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

Form 10-K


(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2010
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission file number: 000-31635

Endwave Corporation

(Exact name of registrant as specified in its charter)


Delaware (State of incorporation)		95-4333817 (I.R.S. Employer Identification No.)
130 Baytech Drive San Jose, CA (Address of principal executive offices)		95134 (Zip code)

(408) 522-3100

(Registrant’s telephone number, including area code)

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


Title of Each Class		Name of Each Exchange on Which Registered

Common Stock, $0.001 par value per share		The NASDAQ Global Market

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

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o No þ

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2010 was approximately $29 million. Shares of voting common stock held by directors and executive officers have been excluded as 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 $3.21, which was the closing sale price on June 30, 2010 as reported by The NASDAQ Global Market.

The number of shares outstanding of the registrant’s common stock as of January 31, 2011 was 9,832,684.

FORWARD-LOOKING INFORMATION

This report contains forward-looking statements within the meaning of Section 17A of the Securities Act of 1933, or the Securities Act, and within the meaning of Section 21E of the Securities Exchange Act of 1934, or the Exchange Act, that are subject to the “safe harbor” created by those sections. These forward-looking statements can generally be identified as such because the statement will include words such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “opportunity,” “plan,” “potential,” “predict” or “will,” the negative of these words or words of similar import. Similarly, statements that describe our future plans, strategies, intentions, expectations, objectives, goals or prospects are also forward-looking statements. Discussions containing these forward-looking statements may be found, among other places, in the sections of this report entitled “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These forward-looking statements are based largely on our expectations and projections about future events and future trends affecting our business, and so are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. The risks and uncertainties are attributable to, among other things potential delays in completing, or a failure to complete, our proposed merger with GigOptix, Inc.; disruptions to our business attributable to the recent announcement of our proposed merger with GigOptix, Inc.;; our semiconductor product line, our suppliers’ abilities to deliver raw materials to our specifications and on time; our customer and market concentration; volatility resulting from consolidation of key customers; our ability to achieve revenue growth and maintain profitability; our successful implementation of next-generation programs, including inventory transitions; our ability to penetrate new markets; fluctuations in our operating results from quarter to quarter; our reliance on third-party manufacturers and semiconductor foundries; component, design or manufacturing defects in our products; our dependence on key personnel; our ability to develop new or improved semiconductor process technologies; and fluctuations in the price of our common stock. Because of the risks and uncertainties referred to above and other risks and uncertainties, including the risks described in the section of this report entitled “Risk Factors,” actual results or outcomes could differ materially from those expressed in any forward-looking statements and you should not place undue reliance on any forward-looking statements. New risks emerge from time to time, and it is not possible for us to predict which risks will arise. In addition, we cannot assess the impact of each risk on our business or the extent to which any risk, or combination of risks, may cause actual results to differ materially from those contained in any forward-looking statements. Except as required by law, we undertake no obligation to publicly revise our forward-looking statements to reflect events or circumstances that arise after the date of this report or the date of documents incorporated by reference in this report that include forward-looking statements.

PART I


Item 1.	*Business*

Introduction

We design, manufacture and market radio frequency, or RF, products that enable the transmission, reception and processing of high frequency RF signals. Our products consist of two key product lines, semiconductor devices and integrated transceiver modules:


	•	Our semiconductor product line consists of a wide variety of monolithic microwave integrated circuits, or MMICs, including amplifiers, voltage controlled oscillators, up and down converters, variable gain amplifiers, voltage variable attenuators, fixed attenuators and filters. These types of devices are widely used in telecommunications, satellite, defense, security, instrumentation, scientific and consumer systems. While we have developed, produced and sold such devices for several years as components of our module products, we first offered them for sale as stand-alone products in the latter part of 2009 and they have not yet become a significant source of revenue for us.

	•	Our integrated transceiver modules combine several electronic functions into a single RF sub-system. Historically, our main customers for these products have been telecommunication network original equipment manufacturers, or OEMs, and system integrators that utilize them in digital microwave radios. More recently we have identified and pursued uses for these products in additional product areas; however these alternate applications have not yet become a significant source of revenue for us.

We were originally incorporated in California in 1991 and reincorporated in Delaware in 1995. In March 2000, we merged with TRW Milliwave Inc., a RF sub-system supplier that was a wholly-owned subsidiary of TRW Inc. In connection with the merger, we changed our name from Endgate Corporation to Endwave Corporation. On October 17, 2000, we successfully completed the initial public offering of our common stock. As used in this report, “we,” “us,” “our,” “Endwave” and words of similar import refer to Endwave Corporation.

On February 4, 2011, we entered into an Agreement and Plan of Merger with GigOptix, Inc., or GigOptix, and Aerie Acquisition Corporation, a wholly-owned subsidiary of GigOptix, which we refer to as the Merger Subsidiary, pursuant to which Merger Subsidiary will, subject to the satisfaction or waiver of the conditions therein, merge with and into Endwave, the separate corporate existence of Merger Subsidiary shall cease and Endwave will be the surviving corporation of the merger and a wholly-owned subsidiary of GigOptix. We refer to this agreement as the Merger Agreement and the proposed merger contemplated by the Merger Agreement as the Merger. Upon the consummation of the Merger, (i) the outstanding shares of Endwave common stock will be converted into the right to receive an aggregate number of shares of GigOptix common stock equal to the product of (.425/.575) and the number of shares of GigOptix common stock outstanding immediately prior to consummation of the Merger, less 42.5% of the shares described in clause (ii) of this sentence and (ii) in-the-money options to acquire Endwave common stock outstanding immediately prior to the consummation of the Merger will be converted into that number of shares of GigOptix common stock determined by dividing the spread value of such options at closing by the closing price of GigOptix’s common stock on the trading day prior to closing, such that following the Merger, the pre-Merger holders of common stock and restricted stock units will own that number of shares equal to 42.5% of the outstanding stock of the combined company, less 42.5% of the shares issued in respect of Endwave stock options.

The Merger Agreement includes customary representations, warranties and covenants of Endwave and GigOptix. Endwave has agreed to conduct its operations and the operations of its subsidiaries according to its ordinary and usual course of business consistent with past practice until the effective time of the Merger. The Merger Agreement contains customary “no-solicitation” covenants pursuant to which neither Endwave nor GigOptix is permitted to solicit any alternative acquisition proposals, provide any information to any person in connection with any alternative acquisition proposal, participate in any discussions or negotiations relating to any alternative acquisition proposal, approve, endorse or recommend any alternative acquisition proposal, or enter into any agreement relating to any alternative acquisition proposal. The “no-solicitation” provision is subject to certain exceptions that permit the Board of Directors of each of Endwave and GigOptix, as the case may be, to comply with

their respective fiduciary duties, which, under certain circumstances, would enable Endwave or GigOptix, as the case may be, to provide information to, and engage in discussions or negotiations with, third parties with respect to alternative acquisition proposals.

The Merger Agreement contains certain termination rights for both Endwave and GigOptix and further provides that, upon termination of the Merger Agreement under certain circumstances, Endwave may be obligated to pay GigOptix a termination fee of $1,000,000 plus certain reasonable documented expenses of GigOptix.

GigOptix and Endwave currently expect to complete the Merger in the second quarter of 2011. GigOptix’s and Endwave’s obligations to consummate the Merger are subject to the satisfaction or waiver of customary closing conditions and regulatory approvals, as well as the approval of the merger by the stockholders of Endwave.

Industry Background and Markets

High-Frequency RF Technology

The applications of RF technology are broad, extending from terrestrial AM radio at the low end of the frequency spectrum, which is less than 1 MHz (megahertz, or million cycles per second), to atmospheric monitoring applications at the high end of the frequency spectrum, which is around 100 GHz (gigahertz, or billion cycles per second). Microwave technology refers to technology for the transmission of signals at high frequencies, from approximately 1 GHz to approximately 20 GHz and millimeter wave technology refers to technology for the transmission of signals at very high frequencies, from approximately 20 GHz to beyond 100 GHz. Our products employ both microwave and millimeter wave technology. The term microwave, however, is commonly understood in the industries we serve, and we use that term in this report as meaning both microwave and millimeter wave.

Our products are typically designed to operate at frequencies between 1 GHz and 100 GHz, which we refer to in this report as high-frequency RF. Due to their physical attributes, these frequencies are well-suited for numerous applications requiring the transmission of data at high speeds, detection of physical movement, imaging of inorganic and organic objects and various other types of physical measurements.

Telecommunication Networks

High-frequency transceiver modules and their key constituent components, MMICs, are an integral part of microwave radios, which in turn play a key role in many telecommunication networks. Microwave radio links have a number of applications:

Cellular Telephone Backhaul. The communication link between the cellular base station site and the overall telephone network is referred to as cellular backhaul. This is the most common use of microwave radios. In most parts of the world, cellular backhaul is typically accomplished through the use of microwave radios either because of their ease of deployment and low overall cost relative to available wireline options or because adequate wireline facilities are not available. While in the United States and Canada cellular backhaul has typically been accomplished through the use of wireline facilities, there is a growing trend to migrate to microwave backhaul because wireline systems are not a practical alternative to provide the extremely high backhaul data rates necessitated by contemporary “smart phones” and similar devices.

Carrier Class Trunking. To deploy their networks, communications carriers require high capacity links, or trunk circuits, between major voice and data switching centers. While fiber optic cables are the most common type of trunk circuit facility, microwave radios are often used for portions of these circuits when the intervening terrain, such as mountains or bodies of water, is difficult to traverse or as redundant backup links for the fiber optic network.

Private Voice and Data Networks. When private users, such as companies and universities, deploy stand-alone campus area or metropolitan area voice and data networks, they often encounter situations where it is not possible to access a direct physical path between their facilities due to distance or intervening structures and roads. If third-party wireline facilities are not available or cost-effective, a microwave radio link is often used to provide the network connection. In addition, companies often implement microwave facilities as redundant backup links for their wireline facilities.

Fixed Wireless Access Network Backhaul. Similar to the situation in cellular telephone networks, fixed wireless access networks require a backhaul infrastructure to move the data from individual access points to an internet portal. Various approaches are being considered for the widespread implementation of fixed wireless access networks, including the IEEE 802.16 WiMAX standard and LTE (Long Term Evolution) technology. Regardless of the underlying access technology, all such fixed wireless access networks will face the technological and cost issues associated with connecting individual access points to the wireline network infrastructure. We believe this need for backhaul represents an opportunity for microwave radios, particularly because the anticipated high bandwidth requirements of fixed wireless access networks are served more cost-effectively by microwave radios than by wireline alternatives.

While transient economic conditions and changing deployment schedules may cause short-term market fluctuations, we believe the long-term prospects for the use of our products and technology in telecommunications networks are good. The continued deployment of mobile networks in developing countries, the continued enhancement of networks in developed regions and the ongoing rate of increases in data traffic all work to increase demand for the types of products we offer.

Defense Systems

High-frequency RF technology is an integral part of various defense systems. Key applications in these markets include:

Radar Systems. Traditional radar systems are configured to detect large objects at significant distances. To add to this capability, many new systems employ complementary high frequency RF radar systems designed to detect small vehicles and personnel. These new systems often use these higher frequencies in order to provide greater resolution. A further use of high frequency radar is airborne imaging equipment that allows pilots to see through low-lying haze and dust much in the same way night vision goggles permit one to see in the dark.

Signal Intelligence Systems. Information about an opposing force can be gathered by monitoring their electronic communications. Systems that gather such information utilize a variety of RF and microwave components to monitor and interpret information over a broad spectrum of potential frequencies that a hostile force might use.

High Capacity Communications. A modern, widely-dispersed military or security force requires communication systems to transmit voice, video and data wherever and whenever it is needed. Many military or security communication systems, whether terrestrial, airborne or satellite, employ microwave technology to meet these requirements. As the data rates in these systems increase, the systems must be able to operate at higher frequencies to take advantage of the transmission bandwidth that is available at those frequencies.

Security Systems

Because millimeter wave energy is both emitted by and reflected off of the human body, various sensors and imaging systems can be constructed to enhance the capability of personnel security systems.

Long Distance Personnel Detection. High-frequency RF signals can be used to detect the presence of humans at significant distances, much in the same way lower frequency radar systems can detect metal objects at a distance. This phenomenon can be employed as a “radar fence” to detect intrusion along lengthy security perimeters such as airport runways, secure compounds and international borders.

Security Portals. Using high-frequency RF signals and holographic image processing techniques, it is possible to create images of the human body through garments and thus detect if the individual is carrying contraband objects or weapons. These systems are used in airport security lanes and for the interdiction of contraband or controlled materials in or out of secure facilities.

Security Cameras. Utilizing security cameras that are capable of detecting and forming images with the high-frequency RF energy emitted by the human body it is possible to observe large areas in search of contraband

objects or weapons in a stand-off mode that does not require one to pass through a security portal. These systems are used for loss prevention in warehouse facilities and in large public spaces to protect against terrorist activities.

The increasing concern over terrorist attacks in various public spaces is driving demand for these types of security systems and we believe is creating new opportunities for our products.

Other Applications

Scientific Sensors. Various sorts of physical phenomena can be detected and measured using high-frequency RF signals. In particular they can detect earth movements, both seismic and volcanic, through cloud cover and can also be used to measure atmospheric disturbances at upper altitudes to aid in weather prediction.

Through-wall Imagers. High-frequency RF energy has the capability to see through common building materials and detect if hidden obstructions, electrical lines, pipes or conduits exist inside of a wall. Devices employing this technology are used to avoid disruptions caused by damaging these hidden items during subsequent construction activities.

Automotive Radar. Advanced automotive radar systems utilize high-frequency RF energy to detect road hazards, other vehicles and roadway barriers and signal the power train to take appropriate action to reduce the risk of a collision or other hazardous event.

The range and breadth of applications for high-frequency RF systems continues to grow. Thus, we believe there will be significant market opportunities for our products and technologies going forward.

Our Business Approach

Historically, when OEMs and other system integrators incorporated high-frequency RF technology into their products, they designed and manufactured all the requisite hardware internally. However, when faced with the need to generate cost efficiencies and technological innovations with fewer resources, OEMs and system integrators frequently look to suppliers for these items. We believe there are several key characteristics that define an attractive supply partner for fulfilling these requirements, including:

Technical Depth. OEMs and system integrators seek suppliers that have significant experience in and understanding of the overall system design. This depth and breadth of understanding is crucial to optimizing the system design and making appropriate overall system level tradeoffs, thereby enabling the OEM or system integrator to design and deploy its systems more cost-effectively.

Innovative Technology. New technology is the key to providing enhanced performance and continued cost reduction. Thus, OEMs and system integrators value this capability and prefer partners that create new technologies offering additional functionality, higher reliability, lower cost and better performance.

Semiconductor Devices. Beyond seeking complete hardware sub-systems, OEMs and system integrators may seek technologically advanced and cost effective semiconductor devices including custom design capabilities that meet their unique technological needs on existing or next generation hardware platforms.

Low Cost. OEMs and system integrators are under increasing pricing pressure from their customers and expect effective and persistent cost-reduction programs from their suppliers. These cost-reduction programs require suppliers to mount a comprehensive effort at multiple levels, including integration of multiple functions, efficient manufacturing, effective supply chain management, streamlined life cycle support and use of low cost sub-contractors.

