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               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                ---------------

                                   FORM 10-K

                                ---------------

                       FOR ANNUAL AND TRANSITION REPORTS
                    PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

  For the fiscal year ended December 31, 2000

[_] 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

                                ---------------

                              Endwave Corporation
            (Exact name of registrant as specified in its charter)

                                ---------------

<TABLE>
<S>                                       <C>
                Delaware                                    95-4333817
      (State or other jurisdiction                       (I.R.S. Employer
   of incorporation or organization)                   Identification No.)

     321 Soquel Way, Sunnyvale, CA                            94085
(Address of principal executive offices)                    (Zip Code)
</TABLE>

                                 408-522-3100
             (Registrant's telephone number, including area code)

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

                                     None

          Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $.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 [X] No [_]

   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. [X]

   The aggregate market value of the common stock held by non-affiliates of
the registrant as of March 1, 2001 was approximately $60.7 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 $3.63, which was the closing sales price on March 1, 2001
as reported by the Nasdaq National Market.

   The number of shares outstanding of the registrant's common stock as of
March 1, 2001 was 34,151,148.

                      DOCUMENTS INCORPORATED BY REFERENCE

   The information called for by Part III is incorporated by reference to
specified portions of the registrant's definitive Proxy Statement to be filed
with the Securities and Exchange Commission with respect the registrant's 2001
Annual Meeting of Stockholders, which is expected to be filed not later than
120 days after the registrant's fiscal year ended December 31, 2000.

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<PAGE>

                              ENDWAVE CORPORATION

                                    FORM 10K

                               December 31, 2000

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                      Page No.
                                                                      --------
 <C>      <S>                                                         <C>
                                    PART I

 Item 1.  Business..................................................      1

 Item 2.  Properties................................................     20

 Item 3.  Legal Proceedings.........................................     20

 Item 4.  Submission of Matters to a Vote of Security Holders.......     20

                                    PART II

          Market for Registrant's Common Stock and Related
 Item 5.  Stockholder Matters.......................................     21

 Item 6.  Selected Financial Data...................................     21

 Item 7.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations......................     22

          Quantitative and Qualitative Disclosures About Market
 Item 7a. Risk......................................................     27

 Item 8.  Financial Statements and Supplementary Data...............     28

 Item 9.  Changes in and Disagreements With Accountants on
           Accounting and Financial Disclosure......................     48

                                   PART III

 Item 10. Directors and Executive Officers of the Registrant........     48

 Item 11. Executive Compensation....................................     48

          Security Ownership of Certain Beneficial Owners and
 Item 12. Management................................................     48

 Item 13. Certain Relationships and Related Transactions............     48

                                    PART IV

          Exhibits, Financial Statement Schedule, and Reports on
 Item 14. Form 8-K..................................................     48

 FINANCIAL STATEMENT SCHEDULE........................................    50

 SIGNATURES..........................................................    51

 EXHIBITS............................................................    52
</TABLE>


                                       i
<PAGE>

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 other documents we file with the Securities and Exchange
Commission. When used in this report, the words "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates," 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.

                                     PART I

Item 1. Business

   We design and manufacture RF subsystems that enable the transmission,
reception and processing of high-speed data signals in broadband wireless
access systems. Our products are used in point-to-point access, point-to-
multipoint access and high capacity cellular backhaul applications. Our target
customers are wireless systems integrators that provide the broadband wireless
equipment used by communications service providers to offer data and voice
services. Equipment manufacturers that use our products presently include
Allgon Microwave, Anritsu, Hughes Network Systems, Innowave, Lockheed Martin,
Nokia, P-Com, Rockwell International, and Toshiba.

   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. ("TRW"). 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 RF subsystems with a
substantially increased customer base and design and manufacturing capacity. On
October 20, 2000, we successfully completed the initial public offering of our
common stock.

   We design our products to best meet our customers' performance, flexibility
and economic requirements by using our proprietary technologies and RF design
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, integrated transceivers, broadband antennas and
outdoor units. Our proprietary circuit and manufacturing technologies enable us
to design and manufacture RF subsystems that minimize the use of expensive
gallium arsenide and manual labor. We use third-party semiconductor fabrication
facilities for the manufacturing of the gallium arsenide devices we design. Our
ability to design our own gallium arsenide devices allows us the flexibility to
use technologies best suited for specific applications and eliminates
dependence on 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.

                                       1
<PAGE>

Our Solution

   As a provider of RF subsystems to original equipment manufacturers and
wireless systems integrators, we design and manufacture a broad portfolio of
products, from RF modules to fully integrated transceivers and outdoor units.
The primary benefits of our RF subsystems include:

   Superior performance through technological leadership. We have a technical
team with broad expertise in device physics, circuit design, antenna modeling
and design, transceiver design, test engineering and other disciplines. Our
technical leadership enables us to optimize our products for key performance
factors, including spectral efficiency, which is the data transmission rate 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. This
design expertise gives us the flexibility to optimize our product designs
because we are not limited to standard commercially available gallium arsenide
devices. We use third-party semiconductor fabrication facilities to manufacture
the gallium arsenide 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, high volume manufacturing through patented circuit
technology. By using a combination of our proprietary circuit and process
technologies, we are able to meet our customers' volume and time-to-market
requirements. Traditional hybrid microwave integrated circuits, or HMICs, for
broadband wireless applications have many bond wires that must be individually
tested and adjusted, or tuned, during the manufacturing process. Our monolithic
microwave integrated circuits, or MMICs, require a small fraction of the bond
wires used in HMICs, allowing us to produce them using automated assembly
techniques. However, MMICs incorporate large amounts of costly gallium
arsenide. Our patented multi-chip integrated circuit, or MCIC, which we refer
to as "flip-chip," technology enables us to design and manufacture RF circuits
with smaller amounts of gallium arsenide material than MMICs and significantly
fewer wire bonds than HMICs that require individual tuning. As a result, MCIC
circuits lend themselves to automated manufacturing processes that enable high
product quality and reliability and lower unit costs at high volume.

   Rapid design and prototype capability. We have developed an extensive
library of RF circuit designs that allow us to rapidly and economically combine
standard circuits into custom assemblies with various performance capabilities
and support for multiple frequencies. We also have extensive in-house RF design
expertise that allows us to work jointly with our customers in designing
broadband wireless subsystems. We have the expertise to use traditional circuit
manufacturing technologies to rapidly prototype and demonstrate the feasibility
of a design. After prototyping, we can rapidly modify the circuit design to
utilize our proprietary circuit technology for high volume manufacturing. 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, from RF modules to
integrated transceivers and outdoor units. This allows wireless systems
integrators to select the products that best complement their internal
capabilities. Our product portfolio supports a broad range of frequencies, from
18 GHz to 65 GHz, and addresses multiple market applications. This enables
wireless systems integrators to rapidly design products for new frequencies or
applications.

   High volume production capability. We believe we are one of the largest
suppliers of RF subsystems focused on broadband wireless solutions. Our
automated assembly and testing capabilities and multiple manufacturing
facilities and production lines allow us to rapidly achieve high volume
production of our products. We have a long-term gallium arsenide device supply
agreement with TRW further enhances our manufacturing capabilities.

                                       2
<PAGE>

Our Strategy

   Our objective is to be the leading global supplier of RF subsystems for
broadband wireless applications. We intend to become the RF subsystem supplier
of choice for broadband wireless systems designed by leading wireless systems
integrators. The major elements of our strategy include:

   Extend our technological leadership. We will continue to invest in research
and development, seek to attract the most talented engineers and scientists,
and build on our manufacturing technologies.

   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 access. We intend to offer products for new frequency bands
and emerging market applications as opportunities arise.

   Provide best-in-class manufacturing capability. Our circuit design,
manufacturing and testing technologies and continuous improvement programs have
helped to bring manufacturing innovations to an industry that has historically
utilized labor intensive manufacturing techniques.

   Maintain rapid design and prototyping capability. We intend to expand 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 TRW. Our supply agreement with TRW
provides us with a long-term supply of gallium arsenide devices. We believe
that our supply of these devices from TRW 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
TRW's research and design expertise in the areas of RF and digital circuit
design technologies. We believe this access represents a significant
competitive advantage.

   Build production capacity in advance of market demand. The demand for
broadband wireless access products is forecasted to grow rapidly. As the lead
time required to build the facilities to manufacture these products is lengthy,
Endwave is building facilities and capacity in advance to meet this expected
demand.

   Secure new design wins. We intend to use our extensive design team,
technology and short design cycles to secure new designs wins with new and
existing customers.

Products

   Our products include amplifiers, frequency converters, frequency sources,
broadband antennas, integrated transceivers and outdoor units that enable the
transmission and reception of data signals in broadband wireless access
networks. All of our existing customers consist of wireless systems integrators
and equipment manufacturers serving the broadband wireless market.

Customers

   We sell our products to global wireless systems integrators and equipment
manufacturers. The ten customers that attributed the greatest proportion of our
revenues in the year ended December 31, 2000, were:

<TABLE>
<S>                      <C>
  Allgon Microwave       Nokia
  Anritsu                Nortel Networks
  Hughes Network Systems P-Com
  Innowave               Rockwell International
  Lockheed Martin        Toshiba
</TABLE>

                                       3
<PAGE>

   With the exception of Nortel Networks and a portion of our product revenues
derived from sales to Nokia, all revenues attributable to these customers were
generated through direct sales by us to them. During fiscal 2000, we did not
have a direct customer relationship with Nortel Networks; instead we delivered
our products directly to them under an exclusive supply contract we had with
TRW, which had a corresponding agreement with Nortel Networks. During 2000, we
delivered products to Nokia in part under direct purchase orders and in part
under an exclusive production agreement we had with TRW, which had a
corresponding agreement with Nokia. In November 2000, we entered into a
production agreement for RF subsystems directly with Nokia.

   A relatively limited number of customers have historically accounted for a
substantial portion of our sales. For the twelve months ended December 31,
2000, sales attributable to our largest customers, Nokia, Nortel, Hughes
Network Systems and Rockwell International accounted for 33%, 25%, 18% and 10%,
of total revenue, respectively. We do not presently have a customer
relationship with Nortel Networks, either directly or indirectly. We cannot
predict whether Nortel Networks will continue to be a significant customer of
ours in the future, or at all. We also cannot predict whether any significant
customer in prior periods will continue to be a significant customer in 2001 or
future periods. We expect that sales of our products to a limited number of
customers will continue to account for a high percentage of our sales in the
foreseeable future.

   The rapid and severe downturn for the United States economy and the
telecommunications industry, beginning in late 2000, has affected growth in
demand for our customers' products. In addition to the deteriorating domestic
economic environment, the worldwide telecommunications market is experiencing
reduced demand. This decreased demand has led to fluctuating order forecasts
from some of our customers, particularly those in the point-to-multipoint
market. There can be no certainty as to the degree of the severity or duration
of this economic downturn or the demand in the telecommunications industry. We
also cannot predict the extent and timing, if any, of the impact of the
economic downturn in the United States and the worldwide downturn for the
telecommunications industry on economies in Canada, Europe and other countries
and geographic regions.

Sales

   Sales were $39.8 million, $12.4 million, and $7.0 million for fiscal 2000,
1999 and 1998 respectively. Sales to international customers accounted for
23.4% of net sales in 2000. Additionally, many of our customers sell their
products, which incorporate products sold by us, to them, outside of the United
States. All sales in 1999 and 1998 were to customers located in 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 the following companies:

  .  Celeritek;

  .  Filtronics;

  .  Infineon Technologies;

  .  MTI Technology;

  .  Raytheon;

  .  REMEC;

  .  Signal Technologies;

  .  Stellex

  .  Telaxis Communications;

  .  Thales (formerly Thomson-CSF); and

  .  WJ Communications.

   In the market for antennas, we primarily compete with:

  .  Andrew Corporation;

                                       4
<PAGE>

  .  Electromagnetic Sciences;

  .  Nurad Technologies;

  .  Radio Waves; and

  .  REMEC.

   In addition to those companies listed above with whom we may compete with
directly, there are wireless systems integrators, for example, Ericsson, who
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.

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

  .  technical leadership

  .  time-to-market in the design and manufacturing of products;

  .  manufacturing capability and capacity;

  .  price;

  .  the ability to migrate to low cost solutions;

  .  product breadth;

  .  access to semiconductor materials and components; and

  .  customer support services.

   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 scale of production and additional costs for customer
specific designs. We are committed to providing superior product performance,
customer support and manufacturing excellence, as we believe these factors are
critical to our customers' decision to purchase our products.

