                        
|       | 4.3(i)    |             |  | Warrant to Purchase Stock dated March 16,
    1998, issued by the Registrant to Silicon Valley Bank for the
    purchase of shares of the Registrants Series E
    Preferred Stock.                                             
|       | 4.4(iii)  |             |  | Rights Agreement by and between M/ A-COM
    Tech, Inc. and the Registrant dated as of April 24,
    2001.                                                                                                                       
|       | 10.1(i)   |             |  | Form of Indemnity Agreement entered into by the
    Registrant with each of its directors and officers.                                                                                                                          
|       | 10.2(i)   |             |  | 1992 Stock Option Plan.                                                                                                                                                                                                          
|       | 10.3(i)   |             |  | Form of Incentive Stock Option under 1992 Stock
    Option Plan.                                                                                                                                                                 
|       | 10.4(i)   |             |  | Form of Nonstatutory Stock Option under 1992
    Stock Option Plan.                                                                                                                                                              
|       | 10.5(i)   |             |  | Amended and Restated 2000 Equity Incentive Plan.                                                                                                                                                                                 
|       | 10.6(i)   |             |  | Form of Stock Option Agreement under 2000 Equity
    Incentive Plan.                                                                                                                                                             
|       | 10.7(i)   |             |  | 2000 Employee Stock Purchase Plan.                                                                                                                                                                                               
|       | 10.8(i)   |             |  | Form of 2000 Employee Stock Purchase Plan
    Offering.                                                                                                                                                                          
|       | 10.9(i)   |             |  | 2000 Non-Employee Director Plan.                                                                                                                                                                                                 
|       | 10.10(i)  |             |  | Form of Nonstatutory Stock Option Agreement under
    the 2000 Non-Employee Director Plan.                                                                                                                                       
|       | 10.11(ix) |             |  | Executive Officer Severance and Retention Plan.                                                                                                                                                                                  
|       | 10.12(iv) |             |  | Industrial Lease by and between The Irvine
    Company and the Registrant dated July 2, 2001.                                                                                                                                    
|       | 10.18(i)  |             |  | Production Agreement by and between TRW Inc. and
    the Registrant dated March 31, 2000 for the performance of
    the Development Agreement by and between TRW Inc. and Nokia
    Telecommunications OY dated January 28, 1999.

75



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##### Table of Contents



|       |             |             |  |                                                                                                                                                                                            
|------ | ----------- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |             | Description
|       |             |            
|       | 10.20(i)    |             |  | Services Agreement by and between TRW Inc. and
    the Registrant dated March 31, 2000.                                                                                                    
|       | 10.21(i)    |             |  | Supply Agreement by and between TRW Inc. and the
    Registrant dated March 31, 2000.                                                                                                      
|       | 10.23(i)    |             |  | License Agreement by and between TRW Inc. and TRW
    Milliwave Inc. dated February 28, 2000.                                                                                              
|       | 10.24(ii)   |             |  | Purchase Agreement No. 1201000 made and
    entered into by and between Nokia Networks By and Endwave
    Corporation on November 7, 2000.                                                 
|       | 10.25(vi)   |             |  | Contract Change Notice/ Amendment No. 1 to
    the Supply Agreement by and between TRW Inc. and the Registrant
    dated March 15, 2002.                                                   
|       | 10.26(vii)  |             |  | Purchase Order 88M31651 by and between Lockheed
    Martin Corporation and the Registrant, dated May 21, 2002.                                                                             
|       | 10.27(viii) |             |  | Extension of Validity of Purchase Agreement by
    and between Nokia and the Registrant dated September 9,
    2002.                                                                       
|       | 10.28(ix)   |             |  | Development Agreement by and between Nokia and
    the Registrant dated August 14, 2003.                                                                                                   
|       | 10.29(ix)   |             |  | Transaction Incentive Plan                                                                                                                                                                 
|       | 10.30+      |             |  | Purchase Agreement by and between Nokia
    Corporation and the Registrant dated December 31, 2003.                                                                                        
|       | 23.1        |             |  | Consent of Ernst & Young
    LLP, Independent Auditors                                                                                                                                     
|       | 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.



---



|       |  |                                                                                                                       
|------ |  | ----------------------------------------------------------------------------------------------------------------------
|(i)    |  | Previously filed with the Registrants
    Registration Statement on Form S-1 (Registration
    No. 333-41302).       
|      
|(ii)   |  | Previously filed with the Registrants
    Quarterly Report on Form 10-Q for the quarter ended
    September 30, 2000.
|      
|(iii)  |  | Previously filed as an exhibit to the Registrant
    s Current Report on Form 8-K, filed on May 8, 2001.              
|      
|(iv)   |  | Previously filed with the Registrants
    Annual Report on Form 10-K for the fiscal year ended
    December 31, 2001.
|      
|(v)    |  | Previously filed as an exhibit to the Registrant
    s Current Report on Form 8-K dated September 24, 2002.           
|      
|(vi)   |  | Previously filed with the Registrants
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 2002.    
|      
|(vii)  |  | Previously filed with the Registrants
    Quarterly Report on Form 10-Q for the quarter ended
    June 30, 2002.     
|      
|(viii) |  | Previously filed with the Registrants
    Quarterly Report on Form 10-Q for the quarter ended
    September 30, 2002.
|      
|(ix)   |  | Previously filed with Registrants Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 2003.    
|      
|+      |  | Confidential treatment has been requested for a
    portion of this exhibit.                                          

(b) Reports on Form 8-K.