Flexible Supply Chain Capabilities. Volatility of demand is common in the markets we serve. Therefore OEMs and system integrators need suppliers that can accommodate fluctuations in the demand, whether in mix and/or quantity, and that can flexibly scale their manufacturing to match these fluctuating demands.

We believe that few suppliers comprehensively address all of these requirements. Many of the suppliers that populate the industry are small and lack the requisite operational strength and technical capability to address these extensive needs and requirements. Further, many suppliers use labor-intensive assembly and test methods that limit their ability to produce high-frequency RF products in high volumes and at a low cost. Others do not possess the

breadth of component-to-system expertise that is desired by OEMs and system integrators. In contrast, we believe that we possess several key strengths that enable us to provide our customers with superior products and services. These strengths include:

Extensive Technical Expertise. We have extensive experience in all aspects of high frequency design and manufacturing. Our body of intellectual property and a highly-skilled technical team are critical when dealing with the higher frequencies required by emerging applications. Our technical team has broad expertise in device physics, semiconductor device and circuit design, system engineering, test engineering and other critical disciplines. In addition, our large library of proprietary designs enables us to introduce new products rapidly and cost-effectively. We believe the depth and breadth of our technical expertise differentiates us from many of our competitors, enabling us to optimize our products for critical performance factors and to assist our customers in developing an optimal overall design.

A Commitment to Develop Next-Generation Technology. A key component of our value proposition is providing our customers with powerful and cost-effective technologies that offer them a major technical and economic advantage. We have invested in the development of next-generation circuit and packaging technologies that allow us to provide our customers with high-performance and low-cost solutions. Our ability to develop semiconductor devices on a custom basis provides us greater flexibility to optimize product designs for our customers and their specific applications. We intend to continue to invest in research and development, maintain a team of talented engineers, and build on our manufacturing technologies.

Comprehensive Approach to Cost-Effective Manufacturing. We have taken a comprehensive approach to developing a cost-effective, outsourced manufacturing capability that allows us to compete on a worldwide basis and to offer our customers product solutions at attractive prices:


	•	We design our products to be readily manufacturable and able to tolerate a wide range of material and manufacturing process variations. This speeds the flow of work, reduces the required level of touch labor and minimizes rework.

	•	Semiconductors are both a critical technical element and a major cost component of our products. Our ability to custom design these devices allows us to optimize them for cost and performance and to achieve significant cost savings by having them fabricated in low cost, third-party foundries.

	•	For many of our products, we have implemented automated assembly techniques that reduce labor content and enhance both product uniformity and quality.

	•	Testing is a large part of the manufacturing process and we have developed extensive automated testing capabilities that speed this process and differentiate us from the labor-intensive methods often used in our industry. We use state of the art information technology systems to store, analyze and transmit test data.

	•	Because our products are highly manufacturable, we have been able to contract with third-party, primarily offshore, manufacturers for even greater cost savings. We began the transition to outsourced manufacturing in 2002, most notably to HANA Microelectronics Co., Ltd., or HANA, a Thailand-based contract manufacturer, and today almost all of our manufacturing operations utilize an outsourced approach. This transition has significantly improved our product margins and enables us to adjust rapidly, efficiently and flexibly to our customers’ varying quantity and product mix requirements, which are often created by unexpected needs and variations in demand.

	•	The cost of raw materials and components employed in high frequency devices and products are a major part of the overall manufacturing cost. We have reduced the cost of these items by re-designing them, leveraging our purchasing power and selecting more cost-effective suppliers. As an outgrowth of our operational presence in Asia, we continue to identify low-cost, high-quality Asian-based suppliers for several of the raw materials and components used in our products.

Products and Technology

Integrated Transceiver Sub-system Modules

Integrated transceiver sub-system modules combine several functional RF blocks, such as amplifiers, mixers, switches or oscillators, with various types of control and support circuitry, such as a microprocessor or a power supply, to form a stand-alone transceiver sub-system. These complex modules, generally comprising hundreds of individual components, combine RF functions with sophisticated analog and digital system interface and control capabilities.

Within these modules, the core RF functions are performed with one of two circuit technologies:


	•	MMIC (Monolithic Microwave Integrated Circuit). In this RF semiconductor technology, individual devices, components and interconnects are patterned onto a semiconductor substrate (typically gallium arsenide, or GaAs) in a manner similar to industry standard integrated circuit fabrication techniques. We have developed a large repertoire of custom designed MMICs that have been optimized for cost, performance and manufacturability.

	•	MLMS^tm (Multi-Lithic Micro System). This is a proprietary RF semiconductor circuit technology that we have developed to overcome the shortcomings of conventional circuit technologies. This technology consists of a small multi-layer RF substrate onto which individual devices (transistors and diodes) are attached and electrically connected without the use of bond wires. The features of this technology include reduced design difficulty, elimination of individual tuning, low cost substrate materials, automated manufacture, use of multiple semiconductor technologies in the same circuit (i.e. multi-lithic), integrated passive circuit elements and the ability to provide a complete “system on a chip” functionality.

In high-frequency RF modules, the circuit packaging technology also significantly impacts cost and performance. Many of our newer products employ a unique packaging technology named Epsilon^tm. In this approach, MMIC or MLMS circuits are directly mounted to a composite printed wiring board and then enclosed with a metalized molded plastic or machined cover. The composite wiring board consists of a top RF circuit layer built on a low loss substrate with lower layers of the board consisting of conventional printed wiring board substrates for power and control circuitry. This approach reduces the size, weight and cost of the packaging components.

Semiconductor Devices

As noted above, in the course of developing several different transceiver module variants to meet a range of customer requirements, we have designed a broad range of semiconductor devices including a large number of MMIC devices. The breadth and depth of this repertoire is such that we can fulfill the requirements for most circuit functions in the frequency range of 10 GHz to 100 GHz. Our motivation to design these circuits has been to both achieve superior electrical performance and to reduce costs through vertical integration. Once designed, these devices are fabricated in several merchant foundries throughout the world. By using a mixture of foundries, we are able to select the best foundry and fabrication process to achieve the desired performance in the most cost-effective manner. Our devices have been particularly designed to meet the high frequency and high bandwidth requirements of contemporary systems. In addition to the core devices, we have developed a range of device packaging technologies that allow our circuits to be installed using industry standard surface mount technology, or SMT, assembly processes. We have extended this technology such that devices operating at frequencies up to 50 GHz can be assembled in the SMT format, thus facilitating ease of downstream assembly of the sub-system module. In addition to supporting our transceiver product line, we now offer these devices as stand-alone products to the various markets and applications noted earlier.

Sales and Marketing

We sell our products through direct sales efforts, a network of independent domestic and international representatives and a domestic distribution of semiconductor devices. For each of our major customers, we assign a technical account manager, who has responsibility for developing and expanding our relationship with that customer. Our direct, representative and distributor sales efforts are augmented by traditional marketing activities, including advertising, participation in industry associations and presence at major trade shows.

Our products are highly technical and the sales cycle can often be long. Our sales efforts typically involve a collaborative and iterative process with our customers to determine their specific requirements, verify a product design and develop an effective manufacturing approach matched to the application. Depending on the product type and market, the sales cycle can typically take anywhere from 2 to 24 months.

Customers

In 2010, revenues from our telecom OEM customers comprised nearly all of our total revenues. In 2010, three customers each accounted for greater than 10% of total revenues and combined they accounted for 93% of our total revenues, the largest of which was Nokia Siemens Networks which accounted for 52% of our total revenues. We expect revenues from our telecom OEM customers to comprise the large majority of our revenues in our immediate future. In the telecom market, our revenues are attributable to a limited number of telecom OEMs and we expect this pattern to remain for the foreseeable future.

Competition

The markets for our products are extremely competitive, are characterized by rapid technological change and continuously evolving customer requirements and many of our competitors have significantly greater resources than we do.

Among suppliers of transceiver modules in the telecommunication network market, we compete with Compel Electronics SpA, Filtronic plc, Microelectronics Technology Inc., and Remec Broadband Wireless, Inc., among others. In addition to these companies, there are telecom OEMs, such as Ericsson and NEC Corporation, that use their own captive resources for the design and manufacture of transceiver modules, rather than using suppliers such as ourselves. While we have limited opportunities to supply transceiver modules to these telecom OEMs, we believe we have opportunities to supply them semiconductor devices for their captive products.

In the case of our semiconductor product line, we compete with Avago Technologies, Ltd., Hittite Microwave Corp., MIMIX Broadband, Inc., RF Micro Devices, Inc., TriQuint Semiconductor, Inc. and United Monolithic Semiconductors, S.A.S., among others.

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


	•	Product pricing and the ability to offer low-cost solutions;

	•	Technical leadership and product performance;

	•	Strong customer relationships;

	•	Product breadth;

	•	Time-to-market in the design and manufacturing of products; and

	•	Logistical flexibility, manufacturing capability and scalable capacity.

Research and Development

We direct our research efforts towards developing advanced device, circuit and packaging technologies, creating new proprietary circuit designs and integrating these technologies and designs into the semiconductor devices we provide to our customers. Our product development activities focus on designing products to meet specific customer and market needs and introducing these products to manufacturing.

Our technical approach emphasizes the following capabilities:

Semiconductor Design Capabilities. Our ability to design semiconductor devices allows us to optimize and reduce the cost of designs beyond what is possible with standard off-the-shelf semiconductor devices.

Breadth of Expertise. We are experienced in a broad range of technical disciplines and possess the know-how to design products at multiple levels of integration.

Computer Modeling Capabilities. Our extensive computer modeling capabilities allow us to create designs quickly and to minimize the number of iterations required to develop specification compliant, cost-effective designs.

Extensive Library of Designs. Our extensive library of device, circuit and sub-system designs enables us to generate new products and produce prototypes quickly to meet our customers’ time-to-market demands.

Automated Testing Processes. High-frequency RF products require extensive testing after assembly to verify compliance with customer specifications. We use high speed, custom-designed, automated test sets that are capable of rapidly testing devices and modules. This increases throughput in the manufacturing process and reduces the skill level required to conduct the tests. Concurrently with the development of these test methods, we develop data analysis and reporting tools to facilitate rapid communication of test data to our customers.

Our investment in research and development and related engineering projects has resulted in research and development expenses from continuing operations of $6.8 million, $5.5 million and $4.6 million in 2008, 2009 and 2010, respectively.

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. As of December 31, 2010, we had 43 United States patents issued, many with associated foreign filings and patents. Our issued patents include those relating to basic circuit and device designs, semiconductors, MLMS technology and system designs. Our United States patents expire between 2013 and 2028. We do not anticipate the expiration of patents over the near term to have a significant impact on our research and development or operations. We also license technology from other companies, including Northrop Grumman Corporation. There are no limitations on our rights to make, use or sell products we may develop in the future using the technology licensed to us by Northrop Grumman Corporation.

We maintain a vigorous technology development program that routinely generates potentially patentable intellectual property. Our decisions as to whether to seek formal patent protection, and the countries in which to seek it, are taken on a patent-by-patent basis and are based on the economic value of the intellectual property, the anticipated strength of the resulting patent, the cost of pursuing the patent and an assessment of using a patent as an implement to protect the underlying intellectual property. With regard to our pending patent applications, it is possible that no patents may be issued as a result of these or any future applications or the allowed patent claims may be of reduced value and importance. Further, any existing or future patents may be challenged, invalidated or circumvented thus reducing or eliminating their commercial value.

To protect our intellectual property, we 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. These measures may not be adequate in all cases to safeguard the proprietary technology underlying our products. 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 attempt to 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.

Operations

All of our manufacturing operations are located in Lamphun, Thailand and utilize the facilities of our contract manufacturing partner, HANA. Under our manufacturing contract, HANA supplies the physical plant, direct labor, basic assembly equipment and warehousing functions. We supplement those activities with our own full-time, in-country staff consisting of 15 people who provide production planning, process engineering, test engineering, product support, design engineering and quality assurance support. We own certain assets held securely in HANA’s factory, including specialized test and assembly equipment and various raw material and product inventories. Our

arrangement with HANA allows us to reduce our labor and facility expenses while maintaining tight control of process and quality. To reduce our costs further, we have identified lower cost Asian sources for various raw materials, especially basic metal and circuit board components. Our manufacturing agreement with HANA currently expires in October 2011, but will renew automatically for successive one-year periods unless either party notifies the other of its desire to terminate the agreement at least one year prior to the expiration of the term. In addition, either party may terminate the agreement without cause upon 365 days prior written notice to the other party, and either party may terminate the agreement if the non-terminating party is in material breach and does not cure the breach within 30 days after notice of the breach is given by the terminating party. There can be no guarantee that HANA will not seek to terminate its agreement with us.

We use both industry-standard and Endwave-designed semiconductor devices. We obtain industry-standard devices from various suppliers of these parts and we contract with various third-party foundries to produce our own designs. Our use of third-party foundries for custom designed devices 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 facilities. While the loss of our relationship with or our access to any of the semiconductor foundries we currently use, and any resulting delay or reduction in the supply of semiconductor devices to us, would severely impact our ability to fulfill customer orders and could damage our relationships with our customers, we estimate that we could shift production to a new foundry within six months. We currently use the foundry services of Global Communication Semiconductors, Inc., M/A-COM Technology Solutions Inc., Northrop Grumman Space Technology, TriQuint Semiconductors and WIN Semiconductors Corp.

All of the manufacturing facilities we operate or use worldwide are registered under ISO 9001-2000, an international certification standard of quality for design, development and business practices. Additionally, we are certified under AS-9100 in support of our defense industry market initiatives. We maintain comprehensive quality systems at all of our facilities to ensure compliance with customer specifications, configuration control, documentation control and supplier quality conformance.

We maintain raw materials, work-in-process and finished goods inventory in Thailand at HANA’s plant. In order to maintain and enhance our competitive position, we must be able to satisfy our customers’ short lead-times and rapidly-changing needs. Meeting this requirement necessitates that we maintain significant raw material and finished goods inventories. Maintaining these inventories is costly and requires significant working capital and may increase our capital needs in the future.

Backlog

Our backlog at January 15, 2011 for shipments expected to occur through December 31, 2011 was approximately $8.0 million. By comparison, our backlog as of February 19, 2010 for shipments expected to occur through December 31, 2010 was approximately $23.4 million.

Our order backlog consists of a combination of conventional purchase orders and formal forecasts given to us under annual and multi-year agreements. Typically, the forecast portion of the backlog is the significantly larger amount. The forecasts we receive normally have a firm commitment portion of one to three months in duration that obligate the customer to accept at least some portion of the amount forecasted for that period, with the remainder of the forecast including no such obligation. These forecasts are subject to change on a regular basis and we have experienced significant forecast variations in both unit volumes and product mix. As a result, we do not believe that backlog is a reliable indicator of future revenues.

Governmental Regulation

Government regulations indirectly affect our business. The frequencies at which wireless systems transmit and receive data are dictated by government licensing agencies in the location where they are deployed. Unexpected difficulties in obtaining licenses or changes in the operating frequencies allowed can halt or delay microwave radio deployments and therefore halt or delay the need for our products. Both national and international regulatory bodies have set stringent standards on the performance of microwave radios, especially spurious emissions and their potential to cause interference in other systems. Meeting these regulations is technologically challenging and

changes in the regulations could require a re-design of our products to achieve compliance. Also, on occasion we are required to obtain various export permissions from the U.S. government to ship product to overseas customers.

Seasonality

Although we have experienced significant quarterly fluctuations in revenue at times over the past several years, we do not believe that volatility was primarily attributable to seasonality in our business.