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

Backlog

   Backlog includes all purchase orders and contracts for products with
requested delivery dates within one year. Our backlog at March 2, 2001 was
approximately $38.2 million as compared to a balance of $15.5 million as of
February 25, 2000. The increase in backlog is attributable in part to our
merger with TRW Milliwave in March 2000 and also to our increased volume of
customer contracts. Purchase orders in our backlog are subject to cancellation
and from time to time cancellation of these orders does occur. Some contracts
we are a party to extend beyond one year. Accordingly, portions of these
contracts may be carried forward from one year to the next as part of backlog.
Our backlog is subject to fluctuations and is not necessarily indicative of our
future sales. There can be no assurance that the current backlog will
necessarily lead to actual sales in any future period.

   Of our current backlog, approximately 66.9 % is attributable to orders
received from Nokia. If we were to lose this customer or if orders by other
customers were to decrease or be delayed, our operating results and financial
condition would be harmed.

                                       5
<PAGE>

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 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 March 2, 2001, we had 33 United
States patents issued, 27 foreign patents issued, and 110 United States and
foreign patent applications pending. Our issued patents include those relating
to basic circuit and device designs, semiconductors, our proprietary "flip-
chip" design for MCIC circuit technology and antenna design and technology. In
addition, we jointly hold seven patents with AT&T pertaining to sectorized
communications systems and jointly hold one patent with Conductus relating to
satellite communications. Our issued patents expire between 2013 and 2018. Of
all our patents, we consider the two patents relating to our flip-chip circuit
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 thereunder 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. In particular, under our agreement with Hughes Network Systems, they
retain all rights related to the specific products produced for them for a
period following the completion of the development phase of the agreement. We
also license TRW technology. 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 TRW, provided that the products are for commercial customers
and non-satellite applications.

   Steps taken by us to prevent misappropriation or infringement of the
intellectual property of our company or 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.

                                       6
<PAGE>

   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. For example, we have received inquiries that claim that some of our
antenna technologies infringe upon a European patent. 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 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 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 our existing products, and to develop and introduce new products to
maintain our technological leadership and meet a wider range of customer needs.
Accordingly, our research and development and related engineering expenditures
were approximately $9.7 million, $326,000 and $286,000 in each of fiscal 2000,
1999 and 1998, respectively. The increase in 2000 was attributed to the merger
with TRW Milliwave and additional hiring to support future growth.

Employees

   As of December 31, 2000, we had 535 full-time employees, including 418 in
manufacturing, 69 in product and process engineering, 14 in sales and marketing
and 34 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.

Risk Factors

   Stockholders or 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 continue incurring operating losses and may not be profitable in
the future.

   We have not achieved profitability to date and may not achieve or sustain
profitability in the future. Our failure to achieve profitability within the
time frame that investors expect may cause the market price of our common stock
to decline in the future. On a pro forma basis giving effect to our merger with
TRW Milliwave in March 2000, we had net losses of $59.6 million in the fiscal
year ended December 31, 2000, and $40.1 million in 1999. See Note 16 to the
Financial Statements included in Item 8. We are amortizing the

                                       7
<PAGE>

goodwill and other intangible assets recorded in connection with our merger
with TRW Milliwave for periods up to six years, which will add to our loss from
operations during that time period. Further, in the future we may reassess the
value of the goodwill and other intangible assets acquired in our merger and
may be required to amortize these assets in fewer than six years. Additionally,
as a result of the merger, we may be limited in our ability to utilize any of
our net operating loss carryforwards generated prior to the merger to offset
any future taxable income we may have. Our cost of product revenues has
exceeded our product revenues due in part to the historically low volumes of
products we have sold and our investments in increasing manufacturing capacity.
We may be unable to increase our revenues or attain or maintain positive gross
margins on product revenues. The development of our technologies and products
has required significant expenditures to hire and retain our research and
development staff. In addition, many of our major customers typically require
high levels of product customization that generally requires the commitment of
significant research and development resources. We intend to continue to invest
significantly in all areas, including research and development, to execute our
business strategy. As a result of these and other factors, we expect to
continue to incur significant quarterly losses for at least the next several
quarters. If our revenues fail to grow at anticipated rates or if our expenses
increase faster than we anticipate, our losses may increase and we may not
become profitable.

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 small number of wireless
systems integrators 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. On a pro forma basis giving effect to our merger with TRW
Milliwave, Nokia, Nortel Networks and its affiliates (which we refer to as
"Nortel Networks"), Hughes Network Systems, and Rockwell International
accounted for 32%, 25%, 21% and 9% of our revenues in the year ended December
31, 2000. On the same pro forma basis, these customers accounted for 38%, 9% 4%
and 18% of our total revenues in the year ended December 31, 1999. During
fiscal 2000, we had production and supply contracts with TRW under which we
delivered products to Nokia and Nortel Networks in satisfaction of TRW's direct
contractual obligations with them. In November 2000, we entered into a direct
production agreement with Nokia for the manufacture of RF subsystems. We have
not established a direct customer relationship with Nortel Networks to date,
and cannot predict whether Nortel Networks will continue to be a significant
customer of ours in the future, or at all. We also cannot predict whether any
significant customer in prior periods will continue to be a significant
customer in 2001 or future periods.

   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 that we supply are not successful in selling their broadband
wireless access systems for any reason, our operating results would be harmed.

Because our cost of product revenues historically has exceeded our product
revenues, and because we expect competitive conditions will force us to reduce
prices in the future, we must achieve cost reductions in order to become
profitable.

   As a combined company, on a proforma basis, our annual cost of product
revenues has exceeded our revenues and, accordingly, we have reported negative
gross margins. If we are not able to reduce our per unit cost of product
revenues to a sufficient degree, we will not become profitable. 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 migrate our products to technologies that enable low cost,
automated manufacturing techniques so that we can increase manufacturing volume
and yield. The volume of our orders may not be sufficiently large to make use
of these technologies and, as a result, we may not be able to achieve these
cost reductions. We have limited experience in manufacturing our circuits using
our proprietary "flip-chip" technology and have not produced products in the
volume and at the prices requested

                                       8
<PAGE>

by our customers to date. We may be unable to produce products using this
technology in significant volume in the future. We believe our "flip-chip"
technology is critical to our future success. Our inability to successfully use
our "flip-chip" technology for high volume manufacturing will significantly
diminish our ability to lower our per unit manufacturing costs and, as a
result, will delay or may even prevent our achieving 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. Our
operating results may fluctuate for reasons, including:

  .  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. If our product is not selected, 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 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.

                                       9
<PAGE>

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. 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 different frequencies in order to remain
competitive. 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.

   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 lose
potential future sales and we may be forced to pay penalties to our customers.
Manufacturing delays and interruptions can occur for reasons including:

  .  lack of sufficient capacity;

  .  the failure of a supplier to deliver needed components on a timely
     basis, or with acceptable quality;

  .  labor disputes;

  .  manufacturing personnel shortages;

  .  equipment failures;

  .  natural disasters;

  .  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. As part
of our growth strategy, we partially outsource the assembly of our broadband
antennas and plan to continue to outsource some portions of our product
manufacturing to third-party vendors. 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. In this
event, our reputation may be harmed and we may lose potential future sales.

Our reliance on TRW 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 TRW and other third parties
to manufacture substantially all of the gallium arsenide devices incorporated
in our products. The loss of our relationship with any of these third parties
or our use of

                                       10
<PAGE>

their semiconductor fabrication facilities, particularly TRW'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. In connection with our merger with TRW
Milliwave, we entered into a supply agreement with TRW for these devices and
expect to obtain a substantial portion of our gallium arsenide devices from TRW
in the foreseeable future. The agreement expires in March 2003. 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 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. 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 minute impurities,
difficulties 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 are not readily available, including
electronic filters, semiconductor devices, thin film circuits and circuit
boards, and frequency references and housings. The market is also experiencing
a shortage of carrier assemblies, critical components in many of our products.
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.

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.

   The rapid and severe downturn for the United States economy and the
telecommunications industry, beginning in late 2000, has affected growth in
demand for our customers' products. In addition to the deteriorating domestic
economic environment, the worldwide telecommunications market is experiencing
reduced demand. This decreased demand has led to fluctuating order forecasts
from some of our customers, particularly those in the point-to-multipoint
market. There can be no certainty as to the degree of the severity or duration
of this economic downturn or the demand in the telecommunications industry. We
also cannot predict

                                       11
<PAGE>

the extent and timing, if any, of the impact of the economic downturn in the
United States and the worldwide downturn for the telecommunications industry on
economies in Canada, Europe and other countries and geographic regions.

   Our sales are generally made on the basis of formal agreements and purchase
orders, which may also be later modified or canceled by the customer, rather
than 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 is 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 intend to continue expanding our manufacturing capacity in advance
of demand, our manufacturing facilities are, and in the future may continue to
be, underutilized, which may harm our operating results.

   As part of our strategy, we are expanding our manufacturing capacity beyond
the level required for our current sales. As a result, our manufacturing
facilities are and in the future may continue to be underutilized from time to
time as we expand in anticipation of growth in demand. We have expanded our
manufacturing capacity based on industry projections for future growth, but it
is uncertain whether our strategy will prove to be accurate. 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 occur and could harm our profitability
and other operating results. Conversely, if we do not expand our manufacturing
capacity rapidly enough to meet demand for our products, we will lose
opportunities for additional sales. Any failure to develop sufficient
manufacturing capacity to meet demand would harm our market share and operating
results.

Our products may contain 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 in accordance with our
product warranties. Our product warranties typically last one to three years.
As a result of 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, the loss of customers or damage to our reputation.

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. 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

                                       12
<PAGE>

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. In particular, under our agreement with Hughes Network
Systems, they retain all rights for the production and sale of the specific
products developed and produced for them for a period of time following the
development phase of the agreement. Steps taken by us to prevent
misappropriation or infringement of the intellectual property of our company or
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 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, we have no experience in integrating acquired businesses
with our existing business. Our operation of any acquired businesses would
involve numerous risks, including:

  .  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 are 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
are in short supply, and this shortage is likely to continue for some time. As
a result, competition for these people is intense, particularly in northern
California where there is a high concentration of technology companies. 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 to attract and retain skilled personnel, 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.

                                       13
<PAGE>

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

   On a pro forma basis giving effect to our merger with TRW Milliwave, for the
year ended December 31, 2000, 21.6% of our revenues were derived from sales
invoiced and shipped to customers outside the United States. A substantial
portion of our products were sold during fiscal 2000 to TRW on behalf of Nokia
and Nortel Networks, which are companies located outside the United States. We
also began to sell products to Nokia under direct purchase orders in fall 2000
and entered into a direct production agreement with Nokia in November 2000. 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:

  .  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;

  .  political and economic instability;

  .  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.

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. 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 new and its future is uncertain. If
significant demand for this technology does not develop, we will not be able to
generate significant revenues.

   Broadband wireless access technology is 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:

  .  its capacity to handle growing demands for faster transmission of
     increasing amounts of video, voice and data;

                                       14
<PAGE>

  .  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;

  .  safety and environmental concerns regarding broadband wireless
     transmissions; and

  .  permission by domestic and international regulatory authorities to allow
     construction of new wireless systems.

Many competing technologies serve our target market, and if the broadband
wireless access technologies upon which our products are based do not succeed
as a solution for broadband access, we will 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. 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 and make it
difficult or impossible for us to achieve profitability.

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 the markets for RF modules, transceivers and outdoor
units, we primarily compete with:

                                        .  REMEC;
  .  Celeritek;


                                        .  Signal Technologies;
  .  Filtronics;


                                        .  Telaxis Communications;
  .  Infineon Technologies;


                                        .  Thales (formerly Thomson-CSF); and
  .  MTI Technology;


                                        .  WJ Communications.
  .  Raytheon;

   In the market for antennas, we primarily compete with:

  .  Andrew Corporation;                .  Radio Waves; and


  .  Electromagnetic Sciences;          .  REMEC.

  .  Nurad Technologies;

                                       15
<PAGE>

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

  .  technical leadership;

  .  the ability to migrate to low cost solutions;

  .  manufacturing capability and capacity;

  .  time-to-market in the design and manufacturing of products;

  .  price;

  .  product breadth;

  .  access to semiconductor materials and components; and

  .  customer support services.

   In addition to those companies listed above, with whom we may compete with
directly, there are 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. Many of our current and potential competitors are substantially
larger than us and have greater financial, technical, manufacturing and
marketing resources. If we are unable to compete successfully, our future
operations and financial results would be harmed.