None.

76



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##### Table of Contents





|    |                             
|--- | ----------------------------
|(d) | Financial Statement Schedule

ENDWAVE CORPORATION

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

Allowance for doubtful accounts:

|                             |  |                |     |            |  |            |     |           |  |   |      |   |  |   |     | 
|---------------------------- |  | -------------- | --- | ---------- |  | ---------- | --- | --------- |  | - | ---- | - |  | - | --- | 
|                             |  |                |     | Additions  |  |            |     |          
|                             |  | Balance at     |     | Charged to |  | Deductions |     | Balances 
|                             |  | Beginning      |     | Costs and  |  | and        |     | at End of
|                             |  | of Period      |     | Expense    |  | Write-offs |     | Period   
|                             |  |                |     |            |  |            |     |          
|                             |  |               
|                             |  | (In thousands)
|Year ended December 31, 2003 |  | $              | 324 |            |  | $          | 126 |           |  | $ | (166 | ) |  | $ | 284 | 
|                             |  |                |     |            |  |            |     |           |  |   |      |   |  |   |     | 
|Year ended December 31, 2002 |  | $              | 678 |            |  | $          | 523 |           |  | $ | (877 | ) |  | $ | 324 | 
|                             |  |                |     |            |  |            |     |           |  |   |      |   |  |   |     | 
|Year ended December 31, 2001 |  | $              | 248 |            |  | $          | 502 |           |  | $ | (72  | ) |  | $ | 678 | 
|                             |  |                |     |            |  |            |     |           |  |   |      |   |  |   |     | 

77



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



| |                    
| | -------------------
| | ENDWAVE CORPORATION



| |     |                        
| | --- | -----------------------
| | By: | /s/ JULIANNE M. BIAGINI

| |                                                
| | -----------------------------------------------
| |                                                
| | Julianne M. Biagini                            
| | Vice President and                             
| | Chief Financial Officer                        
| | (Duly Authorized Officer and                   
| | Principal Financial and Accounting
    Officer)

Date: March 30, 2004

POWER OF ATTORNEY

KNOW BY ALL THESE PERSONS PRESENT, that each
person whose signature appears below constitutes and appoints
each of Julianne M. Biagini and Edward A. Keible, Jr., his
attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to this Report
on Form 10-K, and to file the same, with Exhibits thereto
and other documents in connection therewith with the Securities
and Exchange Commission, hereby ratifying and confirming all
that each of said attorneys-in-fact, or substitute or
substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated:

|                                               |  |                                                                                                    |  |                |  | 
|---------------------------------------------- |  | -------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                               |  |                                                                                                    |  |               
|Signature                                      |  | Title                                                                                              |  | Date          
|                                               |  |                                                                                                    |  |               
|                                              
|/s/ EDWARD A. KEIBLE, JR.Edward A. Keible, Jr. |  | Chief Executive Officer, President and Director
    (Principal Executive Officer)                  |  | March 29, 2004
|                                              
|/s/ JULIANNE M. BIAGINIJulianne M. Biagini     |  | Senior Vice President and Chief Financial Officer
    (Principal Financial and Accounting Officer) |  | March 29, 2004
|                                              
|/s/ JOSEPH J. LAZZARAJoseph J. Lazzara         |  | Director                                                                                           |  | March 29, 2004
|                                              
|/s/ EDWARD C.V. WINNEdward C.V. Winn           |  | Director                                                                                           |  | March 29, 2004
|                                              
|/s/ WADE MEYERCORDWade Meyercord               |  | Director                                                                                           |  | March 29, 2004
|                                              
|/s/ CAROL HEROD SHARERCarol Herod Sharer       |  | Director                                                                                           |  | March 29, 2004
|                                              
|/s/ RANDOLPH M. BLOTKYRandolph M. Blotky       |  | Director                                                                                           |  | March 29, 2004

78



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##### Table of Contents



INDEX TO EXHIBITS

|       |    |             |  |                                                                                                                                                                                            
|------ | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    | Description
|       |    |            
|       | 10 | .30+        |  | Purchase Agreement by and between Nokia
    Corporation and the Registrant dated December 31, 2003.                                                                                        
|       | 23 | .1          |  | Consent of Ernst & Young, LLP
    Independent Auditors                                                                                                                                     
|       | 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.



---



|  |                                                                             
|- | ----------------------------------------------------------------------------
|+ | Confidential treatment has been requested for a
    portion of this exhibit.