Employees

As of December 31, 2010, we had 51 regular employees, including 33 in product and process engineering, 8 in sales and marketing and 10 in general and administrative. Of our regular employees, 15 are based in our Chiang Mai, Thailand office. Our employees are not subject to any collective bargaining agreement with us and we believe that our relations with our employees are good.

Available Information

Our principal executive offices are located at 130 Baytech Drive, San Jose, CA 95134 and our main telephone number is (408) 522-3100. Our Internet address is www.endwave.com. We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or SEC.

The public may read and copy any material we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington D.C., 20549. The public may obtain information on the operations of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site, http://www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.


Item 1A.	*Risk Factors*

You should consider carefully the following risk factors as well as other information in this report before investing in any of our securities. If any of the following risks actually occur, our business, operating results and financial condition could be adversely affected. This could cause the market price of our common stock to decline, and you may lose all or part of your investment.

Risks Relating to the Proposed Merger with GigOptix

Because the conversion ratio is not adjustable based on the market price of either GigOptix or Endwave common stock, you cannot be sure of the value of the merger consideration that you will receive.

The number of shares of common stock to be issued by GigOptix in the merger is not adjustable based on the market price of either GigOptix or Endwave common stock and the merger agreement may not be terminated as a result of any such changes. The market value of the shares of GigOptix common stock that Endwave stockholders will be entitled to receive when the merger is completed will depend on the market value of shares of GigOptix common stock at that time, which could vary significantly from the market value of shares of GigOptix common stock on the date the merger agreement was executed, the date of this report or the date of the special meeting. Accordingly, at the time of the special meeting, Endwave stockholders will not know or be able to calculate the market value of the consideration they would receive upon completion of the merger. These variations may result from, among other factors, changes in the business, operations, results and prospects of GigOptix, market expectations of the likelihood that the merger will be completed and the timing of completion, the prospects of post-merger operations, the effect of any conditions or restrictions imposed on or proposed with respect to GigOptix by regulatory agencies and authorities, general market and economic conditions and other factors.

GigOptix may fail to realize the anticipated benefits of the merger.

GigOptix’ future success will depend in significant part on its ability to utilize Endwave’s cash and cash equivalents and to realize the cost savings, operating efficiencies and new revenue opportunities that it expects to result from the integration of the GigOptix and Endwave businesses. GigOptix’ operating results and financial condition will be adversely affected if GigOptix is unable to integrate successfully the operations of GigOptix and Endwave, fails to achieve or achieve on a timely basis such cost savings, operating efficiencies and new revenue opportunities, or incurs unforeseen costs and expenses or experiences unexpected operating difficulties that offset anticipated cost savings or Endwave’s cash and cash equivalents, in whole or in part. In particular, the integration of GigOptix and Endwave may involve, among other matters, integration of sales, marketing, billing, accounting, manufacturing, engineering, management, personnel, payroll, quality control, regulatory compliance, network infrastructure and other systems and operating hardware and software, some of which may be incompatible and therefore may need to be replaced.

Any cost savings estimates expected to result from the merger do not include one-time adjustments that GigOptix will record in connection with the merger. In addition, any such estimates will be based upon assumptions by the managements of GigOptix and Endwave concerning a number of factors, including operating efficiencies, the consolidation of functions, and the integration of operations, systems, marketing methods and procedures. These assumptions are uncertain and are subject to significant business, economic and competitive conditions that are difficult to predict and often beyond the control of management.

Endwave will be subject to business uncertainties and contractual restrictions while the merger is pending that could adversely affect its business.

Uncertainty about the effect of the merger on employees and customers may have an adverse effect on Endwave and consequently on GigOptix following the merger. These uncertainties may impair each company’s ability to attract, retain and motivate key personnel until the merger is completed and for a period of time thereafter, and could cause customers, suppliers and others that deal with Endwave to seek to change existing business relationships with Endwave. Employee retention may be particularly challenging during the pendency of the merger, as employees may experience uncertainty about their future roles with Endwave. If, despite Endwave’s retention efforts, key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with Endwave, Endwave’s business and consequently the business of GigOptix following the merger could be seriously harmed.

Failure to complete the merger could negatively affect GigOptix and Endwave.

If the merger is not completed for any reason, GigOptix and Endwave may be subject to a number of material risks, including the following:


	•	the companies will not realize the benefits expected from becoming part of a combined company, including a potentially enhanced competitive and financial position;

	•	the trading price of each company’s common stock may decline to the extent that the current market price of the common stock reflects a market assumption that the merger will be completed; and

	•	some costs related to the merger, such as legal, accounting and some financial advisory fees, must be paid even if the merger is not completed.

Endwave’s ability to pursue alternatives to the merger is restricted.

The merger agreement contains customary “no-solicitation” covenants pursuant to which neither Endwave nor GigOptix is permitted to solicit any alternative acquisition proposals, provide any information to any person in connection with any alternative acquisition proposal, participate in any discussions or negotiations relating to any alternative acquisition proposal, approve, endorse or recommend any alternative acquisition proposal, or enter into any agreement relating to any alternative acquisition proposal. The “no-solicitation” provision is subject to certain exceptions that permit the board of directors of each of Endwave and GigOptix, as the case may be, to comply with their respective fiduciary duties, which, under certain circumstances, would enable Endwave or GigOptix, as the

case may be, to provide information to, and engage in discussions or negotiations with, third parties with respect to alternative acquisition proposals. Upon termination of the merger agreement under certain circumstances, Endwave may be obligated to pay GigOptix a termination fee of $1,000,000 plus certain reasonable documented expenses of GigOptix. These provisions could discourage a potential acquiror that might have an interest in acquiring all or a significant part of Endwave from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than the consideration GigOptix proposes to pay in the merger or might result in a potential competing acquiror proposing to pay a lower per share price to acquire Endwave than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable to GigOptix in certain circumstances.

Endwave stockholders will have reduced ownership and voting interests in GigOptix and will be able to exercise less influence over management following the merger.

Immediately after the merger, based on the conversion ratios contained in the merger agreement, the pre-merger holders of Endwave common stock and restricted stock units will own that number of shares equal to 42.5% of the outstanding stock of the combined company, less 42.5% of the shares issued in the merger in respect of Endwave stock options. Consequently, stockholders of Endwave will be able to exercise less influence over the management and policies of GigOptix than they currently exercise over the management and policies of Endwave.

There may be a limited public market for shares of GigOptix common stock, and the ability of its stockholders to dispose of their common shares may be limited.

GigOptix common stock has been traded on the OTC Bulletin Board since December 2008. GigOptix cannot foresee the degree of liquidity that will be associated with its common stock. A holder of its common stock may not be able to liquidate his, her or its investment in a short time period or at the market prices that currently exist at the time the holder decides to sell. The market price for GigOptix’ common stock may fluctuate in the future, and such volatility may bear no relation to its performance.

Substantial future sales of GigOptix’ common stock in the public market could cause GigOptix’ stock price to fall.

The sale of GigOptix’ outstanding common stock or shares issuable upon exercise of options or warrants, or the perception that such sales could occur, could cause the market price of GigOptix common stock to decline. GigOptix has registered 4,193,148 shares of its common stock held by existing stockholders for public resale. In addition, one of the stockholders of GigOptix, the DBSI Liquidating Trust, holds 1,715,161 shares of GigOptix stock. GigOptix is separately filing a Registration Statement on Form S-1 for the resale registration of such shares. All of these registered shares of common stock are freely tradable without restriction or further registration under the Securities Act, unless the shares are purchased by “affiliates” as that term is defined in Rule 144 under the Securities Act. Any shares purchased by an affiliate may not be resold except pursuant to an effective registration statement or an applicable exemption from registration, including an exemption under Rule 144 of the Securities Act. GigOptix may issue additional shares of GigOptix common stock in the future in private placements, public offerings or to finance mergers or acquisitions.

The exercise of options and warrants and other issuances of shares of common stock or securities convertible into common stock will dilute the interest of GigOptix stockholders.

GigOptix has issued options and warrants to purchase a substantial number of shares of its common stock. Certain of the warrants contain adjustment provisions that will reset the exercise price per share of such warrants to any lower price than the existing exercise price at which GigOptix issues shares of its common stock in the future for so long as those warrants are outstanding. The exercise of options and warrants at prices below the market price of GigOptix common stock could adversely affect the price of shares of GigOptix common stock. Additional dilution may result from the issuance of shares of GigOptix capital stock in connection with other acquisitions or in connection with financing efforts.

Any issuance of GigOptix common stock that is not made solely to then-existing stockholders proportionate to their interests, such as in the case of a stock dividend or stock split, will result in dilution to each stockholder by reducing his, her or its percentage ownership of the total outstanding shares. Moreover, if GigOptix issues options or warrants to purchase its common stock in the future and those options or warrants are exercised, or if GigOptix issues restricted stock, stockholders may experience further dilution.

In addition, certain warrants to purchase shares of GigOptix’ common stock currently contain an exercise price above the current market price for the common stock. These warrants are known as “above-market” warrants. As a result, it is possible that the holders of these warrants may choose not to exercise them prior to their expiration, in which case GigOptix may not realize any proceeds from their exercise.

Risks Relating to Our Business

We have had a history of losses and may not be profitable in the future.

We had a net loss from continuing operations of $8.1 million in 2010. We also had a net loss from continuing operations of $10.6 million and $4.0 million for the years ended December 31, 2009 and 2008, respectively. There is no guarantee that we will achieve or maintain profitability in the future.

We depend on a small number of key customers in the mobile communication industry for a significant portion of our revenues. If we lose any of our major customers or there is any material reduction in orders for our products from any of these customers, our business, financial condition and results of operations would be adversely affected. In addition, consolidation in this industry could result in delays or cancellations of orders for our products, adversely impacting our results of operations.

We depend, and expect to continue to depend, on a relatively small number of mobile communication customers for a significant part of our revenues. The loss of any of our major customers or any material reduction in orders from any such customers would have a material adverse effect on our business, financial condition and results of operations. In 2010, three customers each accounted for greater than 10% of total revenues and combined they accounted for 93% of our total revenues, the largest of which was Nokia Siemens Networks which accounted for 52% of our total revenues. In 2009, two customers accounted for 88% of our total revenues, the largest of which was Nokia Siemens Networks which accounted for 70% of our total revenues, and no other customer accounted for more than 10% of our total revenues.

The mobile communication industry has undergone significant consolidation in the past few years. For example, during January 2011, Ceragon Networks Ltd. entered into a definitive agreement to merge with Nera Networks AS. The acquisition of one of our major customers in this market, or one of the communications service providers supplied by one of our major customers, could result in delays or cancellations of orders for our products and, accordingly, delays or reductions in our anticipated revenues and reduced profitability or increased net losses.

Our semiconductor product line will require us to incur significant expenses and may not be successful.

Our semiconductor product line will require us to incur expenses to design, test, manufacture and market these products including the purchase of inventory, supplies and capital equipment. The future success of our semiconductor product line will depend on our ability to develop these products in a cost-effective and timely manner and to market them effectively. The development of our products is complex, and from time to time we may experience delays in completing the development and introduction of our new products or fail to efficiently manufacture such products in the early production phase. The semiconductor product line may have little immediate impact on our revenue because a new standard product may not generate meaningful revenue. In the meantime, we will have incurred expenses to design, produce and market the products, and we may not recover these expenses if demand for the product fails to reach forecasted levels which may adversely affect our operating results.

Because of the shortages of some components and our dependence on single source suppliers and custom components, we may be unable to obtain an adequate supply of components of sufficient quality in a timely fashion, or we may be required to pay higher prices or to purchase components of lesser quality.

Many of our products are customized and must be qualified with our customers. This means that we cannot change components in our products easily without the risks and delays associated with requalification. Accordingly, while a number of the components we use in our products are made by multiple suppliers, we may effectively have single source suppliers for some of these components. Further, we have recently experienced extended lead times for many components.

In addition, we currently purchase a number of components, some from single source suppliers, including, but not limited to:


	•	semiconductor devices;

	•	application-specific monolithic microwave integrated circuits;

	•	voltage regulators;

	•	passive components;

	•	unusual or low usage components;

	•	surface mount components compliant with the EU’s Restriction of Hazardous Substances, or RoHS, Directive;

	•	custom metal parts;

	•	high-frequency circuit boards; and

	•	custom connectors.

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. In the past, we suffered from shortages of and quality issues with various components. These shortages and quality issues adversely impacted our product revenues and could reappear in the future. 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 and their components are qualified with our customers on a timely basis, identifying them and entering into arrangements with them may be 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.

Competitive conditions often require us to reduce prices and, as a result, requires us to reduce our costs in order to be profitable.

Over the past year, we reduced the prices of many of our telecommunication products in order to remain competitive and we expect market conditions will cause us to reduce our prices again in the future. In order to reduce our per-unit cost of product revenues, we must continue to design and re-design products to utilize lower cost materials and improve our manufacturing efficiencies. The combined effects of these actions may be insufficient to achieve the cost reductions needed to maintain or increase our gross margins or achieve profitability.

Our operating results may be adversely affected by substantial quarterly and annual fluctuations and market downturns.

Our revenues, earnings and other operating results have fluctuated in the past and our revenues, earnings and other operating results may fluctuate in the future. These fluctuations are due to a number of factors, many of which are beyond our control. These factors include, among others, global economic conditions, overall growth in our target markets, the ability of our customers to obtain adequate capital, U.S. export law changes, changes in customer order patterns, customer consolidation, availability of components from our suppliers, the gain or loss of a

significant customer, changes in our product mix and market acceptance of our products and our customers’ products. These factors are difficult to forecast, and these, as well as other factors, could materially and adversely affect our quarterly or annual operating results.

We rely on the semiconductor foundry operations of third-party semiconductor foundries to manufacture the integrated circuits sold directly to our customers and contained in our products. The loss of our relationship with any of these foundries without adequate notice would adversely impact our ability to fill customer orders and could damage our customer relationships.

We utilize both industry standard semiconductor components and our own custom-designed semiconductor devices. However, we do not own or operate a semiconductor fabrication facility, or foundry, and rely on a limited number of third parties to produce our custom-designed components. If any of our semiconductor suppliers is unable to deliver semiconductors to us in a timely fashion, the resulting delay could severely impact our ability to fulfill customer orders and could damage our relationships with our customers. In addition, the loss of our relationship with or our access to any of the semiconductor foundries we currently use for the fabrication of custom designed components and any resulting delay or reduction in the supply of semiconductor devices to us, would severely impact our ability to fulfill customer orders and could damage our relationships with our customers.

We may not be successful in forming alternative supply arrangements that provide us with a sufficient supply of gallium arsenide devices. Gallium arsenide devices are used in a substantial portion of the products we manufacture. Because there are a limited number of semiconductor foundries that use the particular process technologies we select for our products and that have sufficient capacity to meet our needs, using alternative or additional semiconductor foundries would require an extensive qualification process that could prevent or delay product shipments and revenues. We estimate that it may take up to six months to shift production of a given semiconductor circuit design to a new foundry.

We rely heavily on a Thailand facility of HANA, a contract manufacturer, to produce our RF modules and to package our microwave and millimeter wave integrated circuits. If HANA is unable to produce or package these modules and circuits in sufficient quantities or with adequate quality, or it chooses to terminate our manufacturing arrangement, we will be forced to find an alternative manufacturer and may not be able to fulfill our production commitments to our customers, which could cause sales to be delayed or lost and could harm our reputation.