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. On a pro forma basis giving effect to our merger with TRW
Milliwave, our research and development expenses were $12.6 million in 2000 and
$10.9 million in 1999. 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.

                                       16
<PAGE>

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. For example, in the past we had inquiries that claim that some of our
antenna technologies infringe upon a European patent. 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 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 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 of 2000. The market price of our common stock can fluctuate
significantly for many reasons, including:

  .  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;

  .  the arrival or departure of key personnel;

  .  acquisitions, strategic alliances or joint ventures involving us or our
     competitors;

  .  changes in estimates of our performance or recommendations by securities
     analysts;

  .  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; and

  .  market conditions in the industry, the financial markets and the economy
     as a whole.

   In addition, the stock market has recently 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 could
continue to be volatile.

                                       17
<PAGE>

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 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.

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

   As of March 1, 2001, directors and holders of five percent or more of our
outstanding common stock beneficially owned approximately 50% of our common
stock. Of this percentage, TRW alone beneficially owns approximately 41% 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. TRW 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 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 or
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 acquiror may otherwise be willing
to pay for our company.

                                       18
<PAGE>

Executive Officers

   Our executive officers, including their ages as of December 31, 2000, are as
follows:

<TABLE>
<CAPTION>
             Name           Age                     Position
             ----           ---                     --------
   <S>                      <C> <C>
   Edward A. Keible, Jr....  57 Chief Executive Officer, President and Director
   Donald J. Dodson, Jr....  54 Chief Operating Officer and Senior Vice President
   Bruce M. Margetson......  55 Chief Financial Officer and Senior Vice President
   Julianne M. Biagini.....  38 Vice President, Finance and Administration
   James G. Bybokas........  57 Vice President, Sales and Marketing
   John M. Mikulsky........  55 Vice President, Product Development
</TABLE>

   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. Mr. Keible currently serves on the board
of directors of the American Electronics Association.

   Donald J. Dodson, Jr. has served as our Chief Operating Officer and Senior
Vice President since March 2000. From September 1998 until April 2000, Mr.
Dodson served as a Vice President and the General Manager of TRW Milliwave and
as a Manager of TRW's Telecommunications Programs. Prior to September 1998,
Mr. Dodson held various management positions with TRW, including as a Deputy
Manager of the TRW RF Products Center and Vice President of Engineering,
Research and Development in TRW's Automotive Electronics Group. Mr. Dodson
holds a B.S. and an M.S. in electrical engineering from Drexel University.

   Bruce M. Margetson has served as our Chief Financial Officer and Senior Vice
President since March 2000. Prior to joining us, Mr. Margetson was Controller
of the Wide Area Network Business Unit and Senior Manager, Corporate Planning
at Cisco Systems Inc., where he served from August 1996 until March 2000. From
1991 until 1996, Mr. Margetson held various positions at Silicon Graphics,
including as its European Finance Director. Prior to 1991, Mr. Margetson held
positions at Network Equipment Technologies, Tekna, Raychem Corporation, Singer
Company and PriceWaterhouseCoopers. Mr. Margetson holds a B.A. in economics and
political science from the University of British Columbia and an M.B.A. from
Stanford University.

   Julianne M. Biagini has served as our Vice President of Finance and
Administration and Corporate Secretary since April 1995. Ms. Biagini joined us
as our Director of Finance and Administration and Secretary in March 1994. From
1992 until 1994, Ms. Biagini was the manager of Accounting and Tax at Exponent,
Inc. (formerly Failure Analysis Associates), an engineering and scientific
consulting firm. Prior to 1992, Ms. Biagini worked at KPMG Peat Marwick as a
tax specialist. 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.

   James G. Bybokas has served as our Vice President of Sales and Marketing
since March 1996. From 1991 until 1996, Mr. Bybokas served as the Director of
Marketing for the Communications Products Division of Litton Solid State. Mr.
Bybokas has also held positions as Vice President of Marketing and Product
Development at Superconductor Technologies, Marketing Manager at Avantek, and
Sales Manager at Varian. Mr. Bybokas holds a B.S. in electrical engineering
from the University of Illinois and an M.S. in electrical engineering from New
York University.

   John J. Mikulsky has served as our Vice President of Product Development
since May 1996. From 1993 until 1996, Mr. Mikulsky worked as a Technology
Manager for Balazs Analytical Laboratory, a provider of

                                       19
<PAGE>

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.

   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.

Item 2. Properties

   Our principal executive offices are located in Sunnyvale, California, where
we lease approximately 39,000 square feet, which encompasses our headquarters
and also provides space for research and design and manufacturing functions.
Approximately 30,000 square feet of this space is leased under an agreement
expiring January 2002, and approximately 9,000 square feet is leased under an
agreement expiring November 2003. We also lease approximately 12,000 square
feet in Santa Clara, California for manufacturing purposes under a lease
expiring May 2001, and lease approximately 5000 square feet in Torrance,
California for product design purposes, under a lease expiring in March 2006.
We own two buildings comprising approximately 46,000 square feet on eight acres
of land in Diamond Springs, California, which we use primarily for
manufacturing purposes. This lease will expire in March 2006. 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.

                                       20
<PAGE>

                                    PART II

Item 5. Market for Registrant's Common Stock and Related Stockholder Matters

   On October 20, 2000, we completed the initial public offering of our Common
Stock. Our common stock is traded on the Nasdaq National Market under the
symbol "ENWV." For all periods prior to our initial public offering, there was
no established public trading market for our common stock.

   As of March 16, 2001, there were approximately 234 holders of record of our
common stock. Because many of these shares are held by brokers and other
institutions on behalf of stockholders, we are unable to estimate the total
number of individual stockholders represented by these record holders. The
following table sets forth the high and low sales price per share of our common
stock for the periods indicated.

<TABLE>
<CAPTION>
                                                                   Price Range
                                                                   ------------
                                                                    High   Low
                                                                   ------ -----
   <S>                                                             <C>    <C>
   Fiscal 2000:
     Fourth Quarter (from October 17, 2000)....................... $20.62 $2.50
     Fiscal Year.................................................. $20.62 $2.50
</TABLE>

   We have never declared a dividend or paid any cash dividends on our common
stock. We currently intend to retain any future earnings to fund the
development and growth of our business.

 Report of Use of Proceeds from Registered Offerings

   On October 16, 2000, the Securities and Exchange Commission declared
effective our Form S-1 Registration Statement (File No. 333-41302) in
connection with the initial public offering of an aggregate of 6,000,000 shares
of our common stock. The offering commenced on October 17, 2000 and closed on
October 20, 2000 (with respect to 6,000,000 shares) which shares were sold at a
price of $14.00 per share for the aggregate price of $84.0 million. On November
21, 2000, we sold an additional 900,000 shares of our common stock pursuant to
the exercise of the over-allotment option granted in connection with the
offering. The additional 900,000 shares were sold at $14.00 per share for an
aggregate price of $12.6 million. All shares were sold by the Company; there
were no selling stockholders. Deutsche Bank Alex. Brown, J.P. Morgan & Co.,
U.S. Bancorp Piper Jaffray, and Epoch Partners were the co-managers of the
offering.

   The aggregate gross proceeds from the shares sold by us on October 20 and
November 21, 2000 were $96.6 million. We incurred approximately $8.8 million of
expenses in connection with this offering, of which approximately $6.8 million
represented underwriter's discounts and commissions and approximately
$2.0 million representing offering expenses, including legal fees, accounting
fees and printing fees.

   The net proceeds will be used for general corporate purposes, including
working capital, expansion of our research and development activities and to
increase our manufacturing capacity. We may also use a portion of the proceeds
to acquire or invest in complementary businesses or products or to obtain the
right to use complementary technologies. As of December 31, 2000 the entire net
proceeds remain invested in short term, interest bearing investment grade
securities and cash and cash equivalents pending our usage for the above
mentioned purposes

Item 6. Selected Financial Data

   The following selected financial data (presented in thousands, except per
share amounts), with respect to the fiscal years ended December 31, 2000, 1999
and 1998 are derived from the Company's financial statements included elsewhere
in this Form 10-K; selected financial data with respect to the fiscal years
ended December 31, 1997 and 1996 are derived from the Company's financial
statements not included in this form 10-K. This data should be read in
conjunction with the financial statements and notes thereto, as applicable, and
with Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations.

                                       21
<PAGE>

Basis of presentation for selected financial data:

   On March 31, 2000, we merged with TRW Milliwave, a formerly wholly-owned
subsidiary of TRW. 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 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.

   Net loss per share is computed below in accordance with SFAS Statement No.
("SFAS") 128, "Earnings per Share" and SEC Staff Accounting Bulletin No.
("SAB") 98. Pursuant to SFAS 128 and SAB 98, basic net loss per share is
computed by dividing the net loss applicable to common stockholders for the
period by the weighted average numbers of shares of common stock outstanding
during the period.

   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, a basic net loss per share 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
since March 2000, including the charge for purchased in-process research and
development. The net loss for the fiscal 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 the net
loss per share is 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 has
not been presented.

<TABLE>
<CAPTION>
                                           Years Ended December 31,
                                    ------------------------------------------
                                      2000     1999     1998     1997    1996
                                    --------  -------  -------  ------  ------
                                     (In thousands, except for per share
                                                    data)
<S>                                 <C>       <C>      <C>      <C>     <C>
Revenue............................ $ 41,232  $12,419  $ 7,030  $5,250  $5,435
Cost of product revenues...........   52,538   11,221    5,992   4,350   3,838
Operating expenses.................   50,437    4,232    4,786   1,860   1,590
Income (loss) from operations......  (61,743)  (3,034)  (3,748)   (960)      7
Net income (loss)..................  (59,541)  (2,516)  (2,898)   (761)     20
Net loss applicable to common
 stockholders subsequent to the
 merger............................  (57,536)     --       --      --      --
Basic and diluted net loss per
 share.............................    (5.94)     --       --      --      --
Financial position:
  Total assets.....................  250,665   25,121   16,361  13,272   3,995
  Long term obligations, less
   current portion.................    5,015      --       --      --      --
  Cash dividends...................      --       --       --      --      --
</TABLE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

   This Management's Discussion and Analysis of Financial Condition and Results
of Operations contained in this 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 financial statements included elsewhere in this 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.

                                       22
<PAGE>

Overview

   Our revenues consist of product revenues and development fees. Product
revenues are generated through sales of our custom and standard RF subsystem
products to wireless systems integrators and equipment manufacturers and are
recognized upon product shipment when title passes. We sell our products
through our direct sales force and internationally through our network of
independent sales representatives. Development fees are generated 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. Any up-front development fees paid under a development contract are
recognized ratably over the expected term of the contract, except that in no
event are revenues recognized prior to becoming billable under the terms of the
contract. These agreements, which we enter into with key customers from time to
time if we expect them to result in a significant product order, are for
specific projects and are non-recurring. We expect development fees to
represent a decreasing percentage of our total revenues in future periods.

   We depend, and expect to remain dependent, on a small number of wireless
systems integrators for sales of our products. For the year fiscal year ended
December 31, 2000, sales attributable to Nokia, Nortel Networks, Hughes Network
Systems and Rockwell International accounted for 33%, 25%, 18% and 10%,
respectively. During 2000, we had production contracts with TRW, under which we
delivered products to Nokia and Nortel Networks in satisfaction of TRW's direct
contractual obligations. In November 2000 we entered into a production
agreement for RF subsystems directly with Nokia. Our agreement with TRW under
which we delivered products directly to Nortel Networks in satisfaction of
TRW's direct contractual obligations expired in October 2000, together with
TRW's corresponding agreement with Nortel Networks. We presently have no direct
customer relationship with Nortel Networks, either directly or indirectly, and
cannot predict whether Nortel Networks will remain a significant customer of
ours in the future, or at all. We also cannot predict whether any significant
customer in prior periods will continue to be a significant customer in 2001 or
future periods.

   The rapid and severe downturn for the United States economy and the
telecommunications industry, beginning in late 2000, has affected growth in
demand for our customers' products. In addition to the deteriorating domestic
economic environment, the worldwide telecommunications market is experiencing
reduced demand. This decreased demand has led to fluctuating order forecasts
from some of our customers, particularly those in the point-to-multipoint
market. There can be no certainty as to the degree of the severity or duration
of this economic downturn or the demand in the telecommunications industry. We
also cannot predict the extent and timing, if any, of the impact of the
economic downturn in the United States and the worldwide downturn for the
telecommunications industry on economies in Canada, Europe and other countries
and geographic regions.