We outsource the assembly and testing of our products to a Thailand facility of HANA, a contract manufacturer. We plan to continue this arrangement as a key element of our operating strategy. If HANA does not provide us with high quality products and services in a timely manner, terminates its relationship with us, or is unable to produce our products due to financial difficulties or political instability we may be unable to obtain a satisfactory replacement to fulfill customer orders on a timely basis. In the event of an interruption of supply from HANA, sales of our products could be delayed or lost and our reputation could be harmed. Our latest manufacturing agreement with HANA expires in October 2011, but will renew automatically for successive one-year periods unless either party notifies the other of its desire to terminate the agreement at least one year prior to the expiration of the term. No such notification has been sent to or received from HANA. In addition, either party may terminate the agreement without cause upon 365 days prior written notice to the other party, and either party may terminate the agreement if the non-terminating party is in material breach and does not cure the breach within 30 days after notice of the breach is given by the terminating party. There can be no guarantee that HANA will not seek to terminate its agreement with us.

Potential misclassification of certain products under the Export Administration Regulations may result in liability for Endwave and affect ongoing operations.

In December 2009, we sought and obtained a formal commodity classification from the Department of Commerce’s Bureau of Industry and Security, or BIS, regarding certain amplifier products rated to operate between 34 and 40 GHz. Prior to our request, we believed based on our internal review that the products and related technology were properly classified as EAR99 and that export licenses were not required to any destination in which we had operations or sold products. In response to our commodity classification request, however, BIS determined

that our MMIC amplifiers rated to operate between 34 and 40 GHz are classified under Export Classification Control Number, or ECCN, 3A001, which controls MMIC power amplifiers rated for operation at frequencies exceeding 31.8 GHz up to and including 37.5 GHz without regard to power output or fractional bandwidth limits. Products falling under ECCN 3A001 are controlled for national security purposes and are subject to export licensing requirements for most countries. Similarly, technology for the development or production of items controlled under ECCN 3A001 falls under ECCN 3E001. Exports of such technology are likewise controlled for national security purposes and subject to restrictive licensing requirements. License exceptions are available under the Export Administration Regulations for items and technology classified under ECCNs 3A001 and 3E001, respectively.

We have requested reconsideration of certain BIS classifications and are in the process of reviewing the affected transactions. As part of this review, the Company has quarantined the affected products. We have also submitted an initial voluntary self-disclosure to BIS and will provide a detailed report to BIS regarding the affected transactions.

At this time, we believe that all the transactions entered into by the Company could have qualified for license exceptions under the Export Administration Regulations. Nevertheless, we may be responsible for monetary penalties and may experience operational delays that could have a material adverse effect on our business and operations.

Our products may contain component, manufacturing or design defects or may not meet our customers’ performance criteria, which could cause us to incur significant repair expenses, harm our customer relationships and industry reputation, and reduce our revenues and profitability.

We have experienced manufacturing quality problems with our products in the past and may have similar problems in the future. As a result of these problems, we have replaced components in some products, or replaced the product, in accordance with our product warranties. Our product warranties typically last twelve to thirty months. As a result of component, manufacturing or design defects, we may be required to repair or replace a substantial number of products under our product warranties, incurring significant expenses as a result. Further, our customers may discover latent defects in our integrated circuits and module products that were not apparent when the warranty period expired. These latent defects may cause us to incur significant repair or replacement expenses beyond the normal warranty period. In addition, any component, manufacturing or design defect could cause us to lose customers or revenues or damage our customer relationships and industry reputation.

We may not be able to design our products as quickly as our customers require, which could cause us to lose sales and may harm our reputation.

Existing and potential customers typically demand that we design products for them under difficult time constraints. In the current market environment, the need to respond quickly is particularly important. If we are unable to commit the necessary resources to complete a project for a potential customer within the requested timeframe, we may lose a potential sale. Our ability to design products within the time constraints demanded by a customer will depend on the number of product design professionals who are available to focus on that customer’s project and the availability of professionals with the requisite level of expertise is limited. We have, in the past, expended significant resources on research and design efforts on potential customer products that did not result in additional revenue.

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

Our customers often have specific requirements that can be at the forefront of technological development and therefore difficult and expensive to meet. If we are not able to devote sufficient resources to these products, or we experience development difficulties or delays, we could lose sales and damage our reputation with those customers.

We depend on our key personnel. Skilled personnel in our industry can be in short supply. If we are unable to retain our current personnel or hire additional qualified personnel, our ability to develop and successfully market our products would be harmed.

We believe that our future success depends upon our ability to attract, integrate and retain highly skilled managerial, research and development, manufacturing and sales and marketing personnel. Skilled personnel in our industry can be in short supply. As a result, our employees are highly sought after by competing companies and our ability to attract skilled personnel is limited. To attract and retain qualified personnel, we may be required to grant large stock option or other stock-based incentive awards, which may harm our operating results or be dilutive to our other stockholders. We may also be required to pay significant base salaries and cash bonuses, which could harm our operating results.

Due to our relatively small number of employees and the limited number of individuals with the skill set needed to work in our industry, 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 ability to conduct our business successfully could be seriously harmed. We do not maintain key person life insurance policies.

The length of our sales cycle requires us to invest substantial financial and technical resources in a potential sale before we know whether the sale will occur. There is no guarantee that the sale will ever occur and if we are unsuccessful in designing integrated circuits and module products for a particular generation of a customer’s products, we may need to wait until the next generation of that product to sell our products to that particular customer.

Our products are highly technical and the sales cycle can be long. Our sales efforts involve a collaborative and iterative process with our customers to determine their specific requirements either in order to design an appropriate solution or to transfer the product efficiently to our offshore contract manufacturer. Depending on the product and market, the sales cycle can take anywhere from 2 to 24 months, and we incur significant expenses as part of this process without any assurance of resulting revenues. We generate revenues only if our product is selected for incorporation into a customer’s system and that system is accepted in the marketplace. If our product is not selected, or the customer’s development program is discontinued, we generally will not have an opportunity to sell our product to that customer until that customer develops a new generation of its system. There is no guarantee that our product will be selected for that new generation system. 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.

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

We may not be able to manufacture products and deliver them to our customers at the times and in the volumes they require. Manufacturing delays and interruptions can occur for many reasons, including, but not limited to:


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

	•	lack of sufficient capacity;

	•	poor manufacturing yields;

	•	equipment failures;

	•	manufacturing personnel shortages;

	•	transportation disruptions;

	•	changes in import/export regulations;

	•	infrastructure failures at the facilities of our offshore contract manufacturer;


	•	natural disasters;

	•	acts of terrorism; and

	•	political instability.

Manufacturing 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. For example, in the past, we have on occasion experienced poor yields on certain products that have prevented us from delivering products on time and have resulted in lost sales. If we fail to manufacture and deliver products in a timely fashion, our reputation may be harmed, we may jeopardize existing orders and lose potential future sales, and we may be forced to pay penalties to our customers.

Although we do have long-term commitments from many of our customers, they are not for fixed quantities of product. As a result, we must estimate customer demand, and errors in our estimates could have negative effects on our cash, inventory levels, revenues and results of operations.

We have been required historically 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. If we overestimate customer demand, we may allocate resources to manufacturing products that we may not be able to sell when we expect, if at all. As a result, we would have additional usage of cash, excess inventory and overhead expense, which would harm our financial results. On occasion, we have experienced adverse financial results due to excess inventory and excess manufacturing capacity. For example, the second quarter of 2010 included a $1.5 million write-off of inventory associated with excess materials related to a rapid drop in sales of a legacy product for a major customer’s radio platform.

Conversely, if we underestimate customer demand or if insufficient manufacturing capacity were available, we would lose revenue opportunities, 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. There is no guarantee that we will be able to adequately respond to unexpected increases in customer purchase orders in the future, in which case we may lose the revenues associated with those additional purchase orders and our customer relationships and reputation may suffer.

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

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. As of December 31, 2010, we had 43 United States patents issued, many with associated foreign filings and patents. Our issued patents include those relating to basic circuit and device designs, semiconductors, our multilithic microsystems technology and system designs. Our issued United States patents expire between 2013 and 2028. We maintain a vigorous technology development program that routinely generates potentially patentable intellectual property. Our decision as to whether to seek formal patent protection is done on a case by case basis and is based on the economic value of the intellectual property, the anticipated strength of the resulting patent, the cost of pursuing the patent and an assessment of using a patent as a strategy to protect the intellectual property.

To protect our intellectual property, we regularly enter into written confidentiality and assignment of rights to inventions agreements with our employees, and confidentiality and non-disclosure agreements with third parties, and generally control access to and distribution of our documentation and other proprietary information. These measures may not be adequate in all cases to safeguard the proprietary technology underlying our products. 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 attempt to 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. Moreover we occasionally agree to incorporate a customer’s or supplier’s intellectual property into our designs, in which case we have obligations with respect to the non-use and non-disclosure of that intellectual property. We also license technology from other companies, including Northrop Grumman Corporation. There are no limitations on our rights to make, use or sell products we may develop in the future using the chip technology licensed to us by Northrop Grumman Corporation. Steps taken by us to prevent misappropriation or infringement of our intellectual property or the intellectual property of our customers may not be successful. 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.

We may receive in the future, notices of claims of infringement of other parties’ proprietary rights. In addition, the invalidity of our patents may be asserted or prosecuted against us. Furthermore, in a patent or trade secret action, we could be required to withdraw the product or products as to which infringement was claimed from the market or redesign products offered for sale or under development. We have also at times agreed to indemnification obligations in favor of our customers and other third parties 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 other third parties 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.

With regard to our pending patent applications, it is possible that no patents may be issued as a result of these or any future applications or the allowed patent claims may be of reduced value and importance. If they are issued, any patent claims allowed may not be sufficiently broad to protect our technology. Further, any existing or future patents may be challenged, invalidated or circumvented thus reducing or eliminating their commercial value. 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 are exposed to fluctuations in the market values of our investment portfolio.

Although we have not experienced any material losses on our cash, cash equivalents and short-term investments, future declines in their market values could have a material adverse effect on our financial condition and operating results. Although our portfolio has no direct investments in auction rate or sub-prime mortgage securities, our overall investment portfolio is currently and may in the future be concentrated in cash equivalents including money market funds. If any of the issuers of the securities we hold default on their obligations, or their credit ratings are negatively affected by liquidity, credit deterioration or losses, financial results, or other factors, the value of our cash equivalents and short-term and long-term investments could decline and result in a material impairment.

Risks Relating to Our Industry

Our failure to compete effectively could reduce our revenues and margins.

Among suppliers in the mobile communication market who provide integrated transceivers to radio OEMs, we primarily compete with Compel Electronics SpA, Filtronic plc, and Microelectronics Technology Inc. Additionally, there are mobile communication OEMs, such as Ericsson and NEC Corporation, that use their own captive resources for the design and manufacture of their transceiver modules, rather than using suppliers like us. To the extent that mobile communication OEMs presently, or may in the future, produce their own transceiver modules, we lose the opportunity to provide our modules to them. However, when we launched our semiconductor product line, we gained the opportunity to provide integrated circuits to all radio OEMs.

Our failure to comply with any applicable environmental regulations could result in a range of consequences, including fines, suspension of production, excess inventory, sales limitations and criminal and civil liabilities.

Due to environmental concerns, the need for lead-free solutions in electronic components and systems is receiving increasing attention within the electronics industry as companies are moving towards becoming compliant with the RoHS Directive. The RoHS Directive is European Union legislation that restricts the use of a number of substances, including lead, after July 2006. We believe that our products impacted by these regulations are compliant with the RoHS Directive and that materials will continue to be available to meet these regulations. However, it is possible that unanticipated supply shortages or delays or excess non-compliant inventory may occur as a result of these new regulations. Failure to comply with any applicable environmental regulations could result in a range of consequences, including loss of sales, fines, suspension of production, excess inventory and criminal and civil liabilities.

Government regulation of the communications industry could limit the growth of the markets that we serve or could require costly alterations of our current or future products.

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. Further, the Federal Communications Commission and foreign regulatory agencies have adopted regulations that impose stringent RF emissions standards on the communications industry that could limit the growth of the markets that we serve or could require costly alterations of our current or future products.

Our failure to continue to develop new or improved semiconductor process technologies could impair our competitive position.

Our future success depends in part upon our ability to continue to gain access to the current semiconductor process technologies in order to adapt to emerging customer requirements and competitive market conditions. If we fail to keep abreast of the new and improved semiconductor process technologies as they emerge, we may lose market share which could adversely affect our operating results.

The segment of the semiconductor industry in which we participate is intensely competitive, and our inability to compete effectively would harm our business.

The markets for our products are extremely competitive, and are characterized by rapid technological change and continuously evolving customer requirements. Many of our competitors have significantly greater financial, technical, manufacturing, sales and marketing resources than we do. As a result, our competitors may develop new technologies, enhancements of existing products or new products that offer price or performance features superior to ours. In addition, our competitors may be perceived by prospective customers to offer financial and operational stability superior to ours.

We expect competition in our markets to intensify as new competitors enter the RF, microwave and millimeter wave component market, existing competitors merge or form alliances, and new technologies emerge. If we are not able to compete effectively, our market share and revenue could be adversely affected and our business and results of operations could be harmed.

Risks Relating to Ownership of Our Stock

The market price of our common stock has fluctuated historically and is likely to fluctuate in the future.

The price of our common stock has fluctuated widely since our initial public offering in October 2000. In 2010, the lowest daily sales price for our common stock was $2.00 and the highest daily sales price for our common stock was $3.61. In 2009, the lowest daily sales price for our common stock was $1.36 and the highest daily sales price for

our common stock was $3.43. The market price of our common stock can fluctuate significantly for many reasons, including, but not limited to:


	•	our financial performance or the performance of our competitors;

	•	the purchase or sale of common stock, short-selling or transactions by large stockholders;

	•	technological innovations or other significant trends or changes in the markets we serve;

	•	successes or failures at significant product evaluations or site demonstrations;

	•	the introduction of new products by us or our competitors;

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

	•	decisions by major customers not to purchase products from us or to pursue alternative technologies;

	•	decisions by investors to de-emphasize investment categories, groups or strategies that include our company or industry;

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

	•	the low trading volume of our common stock.

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

We have a few stockholders that each own a large percentage of our outstanding capital stock and, as a result of their significant ownership, are able to significantly affect the outcome of matters requiring stockholder approval.

As of January 31, 2011, our five largest stockholders together owned approximately 40% of our outstanding common stock. Because most matters requiring approval of our stockholders require the approval of the holders of a majority of the shares of our outstanding capital stock present in person or by proxy at the annual meeting, the significant ownership interest of these shareholders allows them to significantly affect the election of our directors and the outcome of corporate actions requiring stockholder approval. 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 their support, even if the transaction is favorable to our stockholders as a whole.

Our certificate of incorporation, bylaws and arrangements with executive officers 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 our 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 at least 662/3% 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. Our certificate of incorporation and bylaws include a number of provisions that may deter or impede hostile takeovers or changes of control of management, including a staggered board of directors, the elimination of the ability of our stockholders to act by written consent, discretionary authority given to our board of directors as to the issuance of preferred stock, and indemnification rights for our directors and executive officers. Additionally, we have adopted a Stockholder Rights Plan, providing for the distribution of one preferred share purchase right for each outstanding share of common stock that may lead to the delay or prevention of a change in control that is not approved by our board of directors. We have a Senior Executive Officer Severance Retention Plan, an Executive Officer Severance Plan and a Key Employee Severance and Retention Plan that provide for severance payments and the acceleration of vesting of a percentage of certain stock options granted to our executive officers and certain senior, non-executive employees under specified conditions.

These plans may make us a less attractive acquisition target or may reduce the amount a potential acquirer may otherwise be willing to pay for our company.


Item 1B.	*Unresolved Staff Comments*

Not applicable.


Item 2.	*Properties*

Our main facilities include:


	•	Our principal executive offices located in San Jose, California, where we lease approximately 33,000 square feet, which encompasses our corporate headquarters and research and development facilities. This lease expires in August 2011.

	•	During 2008, we moved our Northeast operations to Salem, New Hampshire where we lease approximately 5,000 square feet. This lease expires in November 2013.

	•	In Folsom, California we lease approximately 1,600 square feet under an office lease that expires in June 2013.

	•	In Chiang Mai, Thailand, near the facilities of our contract manufacturer, HANA, we lease approximately 3,000 square feet under an office lease that expires in March 2013. We believe that these facilities are adequate to meet our current and near term future needs.


Item 3.	*Legal Proceedings*

On October 31, 2008, we filed a complaint with the Canadian Superior Court in Montreal, Quebec alleging that Advantech Advanced Microwave Technologies Inc., or Advantech, the parent company of Allgon Microwave Corporation AB, or Allgon, had breached its contractual obligations with Endwave and owes us $994,500 in a note receivable, purchased inventory and authorized and accepted purchase orders resulting in shippable finished goods. We cannot predict the outcome of these proceedings. An adverse decision in these proceedings could harm our consolidated financial position and results of operations.

In a related action, we have filed a creditor’s claim for $994,500 against Allgon in the composition of creditors’ proceedings now pending in a Stockholm, Sweden bankruptcy court. Although a recovery under Swedish bankruptcy law is not assured, if it occurs any recovery will be a set-off in the Montreal action against Allgon’s parent, Advantech.

The Company is not a party to any other material legal proceeding which is expected to have a material adverse effect on our consolidated financial statements or results of operations. From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. These claims, even if not meritorious, could result in the expenditure of significant financial resources and diversion of management efforts.

PART II


Item 5.	*Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities*

Information Relating to our Common Stock

Our common stock is traded on the NASDAQ Global Market under the symbol “ENWV.” The following table sets forth the high and low daily sales prices per share of our common stock, as reported by the NASDAQ Global Market.


	High		Low

Fiscal Year Ended December 31, 2009
First Quarter	$	2.51	$	1.36
Second Quarter	$	3.08	$	1.71
Third Quarter	$	3.43	$	2.24
Fourth Quarter	$	3.05	$	2.25
Fiscal Year Ended December 31, 2010
First Quarter	$	2.95	$	2.28
Second Quarter	$	3.61	$	2.62
Third Quarter	$	3.16	$	2.00
Fourth Quarter	$	3.14	$	2.02

The last reported sale price of our common stock on the NASDAQ Global Market on January 31, 2011 was $2.24 per share. As of January 31, 2011, there were approximately 77 holders of record of our common stock.

Dividend Policy

We have never paid any cash dividends on our capital stock. Because we currently intend to retain any future earnings to fund the development and growth of our business, we do not anticipate paying any cash dividends in the near future.

Equity Compensation Plan Information

The following table provides certain information with respect to all of our equity compensation plans in effect as of the end of December 31, 2010.

Number of

Securities

Remaining

Available

for Issuance

Under Equity

Number of

Weighted-

Number of

Weighted-

Compensation

Securities to be

Average

Securities to be

Average

Plans

Issued Upon

Exercise

Released Upon

Grant

(Excluding

Exercise of

Price of

Vesting of

Date Value of

Securities

Outstanding

Reflected in

Plan Category

Options

RSUs

Column (a))(1)

(a)

(b)

(a)

(b)

(c)

Equity compensation plans approved by security holders

1,228,187

2.39

204,800

2.68

5,020,545

(2)

Equity compensation plans not approved by security holders

Total

1,228,187

2.39

204,800

2.68

5,020,545


(1)		The number of shares that may be issued under the 2007 Equity Incentive Plan is increased automatically on January 1 of each year, beginning in 2008 and ending in 2012, by a number of shares equal to the lesser of (i) six percent of the number of shares of our common stock outstanding on such date, (ii) 1,500,000 shares and (iii) such lower number of shares as determined by our board of directors prior to such date.

(2)		Includes 446,473 shares issuable under the 2000 Employee Stock Purchase Plan.


Item 6.	*Selected Consolidated Financial Data*

The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto included elsewhere in this report. The selected consolidated statements of operations data for the fiscal years ended December 31, 2010, 2009 and 2008 and the selected consolidated balance sheet data as of December 31, 2010 and 2009 are derived from our audited consolidated financial statements that are included elsewhere in this report. The selected consolidated statements of operations data for the fiscal years ended December 31, 2007 and 2006 and the selected consolidated balance sheet data as of December 31, 2008, 2007 and 2006 are derived from our audited consolidated financial statements not included in this report. The historical results are not necessarily indicative of the results of operations to be expected in any future periods.


	Year Ended December 31,
	2010			2009			2008			2007			2006
	(In thousands, except per share data)

Consolidated Statements of Operations Data:
Revenues	$	16,716		$	19,502		$	38,696		$	44,329		$	51,833
Cost of product revenues		14,002			14,791			26,227			30,399			34,992
Other operating expenses		10,761			15,651			17,741			16,820			17,369
Income (loss) from continuing operations		(8,092	)		(10,626	)		(3,964	)		670			2,002
Income (loss) from discontinued operations, net of tax		—			17,571			(10,787	)		(6,071	)		(3,347	)
Net income (loss)	$	(8,092	)	$	6,945		$	(14,751	)	$	(5,401	)	$	(1,345	)
Basic net income (loss) per share	$	(0.83	)	$	0.73		$	(1.60	)	$	(0.47	)	$	(0.12	)
Diluted net income (loss) per share	$	(0.83	)	$	0.73		$	(1.60	)	$	(0.37	)	$	(0.10	)


	December 31,
	2010		2009		2008		2007		2006
	(In thousands)

Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term and long-term investments	$	23,527	$	66,465	$	45,348	$	48,957	$	67,587
Total assets		32,474		77,116		70,340		82,589		100,653
Long-term liabilities, less current portion		358		765		73		116		231
Total stockholders’ equity		28,288		71,952		62,041		71,848		89,398


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

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report, as well as the information set forth in the “Risk Factors” section of this report. In addition to historical consolidated financial information, this discussion contains forward-looking statements that involve known and unknown risks and uncertainties, including statements regarding our expectations, beliefs, intentions or strategies regarding the future. All forward-looking statements included in this report 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 discussed in the forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements. In the past, our operating results have fluctuated and are likely to continue to fluctuate in the future.

Overview

We design, manufacture and market radio frequency, or RF, products that enable the transmission, reception and processing of high frequency RF signals.

Our products consist of two key product lines, semiconductor devices and integrated transceiver modules:


	•	Our semiconductor product line consists of a wide variety of monolithic microwave integrated circuits, or MMICs, including amplifiers, voltage controlled oscillators, up and down converters, variable gain amplifiers, voltage variable attenuators, fixed attenuators and filters. These types of devices are widely used in telecommunications, satellite, defense, security, instrumentation, scientific and consumer systems. While we have developed, produced and sold such devices for several years as components of our module products, we first offered them for sale as stand-alone products in the latter part of 2009 and they have not yet become a significant source of revenue for us.

	•	Our integrated transceiver modules combine several electronic functions into a single RF sub-system. Historically, our main customers for these products have been telecommunication network original equipment manufacturers, or OEMs, and system integrators that utilize them in digital microwave radios. More recently we have identified and pursued uses for these products in additional product areas; however these alternate applications have not yet become a significant source of revenue for us.

Markets and Outlook

Telecommunications market. Most of our RF modules are deployed in telecommunication networks, carrier class trunking networks and point-to-point transmission networks. Our target customers for these applications are telecom OEMs. Telecom OEMs provide the equipment used by service providers to deliver voice, data and video services to businesses and consumers.

Non-telecommunication markets. Our RF semiconductors are also designed into various applications outside of the telecommunication network market, including defense and homeland security markets. Our target customers in the defense market include defense systems integrators and their subcontractors that design aerospace systems, defense systems and weapons and electronics platforms for both domestic and foreign defense customers. Our target customers in the homeland security market include those utilizing the properties of high-frequency RF energy to create systems designed to detect and identify security threats.

2010 Revenues. During 2010, total revenues decreased by $2.8 million, or 14%, from 2009. We believe the demand for our products has declined relative to prior periods due to a rapid drop in demand for legacy radio platforms and the decline of our key customers’ market share in the face of increasing competition. During 2010, we began the production ramp of our new module designs supporting next-generation radios, but the revenues from the new module designs did not offset the decline in revenues from our legacy products.

Current market outlook. We depend on a small number of key customers in the mobile communication industry for a significant portion of our revenues. Over the past year, our customers have faced increasing competition which we believe has resulted in their loss of market share. The decline in our key customers’ market share has led to decreased demand for our products and contributed to the reduced revenues we experienced in 2010. We are uncertain about our customers’ ability to regain market share given the competitive nature of the industry and therefore have limited visibility to our financial performance in 2011. We currently believe that first quarter 2011 revenues will be significantly below the $4.1 million in revenue that we experienced in both the third and fourth quarters of 2010 and that revenues for all of 2011 will decrease moderately from 2010.

Proposed Merger with GigOptix

of the Merger, less 42.5% of the shares described in clause (ii) of this sentence and (ii) in-the-money options to acquire Endwave common stock outstanding immediately prior to the consummation of the Merger will be converted into that number of shares of GigOptix common stock determined by dividing the spread value of such options at closing by the closing price of GigOptix’s common stock on the trading day prior to closing, such that following the Merger, the pre-Merger holders of common stock and restricted stock units will own that number of shares equal to 42.5% of the outstanding stock of the combined company, less 42.5% of the shares issued in respect of Endwave stock options.

We currently expect to complete the Merger in the second quarter of 2011. GigOptix’s and Endwave’s obligations to consummate the Merger are subject to the satisfaction or waiver of customary closing conditions and regulatory approvals, as well as the approval of the merger by the stockholders of Endwave.

Divestiture of our Defense and Security RF Module Business

On April 30, 2009, we entered into an Asset Purchase Agreement with Microsemi Corporation, or Microsemi pursuant to which Microsemi purchased our Defense and Security RF module business, including all of the outstanding capital stock of our subsidiary, Endwave Defense Systems Incorporated. As consideration, Microsemi assumed certain liabilities associated exclusively with the Defense and Security RF module business and paid $28.0 million in cash. Additionally, as part of the sale, approximately 130 employees associated with the Defense and Security RF module business transferred to Microsemi. Accordingly, we reclassified the results of our Defense and Security RF module business as a discontinued operation in our consolidated statements of operations for all periods presented in this Annual Report on Form 10-K, and all amounts set forth in this Management’s Discussion and Analysis of Financial Condition and Results of Operation reflect such reclassification.

Seasonality

Critical Accounting Policies and Estimates

General

Management’s discussion and analysis of its financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, warranty obligations, inventories, stock-

based compensation, income taxes, asset impairments and other commitments and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates or our estimates may be affected by different assumptions or conditions. We discuss these policies further, as well as the estimates and judgments involved, below.

Revenue Recognition

Our primary customers are telecom OEMs and other systems integrators that incorporate our products into their systems. We recognize product revenues at the time title passes, which is generally upon product shipment, coupled with persuasive evidence that an arrangement exists, delivery has occurred or services have been rendered, our price to the buyer is fixed or determinable and collectibility is reasonably assured. Revenues under development contracts are generally recorded on a percentage of completion basis, using project hours as the basis to measure progress toward completing the contract and recognizing revenues. Alternatively, where a development contract specifies defined progress gates or milestones tied to payments, revenue is recognized on a pro rata basis matching the milestones. Revenues attributable to development fees were insignificant during 2008, 2009 and 2010. The costs incurred under these development agreements are included in research and development expenses.

Allowance for Doubtful Accounts

We make ongoing assumptions relating to the collectibility of our accounts receivable in our calculation of the allowance for doubtful accounts. In determining the amount of the allowance, we make judgments about the creditworthiness of customers based on ongoing credit evaluations and assess current economic trends affecting our customers that might impact the level of credit losses in the future and result in different rates of bad debts than previously seen. We also consider our historical level of credit losses. At December 31, 2009 and 2010, our allowances were $19,000 and $18,000, respectively. If actual credit losses were to be significantly greater than the reserves we have established, our selling, general and administrative expenses would increase.

Warranty Reserves

We generally offer a 12 to 30 month warranty on all of our products. We record a liability based on estimates of the costs that may be incurred under our warranty obligations and charge to cost of product revenues the amount of such costs at the time revenues are recognized. Our warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Our estimates of anticipated rates of warranty claims and costs per claim are primarily based on historical information and future forecasts. At December 31, 2009 and 2010 our warranty reserves were $1.1 million and $614,000, respectively. We periodically assess the adequacy of our recorded warranty reserve and adjust the amounts as necessary. If actual warranty claims are significantly higher than forecasted, or if the actual costs incurred to provide the warranty is greater than the forecast, our gross margins could be adversely affected.

Inventory Valuation

We evaluate our ending inventories for excess quantities and obsolescence at each balance sheet date. This evaluation includes review of materials usage, market conditions and product life cycles and an analysis of sales levels by product and projections of future demand and market conditions. We adjust inventory balances to approximate the lower of our manufacturing cost or market value. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required, and would be reflected in cost of product revenues in the period the revision is made. This would have a negative impact on our gross margins in that period. At the time of write down, a new, lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. If in any period we are able to sell inventories that were not valued or that had been written off in a previous period, related revenues would be recorded without any offsetting charge to cost of product revenues, resulting in a net benefit to our gross margin in that period. To the extent these factors materially affect our gross margins, we disclose them. During 2010 and 2009, we recorded $1.8 million and $878,000, respectively, of

inventory write-offs associated with excess and obsolete material related to a rapid drop in sales of a legacy product for a major customer’s radio platform.

Stock-Based Compensation

Our stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period. All of our stock compensation is accounted for as an equity instrument.

For restricted stock units, stock-based compensation is based on the fair value of our common stock at the grant date.

We estimate the fair value of stock options and shares under our stock purchase plan using the Black-Scholes valuation model. The fair value of each option grant and the right to purchase shares under our stock purchase plan are estimated on the date of grant using the Black-Scholes option valuation model and the graded-vesting method with assumptions concerning expected dividend yield, stock price volatility, risk free interest rate and expected life of the award.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. As our stock option awards have characteristics that differ significantly from traded options, and as changes in the subjective assumptions can materially affect the estimated value, our estimate of fair value may not accurately represent the value assigned by a third party in an arms-length transaction. There currently is no market-based mechanism to verify the reliability and accuracy of the estimates derived from the Black-Scholes option valuation model or other allowable valuation models, nor is there a means to compare and adjust the estimates to actual values. While our estimate of fair value and the associated charge to earnings materially affects our results of operations, it has no impact on our cash position.