   On March 31, 2000, we merged with TRW Milliwave, a formerly wholly-owned
subsidiary of TRW. 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 our outstanding shares of capital stock to TRW in
exchange for all outstanding shares of TRW Milliwave, TRW Milliwave was treated
as the acquiring company for accounting purposes. However, when we refer to our
business or other corporate activities prior to March 31, 2000, the date of the
merger, we are generally referring to our business and corporate activities
prior to our merger with TRW Milliwave unless otherwise specified. When we
refer to our results on a pro forma basis, we have combined the historical
statements of operations for TRW Milliwave and Endgate as discussed in Note 16
to the Financial Statements.

   Our merger with TRW Milliwave was accomplished through a tax free
reorganization under the Internal Revenue Code. As such, the respective tax
bases in assets and liabilities carried over to the combined company with no
step-up in basis. Therefore, the amortization of intangible assets resulting
from the merger, including goodwill, is not deductible for tax purposes. Since
inception, we have incurred net losses and therefore generated significant net
operating loss carryforwards. Historically, these carryforwards were not
reflected on our balance sheet as an asset because they were fully reserved due
to uncertainty about our ability to utilize

                                       23
<PAGE>

these loss carryforwards. Our merger with TRW Milliwave imposed limitations on
our ability to utilize these pre-existing net operating loss carryforwards.
Generally accepted accounting principles require that deferred tax liabilities
be recorded for identifiable intangible assets acquired in a business
combination accounted for as a purchase. The deferred tax asset related to net
operating loss carryforwards is greater than the deferred tax liabilities
related to the identifiable intangible assets acquired. A valuation allowance
has been provided to eliminate the net deferred tax asset because ultimate
realization is uncertain. Because TRW Milliwave was a wholly-owned subsidiary
of TRW, and therefore part of the consolidated TRW tax return prior to merging
with us, TRW was able to utilize Milliwave's net operating losses in the
consolidated income tax return of TRW for periods prior to March 2000, leaving
TRW Milliwave with no net operating loss carryforwards.

   On January 29, 2001, our Board of Directors approved a restructuring plan
related to the transition of all manufacturing activities from our Sunnyvale,
California facility to our Diamond Springs, California facility. Costs
associated with the transition are retention and severance payments,
professional fees, and lease losses, and are expected to be substantially paid
within the fiscal year ending December 31, 2001. In connection with our
decision to transition our base of manufacturing operations to Diamond Springs,
approximately 130 of our employees will be required to relocate in order to
retain their present positions. In the event any of these employees are unable
to relocate, we will provide for severance payments to these employees
commensurate with their positions.

Results of Operations

   Fiscal year ended December 31, 2000 compared to fiscal year ended December
   31, 1999

   Revenues. Product revenues were $39.8 million for 2000, a 221% increase from
$12.4 million in 1999. The increase is primarily attributable to an increase in
the number of transceiver and antenna products sold. Development fees were $1.4
million for 2000. There were no development fees in 1999. The development fees
recorded in 2000 were attributable to development of a custom designed product
for Hughes Network Systems. We expect development fees to represent a
decreasing percentage of our total revenues in future periods.

 Costs 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,
costs associated with procurement, production control, quality assurance and
manufacturing engineering, costs associated with maintaining our manufacturing
facilities and costs associated with warranty returns. Cost of product revenues
for 2000 was $52.5 million, a 369% increase from $11.2 million in 1999. The
increase in costs was attributable primarily to a significant increase in the
number of RF subsystems and antenna products sold and investments made during
2000 to increase our manufacturing capacity. On a pro forma basis, our cost of
product revenues has historically exceeded our product revenues due in part to
the low volumes of products we have sold and our investments in increasing
manufacturing capacity.

   Research and development expenses. Research and development expenses for
2000 were $9.7 million, an increase from $326,000 for 1999. The increase noted
for 2000 as compared to 1999 was due to our merger with TRW Milliwave, as well
as hiring of additional engineering personnel as our production and sales
activities have grown. Because the market for our products is characterized by
rapidly changing technology, industry standards and customer demands, we expect
our research and development expenses to continue to increase in future
periods.

   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,
facilities and human resources personnel; professional fees; and promotional
activities. Selling, general and administrative expenditures for 2000 were $8.0
million, a 233% increase from $2.4 million for 1999. This increase was partly
due to the increase attributable to our combined operations following our
merger

                                       24
<PAGE>

with TRW Milliwave in March 2000, as well as the hiring of additional sales and
administrative personnel as our production and sales activities have grown. We
anticipate that selling, general and administrative expenses will continue to
increase in future periods for the reasons mentioned above.

   Amortization of intangible assets. Our merger with TRW Milliwave was
recorded using the purchase method of accounting. In connection with the
merger, we recorded goodwill of $80.2 million and other intangible assets of
$23.6 million. We are amortizing goodwill and other intangible assets acquired
on a straight-line basis over five to six years. Amortization of intangibles
for 2000 was $14.8 million, an 887% increase from $1.5 million for 1999. The
increase is attributable to the amortization of goodwill and other intangible
assets associated with the merger.

   In-process research and development expense. In connection with our merger
with TRW Milliwave, we allocated $11.7 million to in-process-research and
development expense. In determining the total consideration, as well as the
allocation of the purchase price including the amount of in-process research
and development, TRW Milliwave considered as part of their analysis an
appraisal prepared for TRW's Space and Electronics Group by American Appraisal
Associates, Inc., an independent appraisal firm that used established valuation
techniques appropriate for the high technology industry. The amount allocated
to in-process research and development was expensed upon acquisition because
technological feasibility had not been established and no future alternative
uses existed.

   Amortization of deferred stock compensation. Deferred stock compensation
charges consist of charges related to the difference between deemed fair market
values on the date of employee option grants and the option exercise price.
Amortization of deferred stock compensation for 2000, was $6.2 million. There
was no deferred stock compensation charge in 1999.

   Other income and expense. Interest income for 2000 was $2.2 million. There
was no interest income for 1999. The increase in interest income in 2000 was
due to the proceeds from the sale of common stock during our initial public
offering, which was invested in short-term interest bearing securities. We
expect interest income to decrease in the short-term as cash is depleted in
2000 and if interest rates decline. Interest expense in 2000 was $492,000
representing interest paid on capital leases. There were no capital lease
arrangements in 1999.

 Fiscal year ended December 31, 1999 compared to fiscal year ended December 31,
 1998

 Revenues

   Product revenues were $12.4 million for 1999, a 77% increase from $7.0
million for 1998. The increase in product revenues was primarily attributable
to the commencement of manufacturing of products for Nokia and Nortel Networks
in 1999.

 Costs and expenses

   Cost of product revenues. Cost of product revenues for 1999 was $11.2
million, a 87% increase from $6.0 million in 1998. The increase in costs was
attributable primarily to growth in revenues and costs associated with the
introduction of automated manufacturing processes for our products.

   Research and development expenses. Research and development expenditures for
1999 were $326,000, a 14% increase from $286,000 in 1998. The increase in 1999,
as compared to 1998 was associated with hiring of additional design personnel
in order to increase research and development capabilities.

   Selling, general and administrative expenses. Selling, general and
administrative expenditures for 1999 was $2.4 million, a 20% decrease from $3.0
million in 1998. This decrease was primarily attributable to one-time personnel
relocation expenses incurred in 1999.

                                       25
<PAGE>

   Amortization of intangible assets. The acquisition of TRW Milliwave by TRW
in 1997 was recorded using the purchase method of accounting. In connection
with the acquisition, TRW Milliwave recorded goodwill of approximately $9.2
million and is amortizing goodwill over six years. Amortization of intangibles
was $1.5 million for 1999, reflecting no change from the same amount in 1998.

Liquidity and Capital Resources

   Our principal source of liquidity as of December 31, 2000 consisted of
approximately $100.6 million in cash, cash equivalents and short-term
investments. Prior to our merger in March 2000, we financed our operations
through private sales of debt and equity securities, bank borrowings and
equipment lease financing; and TRW Milliwave primarily financed its operations
and funded its capital expenditures through operating cash and investments by
its parent company, TRW. In October 2000, we completed an initial public
offering that resulted in net proceeds of approximately $87.8 million.

   During 2000, we used $27.2 million in operating activities. The use of cash
in 2000 was primarily due to an increased operating loss, an increase in
inventories, and an increase in accounts receivable offset by an increase in
accounts payable and accrued liabilities and non-cash charges for depreciation
and amortization. We anticipate that accounts receivable and accounts payable
will continue to increase in the future if our business continues to grow and
revenues continue to rise.

   The cash advances provided to TRW Milliwave by TRW during 1999 and 1998
exceeded net cash flow from operations of TRW Milliwave. In the aggregate, net
advances from TRW totaled $7.0 million and $6.0 million during 1999 and 1998.
This compares to net cash provided by operations of TRW Milliwave of $472,000
in 1999 and cash used in operations of $2.3 million in 1998.

   Investing activities used $39.5 million in 2000 as compared to $7.4 million
in 1999 and $2.0 million in 1998. Capital expenditures were $13.0 million in
2000 compared to $7.4 million in 1999 and $2.0 million in 1998. Capital
expenditures in 2000 consisted primarily of purchases of computer and
manufacturing equipment and tenant improvements related to our new research and
development facility. We expect our capital expenditures to decrease in the
near term as we have made significant capital investments recently and
presently have excess capacity. In 2000, we invested $26.5 million of the
proceeds from our initial public offering in short-term investments while
keeping the balance in cash and cash equivalents.

   Financing activities in 2000 provided $140.4 million of cash, as compared to
providing $7.0 million in cash in 1999 and $4.1 million in 1998. Financing
activities in 2000 included our receipt of $87.8 million in net proceeds from
our initial public offering in fall 2000, net cash acquired of $20.9 million
and $20.0 million in proceeds from our issuance of preferred stocks, each in
conjunction with our merger in March 2000, our sale of common stock for
proceeds of $6.0 million, net advances from TRW of $6.0 million, $1.1 million
in proceeds from the exercise of warrants to purchase our stock and the
exercise of employee stock options, and payments under capital lease
obligations of $1.4 million. The increase from financing activities in 1999
compared to 1998 was due primarily to increased advances of funds by TRW.

   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 year. However, 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.

                                       26
<PAGE>

Derivatives and Financial Instruments
(Item 7a. Quantitative and Qualitative Disclosures About Market Risk)

Disclosure about Market Risk

   The following discusses our exposure to market risk related to changes in
interest rates, equity prices and foreign currency exchange rates. This
discussion contains forward-looking statements that are exposed to risks and
uncertainties, many of which are out of our control. Actual results could vary
materially as a result of a number of factors including those discussed in Item
1, "Business-Risk Factors," as well as Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations".

   As of December 31, 2000, we had cash and cash equivalents of $74.1 million.
Substantially all of this figure consists of highly liquid investments with a
remaining maturity at the date of purchase of less than 90 days. In addition,
we have short-term investments of $26.6 million, which consist primarily of
highly liquid investment grade commercial paper and government securities. All
of these amounts are exposed to interest rate risk and will decrease in value
if market interest rates should increase. A hypothetical increase or decrease
in market interest rates by 10 percent from December 31, 2000 would cause the
fair value of these instruments to decline by an insignificant amount. 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 the Company's products less competitive in foreign markets and thereby
lead to a decrease in revenues attributable to international customers.

                                       27
<PAGE>

Item 8. Financial Statements and Supplementary Data

                         Index to Financial Statements

<TABLE>
<CAPTION>
                                                                           Page
                                                                          Number
                                                                          ------
<S>                                                                       <C>
Report of Ernst & Young LLP, Independent Auditors........................   29
Balance Sheets...........................................................   30
Statements of Operations.................................................   31
Statement of Stockholders' Equity........................................   32
Statements of Cash Flows.................................................   33
Notes to Financial Statements............................................   34
</TABLE>

                                       28
<PAGE>

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Endwave Corporation

   We have audited the accompanying balance sheets of Endwave Corporation as of
December 31, 2000 and 1999, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. Our audits also included the financial statement
schedule listed in the Index at Item 14(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, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, 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.

                                                           /s/ Ernst & Young LLP

Palo Alto, California
January 29, 2001

                                       29
<PAGE>

                              ENDWAVE CORPORATION

                                 BALANCE SHEETS
                (in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                December 31,
                                                              -----------------
                                                                2000     1999
                                                              --------  -------
<S>                                                           <C>       <C>
                           assets
Current assets:
  Cash and cash equivalents.................................  $ 74,061  $   373
  Short-term investments....................................    26,559      --
  Accounts receivable, net of allowance for doubtful
   accounts of $248 in 2000 and $81 in 1999.................     7,761    1,343
  Accounts receivable from affiliates.......................       --     1,981
  Inventories...............................................    19,828    4,666
  Other current assets......................................     1,364      137
                                                              --------  -------
    Total current assets....................................   129,573    8,500
Property, plant and equipment, net of accumulated
 depreciation...............................................    25,077   10,877
Goodwill, net of accumulated amortization of $15,067 in 2000
 and $3,456 in 1999.........................................    74,667    5,744
Other intangible assets, net of accumulated amortization....    20,612      --
Other assets................................................       736      --
                                                              --------  -------
                                                              $250,665  $25,121
                                                              ========  =======
            liabilities and stockholders' equity
Current liabilities:
  Accounts payable and bank overdraft.......................  $ 12,404  $ 3,707
  Accounts payable to affiliates............................     1,384    2,169
  Accrued compensation and related liabilities..............     2,551      391
  Deferred revenue..........................................       252      --
  Capital lease obligations, current portion................     2,707      --
  Other current liabilities.................................     1,722      514
                                                              --------  -------
    Total current liabilities...............................    21,020    6,781
Deferred revenue............................................       251      --
Deferred income taxes.......................................       --       327
Capital lease obligations, less current portion.............     4,764      --
Commitments and contingencies

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; 50,000,000
   shares authorized, 34,121,755 issued and outstanding in
   2000 and none issued and outstanding in 1999.............        34      --
  Additional paid-in capital................................   304,072   10,858
  Advances from TRW, Inc....................................       --    13,047
  Deferred stock compensation...............................   (14,043)     --
  Accumulated deficit.......................................   (65,433)  (5,892)
                                                              --------  -------
    Total stockholders' equity..............................   224,630   18,013
                                                              --------  -------
                                                              $250,665  $25,121
                                                              ========  =======
</TABLE>

                            See accompanying notes.

                                       30
<PAGE>

                              ENDWAVE CORPORATION

                            STATEMENTS OF OPERATIONS
                (in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                    Year ended December 31,
                                                   ---------------------------
                                                     2000      1999     1998
                                                   ---------  -------  -------
<S>                                                <C>        <C>      <C>
Revenues:
  Product revenues ($15,472, $7,017 and $973 from
   affiliates, respectively)...................... $  39,799  $12,419  $ 7,030
  Development fees................................     1,433      --       --
                                                   ---------  -------  -------
    Total revenues................................    41,232   12,419    7,030
Costs and expenses:
  Cost of product revenues ($16,421, $5,679, and
   $569 from affiliates, respectively)............    52,538   11,221    5,992
  Research and development ($781, $0, and $0 from
   affiliates, respectively)......................     9,739      326      286
  Selling, general and administrative ($310, $500,
   and $200 from affiliates, respectively)........     7,984    2,370    2,964
  Amortization of goodwill and other intangible
   assets.........................................    14,839    1,536    1,536
  In-process research and development.............    11,700      --       --
  Amortization of deferred stock compensation.....     6,175      --       --
                                                   ---------  -------  -------
    Total costs and expenses......................   102,975   15,453   10,778
                                                   ---------  -------  -------
Loss from operations..............................   (61,743)  (3,034)  (3,748)
Interest income...................................     2,154      --       --
Interest expense..................................      (492)     --       --
Other expense.....................................       (87)     --       --
                                                   ---------  -------  -------
Loss before income taxes..........................   (60,168)  (3,034)  (3,748)
Income tax benefit................................       627      518      850
                                                   ---------  -------  -------
Net loss.......................................... $ (59,541) $(2,516) $(2,898)
                                                   =========  =======  =======
Net loss applicable to common stockholders
 subsequent to the March 2000 merger.............. $ (57,536)
                                                   =========
  Basic and diluted net loss per share............ $   (5.94)
                                                   =========
  Shares used in computing of basic and diluted
   net loss per share............................. 9,693,955
                                                   =========
</TABLE>


                            See accompanying notes.

                                       31
<PAGE>

                              ENDWAVE CORPORATION

                       STATEMENT OF STOCKHOLDERS' EQUITY
                                 (in thousands)

<TABLE>
<CAPTION>
                                            Advances  Additional   Deferred
                          Preferred  Common   From     Paid-In      Stock     Accumulated
                            Stock    Stock  TRW Inc.   Capital   Compensation   Deficit    Total
                          ---------  ------ --------  ---------- ------------ ----------- --------
<S>                       <C>        <C>    <C>       <C>        <C>          <C>         <C>
Balance at December 31,
 1997...................  $     --    $ --  $    251   $ 10,858    $    --     $   (478)  $ 10,631
 Net transfers from TRW
  Inc...................        --      --     5,748        --          --          --       5,748
 Net loss...............        --      --       --         --          --       (2,898)    (2,898)
                          ---------   ----  --------   --------    --------    --------   --------
Balance at December 31,
 1998...................        --      --     5,999     10,858         --       (3,376)    13,481
 Net transfers from TRW
  Inc...................        --      --     7,048        --          --          --       7,048
 Net loss...............        --      --       --         --          --       (2,516)    (2,516)
                          ---------   ----  --------   --------    --------    --------   --------
Balance as of December
 31, 1999...............        --      --    13,047     10,858         --       (5,892)    18,013
 Net transfers from TRW
  Inc...................        --      --     5,993        --          --          --       5,993
 Issuance of preferred
  stock.................     19,985     --       --         --          --          --      19,985
 Recapitalization in
  connection with the
  March 2000 merger.....    167,182      1   (19,040)    (9,143)        --          --     139,000
 Exercise of stock
  options...............        --      --       --          83         --          --          83
 Deferred stock
  compensation..........        --      --       --      20,218     (20,218)        --         --
 Amortization of
  deferred stock
  compensation..........        --      --       --         --        6,175         --       6,175
 Exercise of warrants to
  purchase stock........      1,066    --        --         --          --          --       1,066
 Conversion of preferred
  stock in connection
  with initial public
  offering..............   (188,233)    26       --     188,207         --          --         --
 Issue of common stock..        --     --        --       6,000         --          --       6,000
 Issuance of common
  stock in connection
  with initial public
  offering, net of
  expenses of $8,744....        --       7       --      87,849         --          --      87,856
 Net loss...............        --      --       --         --          --      (59,541)   (59,541)
                          ---------   ----  --------   --------    --------    --------   --------
Balance as of December
 31, 2000...............  $     --    $ 34  $    --    $304,072    $(14,043)   $(65,433)  $224,630
                          =========   ====  ========   ========    ========    ========   ========
</TABLE>


                            See accompanying notes.

                                       32
<PAGE>

                              ENDWAVE CORPORATION

                            STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                     Year ended December 31,
                                                     --------------------------
                                                       2000     1999     1998
                                                     --------  -------  -------
<S>                                                  <C>       <C>      <C>
Operating activities:
  Net loss.........................................  $(59,541) $(2,516) $(2,898)
  Adjustments to reconcile net loss to net cash
   (used in) provided by operating activities:
   Depreciation....................................     3,483      730      233
   Amortization of goodwill and other intangible
    assets.........................................    14,875    1,536    1,536
   Amortization of deferred stock compensation.....     6,175      --       --
   In-process research and development.............    11,700      --       --
   Deferred income taxes...........................      (327)   1,031     (660)
   Non-cash charge, other..........................         9      --       --
   Changes in operating assets and liabilities:
     Accounts receivable...........................    (6,897)     133     (795)
     Accounts receivable, affiliates...............     5,383     (180)     --
     Inventories...................................   (11,607)  (2,285)  (1,669)
     Other assets..................................    (1,903)     (92)      66
     Bank overdraft................................       --     2,278      --
     Accounts payable..............................     4,441       52    1,136
     Accounts payable, affiliates..................      (785)     --       --
     Other accrued liabilities.....................     8,003     (215)     703
     Deferred revenue..............................      (202)     --       --
                                                     --------  -------  -------
  Net cash (used in) provided by operating
   activities......................................   (27,193)     472   (2,348)
Investing activities:
  Purchases of property, plant and equipment.......   (12,986)  (7,430)  (2,031)
  Purchases of short-term investments..............   (26,559)     --       --
                                                     --------  -------  -------
  Net cash used in investing activities............   (39,545)  (7,430)  (2,031)
Financing activities:
  Payments under capital lease obligations.........    (1,439)     --       --
  Payment of debt..................................       --       --    (1,866)
  Net advances from TRW Inc........................     5,993    7,048    5,999
  Net cash acquired in conjunction with the
   acquisition of Endgate Corporation (renamed
   Endwave Corporation)............................    20,882      --       --
  Net proceeds from issuance of preferred stock in
   conjunction with the acquisition of Endgate
   Corporation (renamed Endwave Corporation).......    19,985      --       --
  Proceeds from exercises of warrants .............     1,066      --       --
  Proceeds from exercises of stock options ........        83      --       --
  Proceeds from stock issuance.....................     6,000      --       --
  Proceeds from stock sold in initial public
   offering........................................    87,856      --       --
                                                     --------  -------  -------
  Net cash provided by financing activities........   140,426    7,048    4,133
                                                     --------  -------  -------
  Net increase (decrease) in cash and cash
   equivalents.....................................    73,688       90     (246)
   Cash and cash equivalents at beginning of year..       373      283      529
                                                     --------  -------  -------
   Cash and cash equivalents at end of year........  $ 74,061  $   373  $   283
                                                     ========  =======  =======
Supplemental disclosure of cash flow information:
  Cash paid for interest...........................  $    492  $   --   $   --
                                                     ========  =======  =======
Supplemental non-cash investing and financing
 activity:
  Property and equipment acquired under capital
   leases..........................................  $  7,232  $   --   $   --
                                                     ========  =======  =======
</TABLE>

                            See accompanying notes.

                                       33
<PAGE>

                              ENDWAVE CORPORATION

                         NOTES TO FINANCIAL STATEMENTS

                            DESCRIPTION OF BUSINESS

1. Basis of Presentation

   On March 31, 2000, Endgate Corporation ("Endgate") merged with TRW Milliwave
Inc., a formerly wholly-owned subsidiary of TRW Inc. In the merger, TRW
Milliwave Inc. merged into Endgate and Endgate issued 13,963,063 shares of its
capital stock to TRW Inc. in exchange for TRW's shares in TRW Milliwave Inc. As
a result, Endgate was the surviving corporation in the merger and TRW Milliwave
Inc. ceased to exist as a separate legal entity. In connection with the merger,
the combined company was renamed Endwave Corporation (referred to below as "the
Company" or "Endwave"). Because TRW Inc. owned more than half of Endgate's
outstanding capital stock immediately after the merger, TRW Milliwave Inc. is
treated as the acquiring company for accounting purposes. As a result, Endgate
ceased to be a separate accounting entity as of the date of the merger, and the
combined company's financial statements prior to the merger are those of TRW
Milliwave Inc.

   The accompanying audited financial statements are based on the historical
financial information of TRW Milliwave Inc. through March 31, 2000, and the
combined results of both TRW Milliwave Inc. and Endgate since that date, using
the purchase method of accounting. See Note 16.

2. Summary of Significant Accounting Policies

Revenue Recognition and Warranty

   The Company recognizes product revenue at the time title passes, which is
upon product shipment and provides for estimated warranty expense at the time
of sale. The Company's customers are primarily wireless systems integrators and
equipment manufacturers who integrate the Company's products into their
products. There are no significant acceptance requirements or post-shipment
obligations on the part of Endwave. The Company recognizes development fees
ratably over the estimated term of the development period. 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 agreements are
included in research and development expenses.

Cash Equivalents and Short-Term Investments

   The Company considers all highly-liquid investments with a maturity of 90
days or less when purchased to be cash equivalents. Investments with maturities
between 90 days and twelve months are classified as short term investments and
are carried at amortized cost as the Company has the intent and ability to hold
these investments until maturity.

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

Inventories

   Inventories are stated at the lower of cost (on a first-in, first-out basis)
or market.

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.

                                       34
<PAGE>

                              ENDWAVE CORPORATION

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


Amortization of Purchased Intangibles

   The company amortizes purchased intangibles over their estimated useful
lives as follows (in years):

<TABLE>
<CAPTION>
                                                                      Estimated
                                                                     Useful Life
                                                                     -----------
   <S>                                                               <C>
   Purchased technology.............................................       6
   Customer list....................................................       5
   Acquired workforce...............................................       5
   Goodwill.........................................................       6
</TABLE>

Accounting for the Impairment of Long-Lived Assets

   In accordance with Financial Accounting Standards Board ("FASB") Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to Be Disposed Of," the Company records write-downs on long-lived assets
used in operations when events and circumstances indicate that the assets might
be impaired and the net undiscounted cash flows estimated to be generated by
those assets are less than their carrying amounts. In those circumstances, the
amount of the write down is determined based on the difference between the fair
value and the carrying value of the underlying assets.