Deferred Taxes

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

Goodwill, Intangible and Long-Lived Assets

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Intangible assets resulting from the acquisitions of entities accounted for using the purchase method of accounting are estimated by management based on the fair value of assets received.

During the fourth quarter of 2008, we determined that indicators of potential impairment were present based on the fair value of our common stock relative to its book value, revised estimates for future revenues and the continued worsening of the global economy. As a result, we assessed the carrying value of acquired goodwill and intangible assets with an indefinite life for impairment. Based on the fair market value of the business and our discounted future cash flow and revenue projections, we recorded non-cash impairment charges of $3.0 million for goodwill and $1.1 million for intangible assets with an indefinite life. These impairment charges are included in discontinued operations.

We review long-lived assets for impairment, whenever certain events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Such events or circumstances include, but are not limited to, a prolonged industry downturn, or a significant reduction in projected future cash flows.

For long-lived assets used in operations, we record impairment losses when events and circumstances indicate that these assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. If less, the impairment losses are based on the excess of the carrying

amounts over their respective fair values. Their fair values would then become the new cost basis. Fair value is determined by discounted future cash flows, appraisals, or other methods. For assets to be disposed of other than by sale, impairment losses are measured as the excess of their carrying amount over the salvage value, if any, at the time the assets cease to be used.

During the fourth quarter of 2008, we reviewed our long-lived assets for indicators of impairment. Based on reduced estimates of future revenues and future negative cash flow, we identified potential indicators of impairment. As a result, we compared the fair value of our long-lived assets to their carrying value. Based on our discounted future cash flow and revenue projections, we recorded non-cash impairment charges of $2.1 million for intangible assets with a defined useful life. These impairment charges are included in discontinued operations and represent the excess of the carrying value of these assets over their fair value.

These impairment charges are not expected to result in any future cash expenditures.

Fair Value Measurement

Our financial assets and liabilities are valued using market prices on both active markets (Level 1) and less active markets (Level 2). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 instrument valuations are obtained from readily-available pricing sources for comparable instruments. As of December 31, 2010, we did not have any assets or liabilities without observable market values that would require a high level of judgment to determine fair value (Level 3).

Business Combinations

For our business combinations, the purchase price of an acquired company is allocated between the intangible assets and the net tangible assets of the acquired business with the residual of the purchase price recorded as goodwill. The valuation of intangible assets is based on an income approach methodology that values the intangible assets based on the future cash flows that could potentially be generated by the asset over its estimated remaining life discounted to its present value utilizing an appropriate weighted average cost of capital. As a result of business acquisitions, the allocation of the purchase price to goodwill and intangible assets could have a significant impact on our future operating results.

Results of Operations

The following tables set forth selected consolidated statements of operations data for each of the periods indicated in dollars and as a percentage of total revenues.


	Year Ended December 31,
	2010			2009			2008
	(In thousands)

Revenues:
Product revenues	$	16,716		$	19,502		$	38,593
Development fees		—			—			103

Total revenues		16,716			19,502			38,696

Costs and expenses:
Cost of product revenues		14,002			14,791			26,227
Research and development		4,607			5,483			6,764
Sales and marketing		2,154			2,183			3,446
General and administrative		3,951			5,577			7,531
Restructuring		49			2,408			—

Total costs and expenses		24,763			30,442			43,968

Loss from operations		(8,047	)		(10,940	)		(5,272	)
Interest and other income (expense), net		(45	)		209			1,242

Loss from continuing operations before benefit for income taxes		(8,092	)		(10,731	)		(4,030	)
Benefit for income taxes		—			(105	)		(66	)

Loss from continuing operations		(8,092	)		(10,626	)		(3,964	)
Income (loss) from discontinued operations, net of tax		—			17,571			(10,787	)

Net income (loss)	$	(8,092	)	$	6,945		$	(14,751	)


	Year Ended December 31,
	2010			2009			2008
	(As a percentage of total revenues)

Revenues:
Product revenues		100.0	%		100.0	%		99.7	%
Development fees		—			—			0.3

Total revenues		100.0			100.0			100.0

Costs and expenses:
Cost of product revenues		83.8			75.9			67.8
Research and development		27.6			28.1			17.5
Sales and marketing		12.9			11.2			8.9
General and administrative		23.6			28.6			19.4
Restructuring		0.3			12.3			—

Total costs and expenses		148.1			156.1			113.6

Loss from operations		(48.1	)		(56.1	)		(13.6	)
Interest and other income, net		(0.3	)		1.1			3.2

Loss from continuing operations before benefit for income taxes		(48.4	)		(55.0	)		(10.4	)
Benefit for income taxes		—			(0.5	)		(0.2	)

Loss from continuing operations		(48.4	)		(54.5	)		(10.2	)
Income (loss) from discontinued operations, net of tax		—			90.1			(27.9	)

Net income (loss)		(48.4	)%		35.6	%		(38.1	)%

Results of Operations

Year ended December 31, 2010 compared to year ended December 31, 2009

Total revenues


	Year Ended December 31,
	2010		2009		% Change
	(In thousands)

Total revenues	$	16,716	$	19,502		(14.3	)%

Total revenues primarily consist of product revenues for sales of our transceiver module and semiconductor products.

Total revenues decreased by $2.8 million, or 14%, from 2009 to 2010 due to a rapid drop in demand for legacy radio platforms and the decline of our key customers’ market share in the face of increasing competition. During 2010, we began the production ramp of our new module designs supporting next-generation radios but, the revenues from the new module designs did not offset the decline in revenues from our legacy product.

Over the past year, our customers have faced increasing competition which we believe has resulted in their loss of market share. The decline in our key customers’ market share has led to decreased demand for our products and contributed to the reduced revenues we experienced in 2010. We are uncertain about our customers’ ability to regain market share given the competitive nature of the industry and therefore have limited visibility to our financial performance in 2011. We currently believe that first quarter 2011 revenues will be significantly below the $4.1 million in revenue that we experienced in both the third and fourth quarters of 2010 and that revenues for all of 2011 will decrease moderately from 2010.

Cost of product revenues


	Year Ended December 31,
	2010			2009			% Change
	(In thousands)

Cost of product revenues	$	14,002		$	14,791			(5.3	)%
Percentage of revenues		83.8	%		75.9	%

Cost of product revenues consists primarily of: costs of direct materials; equipment depreciation; costs associated with procurement, production control, quality assurance and manufacturing engineering; fees paid to our offshore manufacturing vendor; reserves for potential excess or obsolete material; costs related to stock-based compensation; and accrued costs associated with potential warranty returns offset by the benefit of usage of materials that were previously written off.

During 2010, the cost of product revenues as a percentage of revenues increased compared to 2009, primarily due to the write-off of inventory associated with excess material related to a rapid drop in sales of a legacy product for a major customer’s radio platform, the decreased absorption of our overhead costs resulting from decreased production and continued pricing pressure resulting in lower product margins. During 2010 and 2009, we recorded $1.8 million and $878,000, respectively, of inventory write-offs associated with excess and obsolete material related to a rapid drop in sales of a legacy product for a major customer’s radio platform. The cost of product revenues in both periods was favorably impacted by the utilization of inventory that was previously written off, amounting to approximately $524,000 during 2010 and $100,000 during 2009.

We continue to focus on reducing the cost of product revenues as a percentage of total revenues through the introduction of new designs and technology and further improvements to our offshore manufacturing processes. In addition, our product costs are impacted by the mix and volume of products sold and will continue to fluctuate as a result.

Research and development expenses


	Year Ended December 31,
	2010			2009			% Change
	(In thousands)

Research and development expenses	$	4,607		$	5,483			(16.0	)%
Percentage of revenues		27.6	%		28.1	%

Research and development expenses consist primarily of salaries and related expenses for research and development personnel, outside professional services, prototype materials, supplies and labor, depreciation for related equipment, allocated facilities costs and expenses related to stock-based compensation.

During 2010, research and development costs decreased in absolute dollars compared to 2009 primarily due to a $528,000 decrease in personnel-related expenses, a $290,000 decrease in stock-based compensation expenses and a $25,000 decrease in project related expenses. The decrease in personnel-related expenses is primarily due to the restructuring activities undertaken during fiscal 2009.

During the first quarter of 2011, we entered into a Merger Agreement with GigOptix. GigOptix and Endwave currently expect to complete the Merger in the second quarter of 2011. We have limited visibility to our research and development expenses for 2011 because we are in the process of determining the structure for the combined companies.

Sales and marketing expenses


	Year Ended December 31,
	2010			2009			% Change
	(In thousands)

Sales and marketing expenses	$	2,154		$	2,183			(1.3	)%
Percentage of revenues		12.9	%		11.2	%

Sales and marketing consist primarily of salaries and related expenses for sales and marketing personnel, professional fees, facilities costs, expenses related to stock-based compensation and promotional activities.

During 2010, sales and marketing costs were comparable to the costs in 2009 primarily due to a $320,000 decrease in stock-based compensation and a $107,000 decrease in bad debt expense which were offset by a $259,000 increase in sales commissions, a $92,000 increase in marketing expenses, a $47,000 increase in travel expenses and a $29,000 increase in personnel-related expenses.

We have limited visibility to our sales and marketing expenses for 2011 because we have entered into a Merger Agreement with GigOptix and are in the process of determining the structure for the combined companies.

General and administrative expenses


	Year Ended December 31,
	2010			2009			% Change
	(In thousands)

General and administrative expenses	$	3,951		$	5,577			(29.2	)%
Percentage of revenues		23.6	%		28.6	%

General and administrative consist primarily of salaries and related expenses for executive, finance, accounting, legal, information technology and human resources personnel, professional fees, facilities costs, and expenses related to stock-based compensation.

During 2010, general and administrative costs were $4.0 million compared to $5.6 million in 2009. The decrease in general and administrative costs was primarily due to a $846,000 decrease in personnel-related expenses and a $815,000 decrease in stock-based compensation which were partially offset by a $28,000 increase for professional fees. The decrease in personnel-related expenses is primarily due to the restructuring activities undertaken during fiscal 2009.

Restructuring


	Year Ended December 31,
	2010		2009		% Change
	(In thousands)

Restructuring	$	49	$	2,408		(98.0	)%

During the first quarter of 2009, we undertook certain restructuring activities to reduce expenses. These terminations affected all areas of our operations. The components of the restructuring charge included severance, benefits, payroll taxes and other costs associated with employee terminations. The net charge for these restructuring activities in the first quarter of 2009 was $1.2 million and all cash payments have been made. Of this amount, approximately $182,000 has been included in income from discontinued operations. During the first quarter of 2010, we recorded a $14,000 positive adjustment as a result of lower benefit charges in connection with our first quarter 2009 restructuring plan than were originally anticipated.

During the second quarter of 2009, we undertook certain additional restructuring activities to reduce expenses. These terminations affected all areas of our operations. The components of the restructuring charge included severance, benefits, payroll taxes and other costs associated with the employee terminations. The net charge for these restructuring activities was $243,000 and all cash payments have been made. Of this amount, approximately $39,000 has been included in the discontinued operations line item on the consolidated statements of operations.

During the fourth quarter of 2009, we undertook certain additional restructuring activities, including the departure of a senior executive, to reduce expenses. The components of the restructuring charge included severance, benefits, payroll taxes and other costs associated with employee terminations. The net charge for these restructuring

activities was $1.2 million. The remaining restructuring liability of $665,000 at December 31, 2010 is expected to be substantially paid by the end of the third quarter of 2012.

During the third quarter of 2010, we undertook certain additional restructuring activities to reduce expenses. The components of the restructuring charge included severance, benefits, payroll taxes and other costs associated with an employee termination. The net charge for these restructuring activities was $63,000 and all cash payments have been made.

During the first quarter of 2011, we entered into a Merger Agreement with GigOptix. Although we currently anticipate the integration of the companies to include some restructuring activities, we have not yet determined the final structure for the combined companies.

Interest and other income (expense), net


	Year Ended December 31,
	2010			2009		% Change
	(In thousands)

Interest and other income (expense), net	$	(45	)	$	209		(121.5	)%

Interest and other income, net consists primarily of interest income earned on our cash, cash equivalents and investments, the amortization of the deferred gain from the sale of our Diamond Springs, California location, which ended in June 2009, and gains and losses related to foreign currency transactions.

The decrease in interest and other income from 2009 to 2010 was primarily the result of decreased interest earned on our investments and increased interest expense for our long-term restructuring liability.

During 2010, we earned $80,000 of interest income which was offset by interest expense, banking charges and losses on foreign currency transactions. During 2009, we earned $205,000 of interest income and recognized $76,000 of other income from the amortization of the deferred gain from the sale of our Diamond Springs, California location, which was partially offset by banking charges and losses on foreign currency transactions.

Our functional currency is the U.S. Dollar. Transactions in foreign currencies other than the functional currency are remeasured into the functional currency at the time of the transaction. Foreign currency transaction losses consist of the remeasurement gains and losses that arise from exchange rate fluctuations related to our operations in Thailand. During 2010 and 2009, we recorded foreign currency transaction losses of $6,000 and $15,000, respectively.

Benefit for income taxes


	Year Ended December 31,
	2010		2009			% Change
	(In thousands)

Benefit for income taxes	$	—	$	(105	)		(100.0	)%

During 2009, we recorded an income tax benefit of $105,000, due to a benefit from refundable research and development tax credits in the United States. During 2010, we did not record any income tax benefit because the research and development tax credit was not refundable.

No other income tax expense (benefit) has been recorded because we have incurred operating losses that cannot be benefitted due to a full valuation allowance.

Discontinued Operations


	Year Ended December 31,
	2010		2009		% Change
	(In thousands)

Income (loss) from discontinued operations, net of tax	$	—	$	17,571		(100.0	)%

On April 30, 2009, we entered into an Asset Purchase Agreement with Microsemi pursuant to which Microsemi purchased our Defense and Security RF module business including all of the outstanding capital stock of Endwave Defense Systems Incorporated. As consideration, Microsemi assumed certain liabilities associated exclusively with the Defense and Security RF module business and paid $28.0 million in cash.

Year ended December 31, 2009 compared to year ended December 31, 2008

Total revenues


	Year Ended December 31,
	2009		2008		% Change
	(In thousands)

Total revenues	$	19,502	$	38,696		(49.6	)%
Product revenues	$	19,502	$	38,593		(49.5	)%
Development fees	$	—	$	103		(100.0	)%

Total revenues decreased by $19.2 million, or 50%, from 2008 to 2009. The demand for our products has declined relative to prior periods as the mobile communication industry has been impacted to a significant degree by the current global economic downturn and credit crisis. Additionally, during the second half of 2009 a key legacy product for a major customer’s radio platform experienced a rapid and unanticipated drop in sales while sales of our new module designs supporting next-generation radios were just beginning their production ramp. The revenues from the new module designs did not offset the decline in revenues from the legacy product.

Cost of product revenues


	Year Ended December 31,
	2009			2008			% Change
	(In thousands)

Cost of product revenues	$	14,791		$	26,227			(43.6	)%
Percentage of revenues		75.9	%		67.8	%

During 2009, the cost of product revenues as a percentage of revenues increased compared to 2008, primarily due to the decreased absorption of our overhead costs resulting from decreased production, continued pricing pressure resulting in lower product margins, an $878,000 increase in inventory reserves due to excess material related to a rapid and unanticipated drop in sales of a legacy product for a major customer’s radio platform and an $86,000 increase in reserve for material related to a product built for a customer currently in bankruptcy liquidation. The cost of product revenues in both periods was favorably impacted by the utilization of inventory that was previously written off, amounting to approximately $100,000 during 2009 and $85,000 during 2008.