Income Taxes

   Income taxes have been provided using the liability method in accordance
with FASB Statement No. 109, "Accounting for Income Taxes." 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.

   The merger of TRW Milliwave with and into Endgate was accomplished through a
tax free reorganization under the Internal Revenue Code. As such, Endgate's and
TRW Milliwave's tax basis in their assets and liabilities carried over to
Endwave with no step-up in basis. Therefore, the amortization of intangible
assets resulting from the merger, including goodwill, is not deductible for tax
purposes. Since inception, Endgate incurred net losses and therefore generated
significant net operating loss carryforwards. These carryforwards were not
reflected on Endgate's balance sheet as an asset because they were fully
reserved due to uncertainty about Endgate's ability to utilize these loss
carryforwards. The merger with TRW Milliwave imposed limitations on the
combined company's ability to utilize these pre-existing net operating loss
carryforwards. Generally accepted accounting principles require that deferred
tax liabilities be recorded for identifiable intangible assets acquired in a
business combination accounted for as a purchase. The deferred tax asset
related to net operating loss carryforwards is greater than the deferred tax
liabilities related to the identifiable intangible assets acquired. A valuation
allowance has been provided to eliminate the net deferred tax asset because
ultimate realization is uncertain. Because TRW Milliwave was a wholly-owned
subsidiary of TRW, and therefore part of the consolidated TRW tax return prior
to merging with Endgate, TRW was able to utilize TRW Milliwave's net operating
losses in the consolidated income tax return of TRW for periods prior to
March 31, 2000, leaving TRW Milliwave with no net operating loss carryforwards.

Stock Based Compensation

   The Company has elected to account for stock option grants to employees and
directors in accordance with APB Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB 25") and, to adopt the disclosure-only provisions as
permitted under Financial Accounting Standards Board's Statement No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123").

                                       35
<PAGE>

                              ENDWAVE CORPORATION

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


   In connection with the grant of stock options to employees prior to the
initial public offering, Endwave recorded deferred stock compensation within
stockholders' equity of approximately $20,218,000, representing the difference
between the deemed fair value of the common stock for financial statement
presentation purposes and the option exercise price of these options at the
date of grant. Deferred stock compensation is amortized using the accelerated
method over the vesting period of the related options, generally four years.

Use of Estimates in the Preparation of Financial Statements

   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.

Financial Instruments and Concentration of Credit Risk

   The estimated fair values of cash, investments, accounts receivable,
accounts payable, and accrued expenses approximate their carrying value because
of the short term maturity of these instruments or the stated interest rates
are indicative of market interest rates. Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist
principally of cash, investments, and trade accounts receivable.

   The Company maintains cash and cash equivalents and short-term investments
with various financial institutions and corporate issuers. These companies are
located throughout the country and the Company's policy is designed to limit
exposure to any one institution or issuer. The Company performs periodic
evaluations of the relative credit standing of those financial institutions
with which the Company maintains accounts. The Company does not require
collateral on these financial instruments.

   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. The Company does not require collateral
for trade accounts receivable, and, therefore, the Company could record losses
up to $7.8 million as of December 31, 2000, if these customers fail to pay.

   Product revenue in 2000 was substantially attributable to three major
customers that made up 33%, 25% and 18% of total revenue. As of December 31,
2000, the Company's receivables from these same customers totaled $5.8 million.

Recent Accounting Pronouncements

   In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. ("SFAS") 133 "Accounting for
Derivative Financial Instruments and Hedging Activities" and in June 2000 the
FASB issued SFAS 138 "Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment of FASB Statement No. 133." These Statements
establish methods of accounting for derivative financial instruments and
hedging activities. The Company will adopt SFAS 133 and 138 in the first
quarter of 2001. Because Endwave currently holds no derivative financial
instruments and does not engage in hedging activities, adoption of these
Statements will not have a significant impact on Endwave's financial position,
results of operations or cash flows.

                                       36
<PAGE>

                              ENDWAVE CORPORATION

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


   In March 2000, the FASB issued Interpretation No. 44 ("FIN 44") "Accounting
for Certain Transactions involving Stock Compensation--an Interpretation of APB
Opinion No. 25." FIN 44 clarifies the application of Opinion 25 for (a) the
definition of an employee for purposes of applying Opinion 25, (b) the criteria
for determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 was effective July 1,
2000 but certain conclusions cover specific events that occur after either
December 15, 1998 or January 12, 2000. The adoption of FIN 44 did not have a
material effect on the Company's financial position or results of operations.

Reclassification

   Certain amounts in prior years have been reclassified to conform to the
current presentation.

3. Inventories

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

<TABLE>
<CAPTION>
                                                              2000     1999
                                                             -------  -------
   <S>                                                       <C>      <C>
   Raw materials............................................ $16,416  $ 1,787
   Work in process..........................................   2,015    2,598
   Finished goods...........................................   1,397      281
                                                             -------  -------
                                                             $19,828  $ 4,666
                                                             =======  =======

4. Property, Plant and Equipment

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

<CAPTION>
                                                              2000     1999
                                                             -------  -------
   <S>                                                       <C>      <C>
   Land..................................................... $   200  $   200
   Building.................................................   3,578    2,294
   Computer equipment.......................................     782      795
   Software.................................................   1,076      597
   Furniture and fixtures...................................     254      --
   Leasehold improvements...................................     247      --
   Laboratory, demonstration and manufacturing equipment....  23,290    8,002
                                                             -------  -------
                                                              29,427   11,888
   Less accumulated depreciation (including amortization of
    assets held under capital leases).......................  (4,350)  (1,011)
                                                             -------  -------
   Property, plant and equipment, net....................... $25,077  $10,877
                                                             =======  =======
</TABLE>

                                       37
<PAGE>

                              ENDWAVE CORPORATION

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


5. Intangible assets

   Intangible assets consists of the following at December 31 (in thousands):

<TABLE>
<CAPTION>
                                                                   2000    1999
                                                                  -------  ----
   <S>                                                            <C>      <C>
   Patent........................................................ $   457  $ --
   Purchased technology..........................................  21,000    --
   Customer list.................................................   2,600    --
                                                                  -------  ----
                                                                   24,057    --
   Less accumulated amortization.................................  (3,445)   --
                                                                  -------  ----
   Intangible assets, net........................................ $20,612  $ --
                                                                  =======  ====
</TABLE>

6. Net Loss Per Share

   The Company computes net loss per share in accordance with FASB Statement
No. 128, "Earnings per Share" (FAS 128) and SEC Staff Accounting Bulletin No.
98 (SAB 98). Under the provision of FAS 128 and SAB 98, basic net loss per
share is computed by dividing the net loss applicable to common stockholders
for the period by the weighted average numbers of shares of common stock
outstanding during the period.

   In connection with the merger, TRW received convertible preferred stock in
exchange for all of the common stock of TRW Milliwave. Giving effect to the
merger retroactive to March 2000, the Company has no outstanding common stock.
Accordingly, a basic net loss per share 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 since 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 2000 of $2.0 million results in the net loss applicable to
common stockholders subsequent to the merger of $57.5 million. The shares used
in computing the net loss per share is the weighted average shares outstanding
since the merger date. Since the Company incurred losses for all periods
presented, the convertible preferred stock would be anti-dilutive and
accordingly, diluted net loss per share has not been presented.

   Common equivalent shares, totaling 21.7 million in 2000 (computed using the
treasury stock method), from the exercise of stock options, warrants and
convertible securities have been excluded from the net loss per share
calculations as their effect would be anti-dilutive due to the Company's
reported net loss.

7. Comprehensive Income (Loss)

   The Company had no items of other comprehensive income (loss) during the
years ended December 31, 2000, 1999 and 1998, and accordingly, comprehensive
income (loss) is the same as the net loss.

8. Research and Development Expenses

   Research and development of expenses of $9.7 million in 2000, $326,000 in
1999 and $286,000 in 1998, were charged to operating expense as incurred.

                                       38
<PAGE>

                              ENDWAVE CORPORATION

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


9. Segment Disclosures

   The Company operates in a single segment. The Company's geographic sales for
the years ended December 31 were as follows (in thousands except for
percentages):

<TABLE>
<CAPTION>
                                         2000           1999           1998
                                     -------------  -------------  ------------
   <S>                               <C>     <C>    <C>     <C>    <C>    <C>
   United States.................... $30,469  76.6% $12,419 100.0% $7,030 100.0%
   Europe...........................   9,330  23.4%     --    --      --    --
                                     ------- -----  ------- -----  ------ -----
     Total.......................... $39,799 100.0% $12,419 100.0% $7,030 100.0%
                                     ======= =====  ======= =====  ====== =====
</TABLE>

10. Stockholders' Equity

   Effective March 31, 2000, Endwave issued 13,963,063 shares of its Series T-1
preferred stock to TRW Inc. in connection with the merger of TRW Milliwave Inc.
and Endgate Corporation. In return for the issuance of the shares to TRW Inc.,
Endwave acquired all outstanding shares in TRW Inc.'s formerly wholly owned
subsidiary, TRW Milliwave Inc., plus cash in the amount of $20.0 million.

   Also in connection with the merger, the Company exchanged all outstanding
shares of its Series A through Series G preferred stock for shares of its
Series E-1 through Series E-7 preferred stock. The number of shares of Series
E-1 through E-7 preferred stock issued in exchange for the Series A through G
preferred stock was equivalent to the number of shares of common stock into
which the Series A through G preferred stock was convertible immediately prior
to the exchange, and did not result in additional proceeds to the Company. In
connection with the merger, TRW Inc. was given the right to elect two members
to the Company's board of directors; this right expired upon the consummation
of the Company's initial public offering in fall 2000.

   On October 2, 2000, the Company issued 429,000 shares of common stock to a
potential customer for total cash consideration of approximately $6.0 million.

   In connection with the Company's initial public offering in fall 2000, all
shares of the Company's preferred stock were converted to common stock on a one
for one basis. Certain of these shares of common stock issued upon the
conversion are subject to resale restrictions.

   At December 31, 2000, the Company had reserved 8,523,277 shares of common
stock for issuance in connection with its stock option plans, 400,000 shares in
connection with its employee stock purchase plan and 6,250 shares for
outstanding stock purchase warrants.

   As of 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. The Company has not yet
issued any shares under this plan.

                                       39
<PAGE>

                              ENDWAVE CORPORATION

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


   A summary of common stock activity in number of shares during 2000 was as
follows:

<TABLE>
<CAPTION>
                                                         Common    Preferred
                                                         Stock       Stock
                                                       ---------- -----------
   <S>                                                 <C>        <C>
   As of January 1, 2000..............................        --          --
   Recapitalization in connection with the March 2000
    merger............................................    633,358  11,918,239
   Issuance of preferred stock to TRW Inc. in March
    2000..............................................        --   13,963,063
   Exercise of stock options..........................     55,320         --
   Exercises of warrants to purchase stock............        --      223,203
   Conversion of preferred stock in connection with
    the initial public offering....................... 26,104,505 (26,104,505)
   Issuance of common stock...........................    428,572         --
   Issuance of common stock in connection with the
    initial public offering...........................  6,900,000         --
                                                       ---------- -----------
   As of December 31, 2000............................ 34,121,755         --
                                                       ========== ===========
</TABLE>

   Effective June 6, 2000, the Company underwent a one-for-two reverse split of
all outstanding shares of preferred stock and common stock. All share and per
share data have been restated to reflect this split.

11. 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 1,425,069 shares of
common stock to directors, employees, and consultants upon the exercise of
options outstanding under the 1992 Plan as of December 31, 2000.

   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 up to 6,500,000
shares of common stock to directors, employees, and consultants. Under the 2000
Plan, incentive stock options are granted under the plan at exercise prices not
less than fair value and nonstatutory 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 have a ten-year term. Options vest and become exercisable as
specified in each 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.

   As of October 2000, the Company established the Endwave 2000 Non-Employee
Directors' Stock Option Plan. The plan provides for nonstatutory stock option
grants to our non-employee directors, consisting of an initial grant of 40,000
shares when an individual first becomes a non-employee director of the Company,
and annual automatic grants of 10,000 shares (which will be reduced pro-rata if
an individual did not serve as a director for the full twelve months of the
preceding fiscal year). Options granted under the plan to our 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. As of
December 31, 2000, 80,000 options had been granted under this plan.

                                       40
<PAGE>

                              ENDWAVE CORPORATION

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


   A summary of stock option activity is as follows:

<TABLE>
<CAPTION>
                                                   Number of  Weighted Average
                                                    Shares     Exercise Price
                                                   ---------  ----------------
   <S>                                             <C>        <C>
   Balance at December 31, 1999...................       --        $ --
   Options assumed in conjunction with the
    acquisition of Endgate........................ 1,507,355        1.84
     Options granted.............................. 3,601,515        7.38
     Options exercised............................   (55,320)       1.50
     Options cancelled............................  (113,714)       5.30
                                                   ---------
   Outstanding at end of year..................... 4,939,836        5.80
                                                   =========
   Exercisable at end of year..................... 1,828,518        2.91
                                                   =========
</TABLE>

   The following table summarizes information concerning outstanding and
exercisable options:

<TABLE>
<CAPTION>
                                                                            Options Exercisable at
                 Options Outstanding at December 31, 2000                     December 31, 2000
   -------------------------------------------------------------------------------------------------
                                                         Weighted-Average
                                        Weighted Average    Remaining               Weighted Average
   Exercise Price Per Share    Shares    Exercise Price  Contractual Life  Shares    Exercise Price
   ------------------------   --------- ---------------- ---------------- --------- ----------------
   <S>                        <C>       <C>              <C>              <C>       <C>
     $ 0.40-$ 1.91.........   1,121,425      $ 1.20            7.37       1,121,425      $ 1.20
     $ 1.92-$10.00.........   3,188,374      $ 5.85            9.34         674,163      $ 5.26
     $10.01-$14.25.........     630,037      $13.76            9.71          32,930      $13.37
                              ---------      ------            ----       ---------      ------
     Total.................   4,939,836      $ 5.80            8.94       1,828,518      $ 2.91
                              =========      ======            ====       =========      ======
</TABLE>

   The weighted average fair value for options granted during 2000 was $13.91
per share and $12.57 per share for options that the grant date fair value
equalled and exceeded the exercise price, respectively. Pro forma information
regarding net income and earnings per share is required by SFAS 123, and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of that Statement. The fair value for these options
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions: risk-free interest rate of
4.75%; dividend yield of 0%, volatility factor of the expected market price of
the Company's common stock of 1.93, and a weighted-average expected life of the
options of 7 years.

   The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

   For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma net loss was $(66.9) million and the pro forma basic and diluted loss
per share applicable to common stockholders subsequent to the merger was
$(6.69) per share for the year ended December 31, 2000.

12. Leases and Commitments

   The Company leases its office, manufacturing and design facilities in
Sunnyvale, California, Santa Clara, California and Torrance, California, under
non-cancelable lease agreements which expire in May 2001, January

                                       41
<PAGE>

                              ENDWAVE CORPORATION

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

2002, November 2003 and March 2006, respectively. The Company also leases
certain equipment under operating lease arrangements. These operating leases
will expire in various periods through 2003. These leases can be renewed for
periods ranging from one to two years. Expenses under operating leases were
approximately $2.8 million for December 31, 2000. There were no operating
leases in 1999 and 1998.

   The Company also lease certain equipment and computers under capital leases
expiring in various periods through 2004.

   Future annual minimum lease payments under non-cancelable operating and
capital leases with initial terms of one year or more as of December 31, 2000
are as follows (in thousands):

<TABLE>
<CAPTION>
                                                              Operating Capital
   Years ending December 31,                                   Leases   Leases
   -------------------------                                  --------- -------
   <S>                                                        <C>       <C>
      2001...................................................  $1,345   $ 3,699
      2002...................................................     935     3,320
      2003...................................................     675     1,693
      2004...................................................      80        14
      2005...................................................      68       --
      Thereafter.............................................      17       --
                                                               ------   -------
      Total minimum payments required........................  $3,120     8,726
                                                               ======
      Less: amount representing interest.....................            (1,255)
                                                                        -------
      Present value of future minimum lease payments.........             7,471
      Less: current portion..................................            (2,707)
                                                                        -------
      Long-term portion......................................           $ 4,764
                                                                        =======
</TABLE>

   Property, plant and equipment includes the following amounts for leases that
have been capitalized at December 31 (in thousands).

<TABLE>
<CAPTION>
                                                                   2000    1999
                                                                  -------  ----
   <S>                                                            <C>      <C>
   Test equipment................................................ $ 7,412  $ --
   Computers.....................................................     766    --
   Manufacturing equipment.......................................   1,167    --
                                                                  -------  ----
                                                                    9,345    --
   Less accumulated amortization.................................  (1,810)   --
                                                                  -------  ----
   Total......................................................... $ 7,535  $ --
                                                                  =======  ====
</TABLE>

   The Company has a supply agreement and a technology services agreement with
TRW's Space and Electronics Group to supply and test various products, as well
as to provide engineering support. The Company also has one remaining supply
agreement with TRW that relates to TRW's Space and Electronics Group's contract
with Nokia.

13. Related Party Transactions

Advances From TRW Inc.

   Prior to the merger, TRW Milliwave participated in TRW's cash management
system, under which TRW withdrew the Company's cash receipts and provided for
any cash disbursements that had cleared the bank on a daily basis. The net
funds advanced by TRW under this arrangement were used by TRW Milliwave to fund

                                       42
<PAGE>

                              ENDWAVE CORPORATION

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

operations of the Company. The cumulative net funds advanced to TRW Milliwave
were recorded as advances from TRW Inc. This balance has been included as a
component of shareholders' equity as it was not the original intention of TRW
Milliwave or TRW to settle such balances in cash. At December 31 2000, there
were no outstanding cash due to TRW, and at December 31, 1999, there were
outstanding cash balances due to TRW of $13.0 million.

General and Administrative Expenses Allocated from TRW, Inc.

   Prior to the merger, TRW Inc. and TRW Space and Electronics Group incurred
general and administrative expenses that related to various TRW operating units
that were allocated to the operating units. Such expenses recorded by TRW
Milliwave totaled approximately $310,000, $500,000, and $200,000 for the years
ended December 31, 2000, 1999 and 1998, respectively. The costs related
primarily to compensation and fringe benefits, legal and accounting expenses
and other general and administrative costs. Management believes that all costs
incurred by TRW Inc. and its affiliates relating to the operations of the
Company have been appropriately allocated and reflected in the accompanying
financial statements.

14. Income Taxes

   Prior to the merger, the Company was included in the consolidated income tax
returns of TRW Inc. and its affiliates. The Company's portion of income tax
accounts was included in the Company's financial statements. When current tax
losses were realized by TRW Milliwave Inc., TRW and/or its affiliates were able
to utilize the resulting tax benefits to offset their taxable income.
Accordingly, when such benefits were utilized by TRW or its affiliates, TRW
Milliwave recorded the income tax benefit, with an offsetting entry to accounts
receivable from affiliates. Endgate was the surviving company in the merger for
income tax purposes, and accordingly, its net operating losses carried over
into Endwave.

   As of December 31, 2000, the Company had federal net operating loss
carryforward of approximately $75.2 million. The Company also had federal
research and development tax credit carryforwards of approximately $1.1
million. These net operating loss and credit carryforwards will expire at
various dates beginning on 2007 through 2020, if not utilized.

   Utilization of the net operating losses 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.

                                       43
<PAGE>

                              ENDWAVE CORPORATION

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


   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):

<TABLE>
<CAPTION>
                                                                 2000    1999
                                                               --------  -----
   <S>                                                         <C>       <C>
   Deferred tax assets:
     Net operating loss carryforwards......................... $ 27,400  $ --
     Research credit..........................................    1,800    --
     Capitalized research and development.....................    2,500    --
     Other....................................................    3,000    637
                                                               --------  -----
   Total deferred tax assets..................................   34,700    637
   Valuation allowance for deferred tax asset.................  (26,600)   --
                                                               --------  -----
   Deferred tax assets, net...................................    8,100    637
   Deferred tax liabilities:
     Intangibles assets.......................................   (8,100)   --
     Other....................................................      --    (964)
                                                               --------  -----
   Net deferred tax asset (liabilities)....................... $    --   $(327)
                                                               ========  =====
</TABLE>

   Realization of deferred tax assets are dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net
deferred tax assets have been offset by a valuation allowance. The valuation
allowance increased by $26.6 million and $0 during 2000 and 1999, respectively.

   Significant components of the income tax benefit (provision) is as follows
for the year ended December 31 (in thousands):

<TABLE>
<CAPTION>
                                                             2000   1999    1998
                                                             ----- -------  ----
   <S>                                                       <C>   <C>      <C>
   Current:
     Federal................................................ $ 267 $ 1,350  $172
     State..................................................    33     199    18
                                                             ----- -------  ----
       Total current........................................   300   1,549   190
                                                             ----- -------  ----
   Deferred:
     Federal................................................   300    (902)  589
     State..................................................    27    (129)   71
                                                             ----- -------  ----
       Total deferred.......................................   327  (1,031)  660
                                                             ----- -------  ----
                                                             $ 627 $   518  $850
                                                             ===== =======  ====
</TABLE>

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

<TABLE>
<CAPTION>
                                                            2000   1999   1998
                                                            ----   ----   ----
   <S>                                                      <C>    <C>    <C>
   Income tax benefit at statutory rate:..................  (35)%  (35)%  (35)%
   State, net of federal effect...........................   (6)    (5)    (5)
   Nondeductible goodwill amortization....................    7     19     16
   Change in valuation allowance since the merger in March
    2000..................................................   23     --     --
   Nondeductible deferred compensation....................    4     --     --
   In process research and development....................    7     --     --
   Other..................................................   (1)     4      1
                                                            ---    ---    ---
                                                             (1)%  (17)%  (23)%
                                                            ===    ===    ===
</TABLE>

                                       44
<PAGE>

                              ENDWAVE CORPORATION

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


15. 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 matches contributions based
upon a percentage of employee contributions up to a maximum of 6% of employee
compensation. Prior to the merger, the Company participated in TRW's
contributory stock ownership and savings plan for which a majority of its
employees were eligible as defined in the plan. TRW Milliwave matched employee
contributions subject to plan limitations. Company contributions under these
plans for 2000, 1999 and 1998 were $391,000, $59,000 and $36,000 respectively.

16. Merger between Endgate and TRW Millwave

   As consideration for the merger between TRW Milliwave and Endgate
Corporation, the Company issued shares of its Series T-1 preferred stock to
TRW. The merger was accounted for using the purchase method of accounting. The
aggregate purchase price of $139.9 million was allocated to the assets and
liabilities acquired based on their fair values as follows (in thousands):

<TABLE>
<CAPTION>
                                                                        Amount
                                                                       --------
     <S>                                                               <C>
     Tangible net assets.............................................. $ 24,377
     In-process research and development..............................   11,700
     Purchased technology.............................................   16,100
     Customer list....................................................    2,600
     Acquired workforce...............................................    4,900
     Goodwill.........................................................   80,218
                                                                       --------
                                                                       $139,895
                                                                       ========
</TABLE>

   In determining the total consideration as well as the allocation of the
purchase price including the amount of in-process research and development, TRW
considered as part of their analysis an appraisal prepared for TRW's Space and
Electronics Group by American Appraisal Associates, Inc., an independent
appraisal firm that used established valuation techniques appropriate for the
high technology industry. The amount allocated to in-process research and
development was expensed upon acquisition because technological feasibility has
not been established and no future alternative uses existed. A one time charge
of $11.7 million for purchased in-process research and development arising from
the acquisition has been reflected in the statement of operations of Endwave in
the year ended December 31, 2000.