Research and development expenses


	Year Ended December 31,
	2009			2008			% Change
	(In thousands)

Research and development expenses	$	5,483		$	6,764			(18.9	)%
Percentage of revenues		28.1	%		17.5	%

During 2009, we undertook certain restructuring activities to reduce expenses which resulted in a decrease of 21 product and process engineering employees and $808,000 in associated personnel-related expenses. In addition,

during 2009, research and development costs decreased compared to 2008 due to a decrease of $317,000 for stock-based compensation expenses and a decrease of $209,000 for project-related expenses.

Sales and marketing expenses


	Year Ended December 31,
	2009			2008			% Change
	(In thousands)

Sales and marketing expenses	$	2,183		$	3,446			(36.7	)%
Percentage of revenues		11.2	%		8.9	%

During 2009, sales and marketing expenses were $2.2 million compared to $3.4 million in 2008. During 2009, we undertook certain restructuring activities to reduce expenses which resulted in a decrease of three sales and marketing employees and $498,000 in associated personnel-related expenses. In addition, during 2009 sales and marketing expenses decreased compared to 2008 due to a decrease of $250,000 for stock-based compensation expenses and a decrease of $184,000 for bad debt expenses.

General and administrative expenses


	Year Ended December 31,
	2009			2008			% Change
	(In thousands)

General and administrative expenses	$	5,577		$	7,531			(25.9	)%
Percentage of revenues		28.6	%		19.5	%

During 2009, general and administrative expenses were $5.6 million compared to $7.5 million in 2008. During 2009, we undertook certain restructuring activities to reduce expenses which resulted in a decrease of ten general and administrative employees and $798,000 in associated personnel-related expenses. In addition, during 2009, general and administrative expenses decreased compared to 2008 primarily due to a decrease of $468,000 for professional fees and a decrease of $320,000 for stock-based compensation expenses.

Restructuring


	Year Ended December 31,
	2009		2008		% Change
	(In thousands)

Restructuring	$	2,408	$	—		100.0	%

During the second quarter of 2009, we undertook certain additional restructuring activities to reduce expenses. The components of the restructuring charge included severance, benefits, payroll taxes and other costs associated with employee terminations. The net charge for these restructuring activities in the second quarter of 2009 was $243,000 and all cash payments have been made. Of this amount, approximately $39,000 has been included in income (loss) from discontinued operations.

During the fourth quarter of 2009, we undertook certain additional restructuring activities to reduce expenses. The components of the restructuring charge included severance, benefits, payroll taxes and other costs associated with employee terminations. The net charge for these restructuring activities in the fourth quarter of 2009 was $1.2 million and is expected to be substantially completed by the end of the third quarter of 2012.

At December 31, 2008, we had 228 employees. At December 31, 2009, we had 54 employees. The decrease in employees was due to the restructuring mentioned above and the sale of our Defense and Security RF module business to Microsemi.

Interest and other income (expense), net


	Year Ended December 31,
	2009		2008		% Change
	(In thousands)

Interest and other income (expense), net	$	209	$	1,242		(83.2	)%

The decrease in interest and other income from 2008 to 2009 was primarily the result of decreased interest earned on our investments. Interest rates decreased significantly from the prior year, especially on the highest rated investment vehicles, leading to lower interest income.

During 2009, we earned $205,000 of interest income and recognized $76,000 of other income from the amortization of the deferred gain from the sale of our Diamond Springs, California location, which was partially offset by banking charges and losses on foreign currency transactions. During 2008, we earned $1.1 million of interest income and recognized $154,000 of other income from the amortization of the deferred gain from the sale of our Diamond Springs, California location, which was partially offset by banking charges and losses on foreign currency transactions.

During 2009 and 2008, we recorded foreign currency transaction losses of $15,000 and $59,000, respectively.

Benefit for income taxes


	Year Ended December 31,
	2009			2008			% Change
	(In thousands)

Benefit for income taxes	$	(105	)	$	(66	)		59.1	%

During 2009 and 2008, we recorded an income tax benefit of $105,000 and $66,000, respectively, due to a benefit from refundable research and development tax credits in the United States. No other income tax expense (benefit) has been recorded because we have incurred operating losses that cannot be benefitted due to a full valuation allowance.

Discontinued Operations


	Year Ended December 31,
	2009		2008			% Change
	(In thousands)

Income (loss) from discontinued operations, net of tax	$	17,571	$	(10,787	)		(262.9	)%

We classified the results of the Defense and Security RF module business as a discontinued operation in our consolidated statements of operations for all periods presented. During 2009, we recognized income from discontinued operations of $17.6 million net of tax expenses. The income was a result of the gain on sale of the discontinued operations of $19.6 million partially offset by a $2.0 million loss from the discontinued operations in 2009. During 2008, we recognized loss from discontinued operations of $10.8 million, which included $6.1 million of impairment charges for the Defense and Security RF module business’ goodwill and intangible assets.

Liquidity and Capital Resources

At December 31, 2010, we had $7.1 million of cash and cash equivalents, $16.4 million in short-term investments, working capital of $26.6 million and no long-term or short-term debt outstanding. The following table sets forth selected consolidated statements of cash flows data for our three most recent fiscal years.


	Year Ended December 31,
	2010			2009			2008
	(In thousands)

Net cash provided by (used in) operating activities	$	(5,523	)	$	(4,098	)	$	2,373
Net cash provided by (used in) investing activities		(6,538	)		27,892			(4,072	)
Net cash provided by (used in) financing activities		(35,950	)		632			417
Net cash used in discontinued operations		—			(3,266	)		(3,724	)
Cash, cash equivalents, restricted cash, short-term and long-term investments at end of period	$	23,527		$	66,465		$	45,948

During 2010, operating activities used $5.5 million of cash compared to $4.1 million of cash in 2009. Our net loss from continuing operations, adjusted for depreciation and other non-cash items, was a loss of $6.5 million in 2010 as compared to $7.5 million in 2009. The remaining provision of $1.0 million of cash in 2010 was primarily due to a $1.2 million decrease in inventory, a $409,000 decrease in accounts receivable and a $387,000 decrease in other assets which were partially offset by a $603,000 decrease in accrued compensation, restructuring and other current and long term liabilities and a $473,000 decrease in accrued warranty.

During 2009, operating activities used $4.1 million of cash as compared to generating $2.4 million of cash in 2008. Our net loss from continuing operations, adjusted for depreciation and other non-cash items, was a loss of $7.5 million in 2009 as compared to $375,000 in 2008. The remaining provision of $3.4 million of cash in 2009 was primarily due to a $4.7 million decrease in inventory and a $665,000 increase in accounts payable which were partially offset by a $767,000 increase in other assets, a $706,000 decrease in accrued warranty and a $462,000 increase in accounts receivable.

During 2010, investing activities used $6.5 million of cash compared to generating $27.9 million of cash in 2009. The use of cash by investing activities in 2010 was primarily due to a net $5.4 million purchase of investments and a purchase of $1.1 million of property and equipment.

During 2009, investing activities provided $27.9 million of cash compared to using $4.1 million of cash in 2008. The source of cash in 2009 was due to the $28.0 million proceeds from the sale of our Defense and Security RF module business and a $600,000 decrease in restricted cash which were partially offset by a purchase of $396,000 of property and equipment and a net $312,000 purchase of investments.

During 2010, financing activities used $36.0 million of cash primarily due to the $36.2 million preferred stock repurchase which was partially offset by $172,000 from the exercise of stock options and $129,000 from the proceeds of our stock issuance. In January 2010, we entered into a Stock Purchase Agreement with Oak Investment Partners XI, Limited Partnership, or Oak, pursuant to which we repurchased the 300,000 shares of Endwave Series B Preferred Stock held by Oak for $36.2 million, which included fees and expenses. Such shares had entitled Oak to a liquidation preference equal to its original investment of $45.0 million before any proceeds from a liquidation or sale of Endwave would have been paid to the holders of our common stock.

During 2009, financing activities provided cash of $632,000 as compared to $417,000 in 2008. During 2009, we received $331,000 from the exercise of stock options and $317,000 from the proceeds of stock issuance which was partially offset by capital lease payments.

At December 31, 2010, we had a net unrealized loss of $1,000 related to $16.4 million of investments in twenty-nine debt securities. The decrease in the value of these investments is primarily related to changes in interest rates. The investments all mature during 2011 and we believe that we have the ability and intent to hold these investments until the maturity date. Realized gains were $57,000 in 2008. Realized gains and losses were insignificant for the years ended December 31, 2010 and 2009.

We believe that our existing cash and investment balances will be sufficient to meet our operating and capital requirements for at least the next 12 months. With the exception of operating leases discussed in the notes to the consolidated financial statements included in this report, we have not entered into any off-balance sheet financing arrangements and we have not established or invested in any variable interest entities. We have not guaranteed the debt or obligations of other entities or entered into options on non- financial assets. The following table summarizes our future cash obligations for operating leases, capital leases and purchase obligations, excluding interest, at December 31, 2010:


	Payments Due by Period
			Less than						More than
	Total		1 Year		1-3 Years		3-5 Years		5 Years
	(In thousands)

Contractual Obligations:
Capital lease obligations, including interest	$	2	$	2	$	—	$	—	$	—
Operating lease obligations		738		443		295		—		—
Purchase obligations		1,418		1,418		—		—		—

Total	$	2,158	$	1,863	$	295	$	—	$	—

We have purchase obligations to certain suppliers. In some cases the products we purchase are unique and have provisions against cancellation of the order. At December 31, 2010, we had approximately $1.4 million of purchase obligations that are due within the following 12 months.

Other Long-Term Liabilities

At December 31, 2010, we had $358,000 of other long-term liabilities consisting of a $234,000 long-term liability for restructuring and $124,000 for income taxes.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board, or FASB, issued new standards for fair value measurement and disclosures. These new standards require disclosures for significant transfers in and out of Level 1 and Level 2 fair value measurements and the reasons for the transfers and activity. For Level 3 fair value measurements, purchases, sales, issuances and settlements must be reported on a gross basis. Further, additional disclosures are required by class of assets or liabilities, as well as inputs used to measure fair value and valuation techniques. These standards were required to be adopted in the first quarter of 2010. We adopted these standards which did not have a material impact on our consolidated financial statements.

In February 2010, the FASB issued new standards that amend the subsequent event disclosure requirements for public company filers. An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. These standards were effective upon issuance and did not have a material impact on our consolidated financial statements.

In July 2010, the FASB issued new standards which amend the receivable disclosure requirements, including the credit quality of financing receivables and the allowance for credit losses. These standards require additional disclosures that will facilitate financial statement user’s evaluation of the nature of credit risk inherent in financing receivables, how that risk is analyzed in arriving at the allowance for credit losses, and the reason for any changes in the allowance for credit losses. These new standards are required to be adopted for interim and annual reporting periods beginning on or after December 15, 2010. We adopted these standards which did not have a material impact on our consolidated financial statements.


Item 7A.	*Quantitative and Qualitative Disclosures about Market Risk*

Quantitative and Qualitative Disclosures about Market Risk

Our exposure to market risk based on changes in interest rates relates primarily to our investment portfolio. In order to reduce this interest rate risk, we invest our cash primarily in investments with short maturities. As of December 31, 2010, our investments in our portfolio were classified as cash equivalents and short-term investments. The cash equivalents and short-term investments consisted primarily of United States treasury notes, United States government agency notes, United States government money market funds, Prime money market fund, corporate notes and commercial paper. Since our investments consist of cash equivalents and short-term investments, a change in interest rates would not have a material effect on our consolidated financial condition or results of operations. Declines in interest rates over time will, however, reduce interest income.

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, if the dollar were to strengthen relative to other currencies that could make our products less competitive in foreign markets and thereby lead to a decrease in revenues attributable to international customers. We currently pay a number of expenses related to our Thai personnel and office in Thai Baht. During 2010, the total payments made in Thai Baht were $904,000 and we recorded a related foreign currency transaction loss of $6,000.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Endwave Corporation:

We have audited the accompanying balance sheets of Endwave Corporation and its subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010. Our audits also included the financial statement schedule listed in Item 15(a)(2). These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. The Company is not required to have, nor have we been engaged to perform, an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Endwave Corporation and its subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ Burr Pilger Mayer, Inc.

San Jose, California

February 24, 2011

ENDWAVE CORPORATION

CONSOLIDATED BALANCE SHEETS


	December 31,
	2010			2009
	(In thousands, except share and per share data)

ASSETS
Current assets:
Cash and cash equivalents	$	7,147		$	55,158
Short-term investments		16,380			11,307
Accounts receivable, net of allowance for doubtful accounts of $18 in 2010 and $19 in 2009		2,600			3,009
Inventories		3,719			4,879
Other current assets		554			788

Total current assets		30,400			75,141
Property and equipment, net		2,048			1,796
Other assets		26			179

Total assets	$	32,474		$	77,116


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,837		$	1,726
Accrued warranty		614			1,087
Accrued compensation		626			590
Restructuring liabilities, short-term		431			570
Other current liabilities		320			426

Total current liabilities		3,828			4,399
Restructuring liabilities, long-term		234			638
Other long-term liabilities		124			127

Total liabilities		4,186			5,164

Commitments and contingencies (Note 10)
Stockholders’ equity:
Convertible preferred stock, $0.001 par value; 5,000,000 shares authorized; zero and 300,000 shares issued and outstanding in 2010 and 2009, respectively		—			43,092
Common stock, $0.001 par value; 50,000,000 shares authorized; 9,832,684 and 9,684,756 shares issued and outstanding in 2010 and 2009, respectively		10			10
Additional paid-in capital, common stock		317,291			309,755
Accumulated other comprehensive income (loss)		(1	)		15
Accumulated deficit		(289,012	)		(280,920	)

Total stockholders’ equity		28,288			71,952

Total liabilities and stockholders’ equity	$	32,474		$	77,116

The accompanying notes are an integral part of these consolidated financial statements.

ENDWAVE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS


	Year Ended December 31,
	2010			2009			2008
	(In thousands, except share and per share data)

Revenues:
Product revenues	$	16,716		$	19,502		$	38,593
Development fees		—			—			103

Total revenues		16,716			19,502			38,696

Costs and expenses:
Cost of product revenues*		14,002			14,791			26,227
Research and development*		4,607			5,483			6,764
Sales and marketing*		2,154			2,183			3,446
General and administrative*		3,951			5,577			7,531
Restructuring		49			2,408			—

Total costs and expenses		24,763			30,442			43,968

Loss from operations		(8,047	)		(10,940	)		(5,272	)
Interest and other income (expense), net		(45	)		209			1,242

Loss from continuing operations before benefit for income taxes		(8,092	)		(10,731	)		(4,030	)
Benefit for income taxes		—			(105	)		(66	)

Loss from continuing operations		(8,092	)		(10,626	)		(3,964	)
Income (loss) from discontinued operations, net of tax* (Note 11)		—			17,571			(10,787	)

Net income (loss)	$	(8,092	)	$	6,945		$	(14,751	)

Basic net loss per share from continuing operations	$	(0.83	)	$	(1.12	)	$	(0.43	)
Basic net income (loss) per share from discontinued operations	$	—		$	1.85		$	(1.17	)
Basic net income (loss) per share	$	(0.83	)	$	0.73		$	(1.60	)
Diluted net loss per share from continuing operations	$	(0.83	)	$	(1.12	)	$	(0.43	)
Diluted net income (loss) per share from discontinued operations	$	—		$	1.85		$	(1.17	)
Diluted net income (loss) per share	$	(0.83	)	$	0.73		$	(1.60	)
Shares used in computing basic net income (loss) per share		9,774,161			9,526,358			9,211,110
Shares used in computing diluted net income (loss) per share		9,774,161			9,526,358			9,211,110


* Includes the following amounts related to stock-based compensation:
Cost of product revenues	$	(24	)	$	150		$	385
Research and development		36			326			643
Sales and marketing		54			374			626
General and administrative		320			1,135			1,453
Income (loss) from discontinued operations, net of tax		—			355			988

The accompanying notes are an integral part of these consolidated financial statements.