 Unaudited pro forma financial information

   The following unaudited pro forma financial information combines the
historical statements of operations for TRW Milliwave Inc. and Endgate
Corporation for the years ended December 31, 2000 and 1999, and gives effect to
the merger, including the amortization of goodwill and intangible assets. The
aggregate purchase price allocated to purchased in-process research and
development has been excluded from the pro forma information, as it is a non-
recurring item. Pro forma basic and diluted net loss per share has been
adjusted to reflect the actual common shares issued and the equivalent number
of shares issued to complete the merger on an as if converted basis. The
unaudited pro forma financial information is presented for illustrative
purposes only and is not necessarily indicative of the operating results that
would have occurred if the transactions had been consummated at the dates
indicated, nor is it necessarily indicative of future operating results of the
combined

                                       45
<PAGE>

                              ENDWAVE CORPORATION

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

companies and should not be construed as representative of these amounts for
any future periods (in thousands):

<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                                      ------------------------
                                                         2000         1999
                                                      -----------  -----------
<S>                                                   <C>          <C>
Total revenues....................................... $    44,359  $    15,047
Cost and expenses:
  Cost of products revenues..........................      57,318       18,499
  Research and development...........................      12,563       10,925
  Selling, general and administrative................       9,052        5,186
  Amortization of goodwill and other intangible
   assets............................................      19,257       19,208
  Amortization of deferred stock compensation........       6,656          710
                                                      -----------  -----------
Total costs and expenses.............................     104,846       54,528
                                                      -----------  -----------
Loss from operations.................................     (60,487)     (39,481)
Other, net...........................................         898         (585)
                                                      -----------  -----------
Net loss............................................. $   (59,589) $   (40,066)
                                                      ===========  ===========
Basic and diluted net loss per share................. $     (2.22) $     (2.18)
                                                      ===========  ===========
</TABLE>

17. In Process Research and Development

   As of March 31, 2000, Endgate had the following significant in process
research and development ("IPR&D") efforts under way:

  .  ""Flip-Chip" Technology--Development projects aimed at designing and
     producing a commercially viable gallium arsenide circuit and improving
     the manufacturing efficiency of Endgate's proprietary "flip chip" die
     attach technology. The development efforts were estimated to be 50%
     complete, had a fair value of $7.6 million as of March 31, 2000 and are
     expected to be complete during 2001.

  .  Antennas--Development projects to enable the Company to produce
     appropriate antennas for various market uses and needs for varying
     frequencies and sizes. The development efforts were estimated to be 75%
     complete, had a fair value of $2.7 million as of March 31, 2000,
     depending on the antenna product and were substantially completed as of
     December 31, 2000.

   Efforts to complete these projects continue at the planned rate and their
successful completion underlies significant aspects of the company's future
operations. The in-process research and development was identified and valued
through extensive interviews and discussions with management and the analysis
of data provided by the Company concerning developmental products, their
respective stage of development, the time and resources needed to complete
them, their expected income generating ability, target markets and associated
risks. The income approach, which includes an analysis of the markets, cash
flows, and risks associated with achieving such cash flows, was the primary
technique utilized in valuing the in-process research and development project.
Revenue from the in-process research and development projects commenced in 2000
and is expected to continue for approximately five years.

   The discount rates used to discount the excess cash flows to their present
value were based on the business' overall weighted average cost of capital
("WACC"). The WACC produces the average required rate of return of an
investment in an operating enterprise, based on various required rates of
return from investments in various assets of the enterprise, including three
classes of technologies: completed, in-process, and future

                                       46
<PAGE>

                              ENDWAVE CORPORATION

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

technologies. The required return on these assets increase when moving from
completed to future technologies. The risk, therefore the required return on,
the completed technology should be lower than the required returns on the in-
process and future technologies. Because there is no completion risk associated
with the completed technology, a discount rate of 14.5% was used to discount
the excess cash flows attributed to the completed technologies. Because there
is still completion risk associated with the IPR&D the cash flows were
discounted based on the business' overall cost of capital of 18.5%, plus a
completion risk premium of 4%.

18. Subsequent Events (unaudited)

   On January 29, 2001, Endwave's Board of Directors approved a restructuring
plan related to the Company's transition of all manufacturing activities from
its Sunnyvale, California facility to its Diamond Springs, California facility.
Costs associated with the transition are anticipated to be in the range of $2.2
to $2.7 million for retention and severance payments, professional fees and
lease losses, and are expected to be substantially paid within the fiscal year
ending December 31, 2001.

   In connection with the Company's decision to transition its base of
manufacturing operations to its Diamond Springs, California facility,
approximately 130 of the Company's employees will be required to relocate in
order to retain their present positions. In the event any of these employees
are unable to relocate, they will be provided with severance payments
commensurate with their positions.

19. Quarterly Financial Information (unaudited)

   On March 31, 2000, the Company merged with TRW Milliwave. The quarterly
financial results subsequent to March 2000 give effect to this merger while the
periods presented prior reflect only TRW Milliwave. The net loss for the second
quarter of 2000 includes an $11.7 million charge for in-process research and
development.

<TABLE>
<CAPTION>
                                                     Quarter
                                        -------------------------------------
                                         First    Second    Third     Fourth
                                        -------  --------  --------  --------
                                         (in thousands, except per share
                                                      data)
   <S>                                  <C>      <C>       <C>       <C>
   2000:
     Net revenues...................... $ 4,191  $ 11,293  $ 12,490  $ 13,259
     Cost of revenues..................   4,465    14,731    15,715    17,627
     Net loss..........................  (2,005)  (25,396)  (15,420)  (16,720)
     Basic and diluted net loss per
      share............................     --     (39.28)   (22.99)    (0.60)
   1999:
     Net revenues...................... $ 1,349  $  2,018  $  4,176  $  4,876
     Cost of revenues..................   1,872     2,008     3,387     3,954
     Net loss..........................  (1,193)     (882)     (263)     (178)
     Basic and diluted net loss per
      share............................     --        --        --        --
</TABLE>

                                       47
<PAGE>

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

   Not applicable.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

   Certain information with respect to our executive officers is set forth in
Part I of this report. Additional information required by this Item relating to
our directors is incorporated herein by reference to the section entitled
"Proposal 1: Election of Directors" contained in our definitive Proxy Statement
pertaining to our 2000 Annual Meeting of Stockholders, to be filed with the
Securities and Exchange Commission (the "Definitive Proxy Statement").
Additional information with respect to compliance by officers and directors
with Section 16(a) of the Securities and Exchange Act of 1934 is incorporated
herein by reference to the section entitled "Section 16(a) Beneficial Ownership
Reporting Compliance" of the Definitive Proxy Statement.

Item 11. Executive Compensation

   The information required by this Item is incorporated herein by reference to
the sections entitled "Executive Compensation" of the Definitive Proxy
Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management

   The information required by this Item is incorporated herein by reference to
the section captioned "Security Ownership of Certain Beneficial Owners and
Management" contained in the Definitive Proxy Statement.

Item 13. Certain Relationships and Related Transactions

   The information required by this Item is incorporated herein by reference to
the sections captioned "Certain Transactions" and "Executive Compensation"
contained in the Definitive Proxy Statement.

                                    PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

  (a) Financial Statements and Schedules.

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

           Report of Ernst & Young LLP, Independent Auditors

           Balance Sheets as of December 31, 2000 and 1999

           Statement of Operations for the years ended December 31, 2000, 1999
           and 1998

           Statement of Stockholders' Equity for the years ended December 31,
           2000, 1999, and 1998

           Statement of Cash Flows for years ended December 31, 2000, 1999,
           and 1998

           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.

  (b) Report on Form 8-K.

   A current report on Form 8-K dated October 24, 2000, was filed with the
Securities and Exchange Commission on October 31, 2000, and included as Exhibit
99.1 thereto the press release titled "Endwave Corporation Reports Record
Revenues of $12.5 Million for the Third Quarter."

                                       48
<PAGE>

  (c) Exhibits.

<TABLE>
<CAPTION>
 Exhibit
 Number                                Description
 -------                               -----------
 <C>     <S>
  3.1*   Amended and Restated Certificate of Incorporation effective October
          20, 2000.
  3.2*   Amended and Restated Bylaws to be effective upon completion of this
          offering.
  4.1*   Form of specimen Common Stock Certificate.
  4.2*   Investors' Rights Agreement dated March 31, 2000 by and among the
          Registrant and certain investors named therein.
  4.3*   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.
 10.1*   Form of Indemnity Agreement entered into by Endwave with each of its
          directors and officers.
 10.2*   1992 Stock Option Plan.
 10.3*   Form of Incentive Stock Option under 1992 Stock Option Plan.
 10.4*   Form of Nonstatutory Stock Option under 1992 Stock Option Plan.
 10.5*   Amended and Restated 2000 Equity Incentive Plan.
 10.6*   Form of Stock Option Agreement under 2000 Equity Incentive Plan.
 10.7*   2000 Employee Stock Purchase Plan.
 10.8*   Form of 2000 Employee Stock Purchase Plan Offering.
 10.9*   2000 Non-Employee Director Plan.
 10.10*  Form of Nonstatutory Stock Option Agreement under the 2000 Non-
          Employee Director Plan.
 10.11*  Officer Retention Plan.
 10.12*  Industrial Lease by and between The Irvine Company and the Registrant
          dated March 26, 1997.
 10.13*  Terms and Conditions by and between Hughes Network Systems and the
          Registrant dated March 13, 1998.
 10.14*  Amendment #1 to the Terms and Conditions by and between Hughes Network
          Systems and the Registrant dated October 5, 1998.
 10.15*  Amendment #2 to the Terms and Conditions by and between Hughes Network
          Systems and the Registrant dated January 14, 2000.
 10.16*  Statement of Work for Manufacture of a 24-GHZ Radio Integrated Outdoor
          Unit for Subscriber and Hub Stations.
 10.17*  Statement of Work for Manufacture of a 38-GHZ Radio Integrated Outdoor
          Unit for Subscriber and Hub Stations.
 10.18*  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.
 10.20*  Services Agreement by and between TRW Inc. and the Registrant dated
          March 31, 2000.
 10.21*  Supply Agreement by and between TRW Inc. and the Registrant dated
          March 31, 2000.
 10.22*  Master Loan and Security Agreement by and between FINOVA Capital
          Corporation and the Registrant dated July 20, 1999.
 10.23*  License Agreement by and between TRW Inc. and TRW Milliwave Inc. dated
          February 28, 2000.
 10.24** Purchase Agreement No. 1201000 made and entered into by and between
          Nokia Networks Oy and Endwave Corporation on November 7, 2000.*
 23.1    Consent of Ernst & Young LLP, Independent Auditors.
 24.1    Power of Attorney. Reference is made to page 51.
</TABLE>
--------
*  Previously filed with the Registrant's Registration Statement on Form S-1
   (Registration No. 333-41302).
** Previously filed with the Registrant's Quarterly Report on Form 10-Q filed
   November 30, 2000.

                                       49
<PAGE>

  (d) Financial Statement Schedule

                              ENDWAVE CORPORATION

                                  SCHEDULE II

                       VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)

<TABLE>
<S>                               <C>
Allowance for doubtful accounts:
</TABLE>

<TABLE>
<CAPTION>
                                      Additions     Balances
                         Balances at  Charged to   Acquired in
                         Beginning of Costs and    Connection    Deductions and  Balances at
                            Period     Expenses  with the Merger   Write-offs   End of Period
                         ------------ ---------- --------------- -------------- -------------
<S>                      <C>          <C>        <C>             <C>            <C>
Year ended December 31,
 2000...................     $ 81        $283         $  12         $  (128)        $248
                             ====        ====         =====         =======         ====
Year ended December 31,
 1999...................     $816        $322           --          $(1,057)        $ 81
                             ====        ====         =====         =======         ====
Year ended December 31,
 1998...................     $ 50        $766         $ --              --          $816
                             ====        ====         =====         =======         ====
</TABLE>

                                       50
<PAGE>

                                   SIGNATURES

   Pursuant to the requirements 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

Date: April 2, 2001
                                                   /s/ Bruce Margetson
                                          By: _________________________________
                                                      Bruce Margetson
                                                 Senior Vice President and
                                                  Chief Financial Officer
                                                (Duly Authorized Officer and
                                                          Principal
                                             Financial and Accounting Officer)

                               POWER OF ATTORNEY

   Know By All These Persons Present, that each person whose signature appears
below constitutes and appoints each of Bruce Margetson and Edward A. Keible,
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:

<TABLE>
<CAPTION>
         Signatures                        Title                    Date
         ----------                        -----                    ----
 <C>                         <S>                               <C>
   /s/ Edward A. Keible      Chief Executive Officer,          March 27, 2001
 ___________________________  President and Director
      Edward A. Keible        (Principal Executive Officer)

    /s/ Bruce Margetson      Vice President and Chief          March 29, 2001
 ___________________________  Financial Officer (Principal
       Bruce Margetson        Financial and Accounting
                              Officer)

       /s/ Wes Bush          Director                          March 30, 2001
 ___________________________
          Wes Bush

   /s/ Timothy Hannemann     Director                          March 31, 2001
 ___________________________
      Timothy Hannemann

 /s/ Esfandiar Lohrasbpour   Director                          March 27, 2001
 ___________________________
    Esfandiar Lohrasbpour

     /s/ Robert Pavey        Director                          March 29, 2001
 ___________________________
        Robert Pavey

   /s/ Edward C.V. Winn      Director                          March 27, 2001
 ___________________________
      Edward C.V. Winn
</TABLE>

                                       51