ENDWAVE CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


	Shares of																	Accumulated
	Convertible			Convertible			Shares of					Additional						Other
	Preferred			Preferred			Common			Common		Paid-In			Treasury			Comprehensive			Accumulated
	Stock			Stock			Stock			Stock		Capital			Stock			Income (Loss)			Deficit			Total
	(In thousands, except for share data)

Balance as of December 31, 2007		300,000		$	43,092			9,174,622		$	9	$	301,946		$	(79	)	$	(6	)	$	(273,114	)	$	71,848
Change in unrealized gain on short-term investments		—			—			—			—		—			—			36			—			36
Foreign currency translation adjustment		—			—			—			—		—			—			12			—			12
Net loss		—			—			—			—		—			—			—			(14,751	)		(14,751	)

Comprehensive loss																									(14,703	)
Exercise of stock options		—			—			2,748			—		5			—			—			—			5
Retirement of common stock		—			—			(39,150	)		—		(79	)		79			—			—			—
Issuance of common stock under employee stock purchase plan		—			—			207,222			—		791			—			—			—			791
Stock-based compensation		—			—			—			—		4,100			—			—			—			4,100

Balance as of December 31, 2008		300,000			43,092			9,345,442			9		306,763			—			42			(287,865	)		62,041
Change in unrealized gain on short-term investments		—			—			—			—		—			—			(27	)		—			(27	)
Net income		—			—			—			—		—			—			—			6,945			6,945

Comprehensive loss																									6,918
Exercise of stock options		—			—			198,079			1		330			—			—			—			331
Issuance of common stock under employee stock purchase plan		—			—			141,235			—		317			—			—			—			317
Stock-based compensation		—			—			—			—		2,345			—			—			—			2,345

Balance as of December 31, 2009		300,000			43,092			9,684,756			10		309,755			—			15			(280,920	)		71,952
Change in unrealized gain (loss) on short-term investments		—			—			—			—		—			—			(16	)		—			(16	)
Net loss		—			—			—			—		—			—			—			(8,092	)		(8,092	)

Comprehensive loss																									(8,108	)
Exercise of stock options		—			—			83,538			—		172			—			—			—			172
Issuance of common stock under employee stock purchase plan		—			—			64,390			—		129			—			—			—			129
Repurchase of preferred stock		(300,000	)		(43,092	)		—			—		6,854			—			—			—			(36,238	)
Stock-based compensation		—			—			—			—		381			—			—			—			381

Balance as of December 31, 2010		—		$	—			9,832,684		$	10	$	317,291		$	—		$	(1	)	$	(289,012	)	$	28,288

The accompanying notes are an integral part of these consolidated financial statements.

ENDWAVE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended December 31,
	2010			2009			2008
	(In thousands)

Operating activities:
Net income (loss)	$	(8,092	)	$	6,945		$	(14,751	)
Income (loss) from discontinued operations		—			17,571			(10,787	)

Loss from continuing operations, net of tax		(8,092	)		(10,626	)		(3,964	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation		890			779			595
Stock compensation expense		386			1,985			3,107
Amortization of investments, net		307			328			(43	)
Gain on the sale of land and equipment		—			—			(13	)
Gain on sale of investments		—			—			(57	)
Changes in operating assets and liabilities:
Accounts receivable		409			(462	)		4,963
Inventories		1,155			4,724			(308	)
Other assets		387			(767	)		251
Accounts payable		111			665			(1,675	)
Accrued warranty		(473	)		(706	)		(600	)
Accrued compensation, restructuring and other current and long term liabilities		(603	)		(18	)		117

Net cash provided by (used in) operating activities		(5,523	)		(4,098	)		2,373

Investing activities:
Proceeds from sale of discontinued operations		—			28,000			—
Purchase of ALC Microwave, Inc., net of cash acquired		—			—			(1,027	)
Change in restricted cash		—			600			(575	)
Purchases of property and equipment		(1,142	)		(396	)		(1,295	)
Proceeds from sale of property and equipment		—			—			74
Purchases of investments		(28,776	)		(31,827	)		(19,731	)
Proceeds on sales and maturities of investments		23,380			31,515			18,482

Net cash provided by (used in) investing activities		(6,538	)		27,892			(4,072	)

Financing activities:
Preferred stock repurchased		(36,238	)		—			—
Common stock repurchased		—			—			(356	)
Payments on capital leases		(13	)		(16	)		(23	)
Proceeds from exercises of stock options		172			331			5
Proceeds from issuance of common stock		129			317			791

Net cash provided by (used in) financing activities		(35,950	)		632			417

Effect of foreign exchange rate changes on cash and cash equivalents		—			—			12

Cash flows from discontinued operations:
Operating activities		—			(2,472	)		(2,526	)
Investing activities		—			(794	)		(1,198	)
Financing activities		—			—			—

Net cash used in discontinued operations		—			(3,266	)		(3,724	)

Net change in cash and cash equivalents		(48,011	)		21,160			(4,994	)
Cash and cash equivalents at beginning of year		55,158			33,998			38,992

Cash and cash equivalents at end of year	$	7,147		$	55,158		$	33,998

Supplemental disclosure of cash flow information:
Non-cash transactions:
Change in unrealized gain (loss) on investments	$	(16	)	$	(27	)	$	36

Capitalized stock-based compensation	$	(5	)	$	5		$	5

The accompanying notes are an integral part of these consolidated financial statements.

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.	The Company

Endwave Corporation (“Endwave” or the “Company”) designs, manufactures and markets radio frequency (“RF”), products that enable the transmission, reception and processing of high frequency RF signals. The Company’s products consist of two key product lines, semiconductor devices and integrated transceiver modules:


	•	The Company’s semiconductor product line consists of a wide variety of monolithic microwave integrated circuits (“MMICs”), including amplifiers, voltage controlled oscillators, up and down converters, variable gain amplifiers, voltage variable attenuators, fixed attenuators and filters. These types of devices are widely used in telecommunications, satellite, defense, security, instrumentation, scientific and consumer systems. While the Company has developed, produced and sold such devices for several years as components of the Company’s module products. They were first offered for sale as stand-alone products in the latter part of 2009 and they have not yet become a significant source of revenue for the Company.

	•	The Company’s integrated transceiver modules combine several electronic functions into a single RF sub-system. Historically, the Company’s main customers for these products have been telecommunication network original equipment manufacturers and system integrators that utilize them in digital microwave radios. More recently the Company has identified and pursued uses for these products in additional product areas; however these alternate applications have not yet become a significant source of revenue for the Company.

On February 4, 2011, Endwave entered into an Agreement and Plan of Merger with GigOptix, Inc. (“GigOptix”), and Aerie Acquisition Corporation, a wholly-owned subsidiary of GigOptix (“Merger Subsidiary”), pursuant to which Merger Subsidiary will, subject to the satisfaction or waiver of the conditions therein, merge with and into Endwave, the separate corporate existence of Merger Subsidiary shall cease and Endwave will be the surviving corporation of the merger and a wholly-owned subsidiary of GigOptix. See additional discussion at Note 15, Subsequent Events.


2.	Summary of Significant Accounting Policies

Basis of Consolidation

On April 30, 2009, the Company sold its Defense and Security RF module business to Microsemi Corporation (“Microsemi”). The Company’s financial statements have been presented to reflect the Defense and Security RF module business as a discontinued operation for all periods presented. See additional discussion at Note 11, Discontinued Operations.

The accompanying consolidated financial statements of Endwave include the financial results of its Defense and Security RF module business as a discontinued operation for all periods presented and have been prepared in conformity with accounting principles generally accepted in the United States of America. All significant intercompany accounts and transactions have been eliminated.

Certain prior year financial statement amounts have been reclassified to conform to the current year’s presentation. These reclassifications had no impact on previously reported total assets, stockholders’ equity or total net income (loss).

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Revenue Recognition

The Company’s primary customers are telecom original equipment manufacturers (“OEM”) and other systems integrators that integrate the Company’s products into their systems. The Company recognizes product revenues at the time title passes, which is generally upon product shipment and when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the Company’s price to the buyer is fixed or determinable, and collectibility is reasonably assured. After title passes, there are no customer acceptance requirements or other remaining obligations and customers do not have a right of return. Revenues under development contracts are generally recorded on a percentage of completion basis, using project hours as the basis to measure progress toward completing the contract and recognizing revenues. The costs incurred under these development agreements are expensed as incurred and included in research and development expenses.

Warranty

The warranty periods for the Company’s products are between 12 and 30 months from date of shipment. The Company provides for estimated warranty expense at the time of shipment. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of component suppliers, its warranty obligation is affected by product failure rates, material usage, and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage, or service delivery costs differ from the estimates, revisions to the estimated warranty accrual and related costs may be required.

Changes in the Company’s accrued warranty during the years ended December 31, 2010 and 2009 are as follows:


	2010			2009
	(In thousands)

Balance at January 1	$	1,087		$	2,439
Warranties accrued		403			690
Warranties settled or reversed		(876	)		(1,314	)
Warranties transferred due to sale of the Defense and Security RF module business		—			(728	)

Balance at December 31	$	614		$	1,087

Allowance for Doubtful Accounts

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

Cash Equivalents and Short-Term Investments

The Company invests its excess cash primarily in highly liquid investment grade investments including: United States treasury notes, United States government agency notes, corporate notes, commercial paper and money market funds. The Company’s cash, cash equivalents and short-term investments are primarily held at three United States banks. The Company’s deposits are generally in excess of federally insured amounts.

The Company considers all highly liquid investments with maturities of 90 days or less from the date of purchase to be cash equivalents. Management has classified the Company’s short-term investments as available-for-sale securities in the accompanying consolidated financial statements. Available-for-sale securities are

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

carried at fair value based on quoted market prices, with unrealized gains and losses, net of tax, included in accumulated other comprehensive income (loss) in stockholders’ equity. Interest income is recorded using an effective interest rate, with the associated premium or discount amortized to interest income. Realized gains and losses and declines in the value of securities determined to be other-than-temporary are included in interest and other income. The cost of securities sold is based on the specific identification method.

Inventory Valuation

Inventories are stated at the lower of standard cost (determined on a first-in, first-out basis) or market (net realizable value). Standard costs approximate average actual costs. The Company makes inventory provisions for estimated excess and obsolete inventory based on management’s assessment of future demand and market conditions. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required. During 2010 and 2009, the Company recorded $1.8 million and $878,000, respectively, of inventory write-offs associated with excess and obsolete material related to a rapid drop in sales of a legacy product for a major customer’s radio platform.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets, ranging from three to seven years. Leasehold improvements and assets acquired under capital lease are amortized using the straight-line method based upon the shorter of the estimated useful lives or the lease term of the respective assets. Repairs and maintenance costs are charged to expense as incurred.


	Depreciable
	Life

Software		3 years
Leasehold improvements		2 to 5 years
Machinery and equipment		5 to 7 years

Goodwill, Intangible and Long-Lived Assets

During the fourth quarter of 2008, the Company determined that indicators of potential impairment were present based on the fair value of the Company’s common stock relative to its book value, revised estimates for future revenues and the continued worsening of the global economy. As a result, the Company assessed the carrying value of acquired goodwill and intangible assets with an indefinite life for impairment. Based on the fair market value of the business and the Company’s discounted future cash flow and revenue projections, the Company recorded non-cash impairment charges of $3.0 million for goodwill and $1.1 million for intangible assets with an indefinite life. These impairment charges are included in discontinued operations.

The Company reviews long-lived assets for impairment, whenever certain events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Such events or circumstances include, but are not limited to, a prolonged industry downturn, or a significant reduction in projected future cash flows.

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

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

other than by sale, impairment losses are measured as the excess of their carrying amount over the salvage value, if any, at the time the assets cease to be used.

During the fourth quarter of 2008, the Company reviewed its long-lived assets for indicators of impairment. Based on reduced estimates of future revenues and future negative cash flow, the Company identified potential indicators of impairment. As a result, the Company compared the fair value of its long-lived assets to their carrying value. Based on the Company’s discounted future cash flow and revenue projections, the Company recorded non-cash impairment charges of $2.1 million for intangible assets with a defined useful life. The impairment charges are included in discontinued operations and represent the excess of the carrying value of these assets over their fair value.

These impairment charges are not expected to result in any future cash expenditures.

Income Taxes

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

The Company has adopted the accounting standard which provides guidance on the provisions of accounting for uncertainty in income taxes. It provides guidance on accounting for uncertainty in income taxes recognized in the consolidated financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. In accordance with the Company’s accounting policy, the Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense.

Stock-Based Compensation

The Company recognizes stock-based compensation for stock-based awards exchanged for employee services. Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period. All of the Company’s stock compensation is accounted for as an equity instrument.

The Company has elected the alternative transition method for calculating the tax effects of stock-based compensation. The alternative transition method provides a simplified method to establish the beginning balance of the additional paid-in capital pool, or APIC Pool, related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC Pool and consolidated statements of cash flows of the tax effects of employee stock-based compensation awards that are outstanding.

The Company uses the “with and without” approach to determine the order in which its tax attributes are utilized. The “with and without” approach results in the recognition of the windfall stock option tax benefits after all other tax attributes have been considered in the annual tax accrual computation. The Company will only recognize a benefit from stock-based compensation in paid-in capital if an incremental tax benefit is realized after all other tax attributes currently available to it have been utilized. In addition, the Company has elected to account for the indirect benefits of stock-based compensation on items such as the alternative minimum tax, the research tax credit or the domestic manufacturing deduction through the consolidated statements of operations rather than through paid-in capital.

The Company accounts for stock options issued to nonemployees based on the fair value of the awards also determined using the Black-Scholes option-pricing model. The fair value of stock options granted to nonemployees is remeasured as the stock options vest, and the resulting change in value, if any, is recognized in the Company’s consolidated statement of operations during the period the related services are rendered.

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Research and Development Expenses

Research and development expenses are charged to operating expenses as incurred and consist primarily of salaries and related expenses for research and development personnel, outside professional services, prototype materials, supplies and labor, depreciation for related equipment, allocated facilities costs and expenses related to stock-based compensation.

Concentration of Risk

The Company is potentially subject to significant concentrations of credit risk including cash equivalents, short-term investment, trade receivables and inventories.

The Company sells its products primarily to telecom OEMs and other systems integrators. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for potential credit losses and excess and obsolete inventory. Concentrations of credit risk with respect to trade accounts receivable and inventories are due to the low number of entities comprising the Company’s customer base.

For the year ended December 31, 2010, revenues from three customers each accounted for greater than 10% of total revenues and combined they accounted for 93% of the Company’s total revenues, the largest of which was Nokia Siemens Networks which accounted for 52% of the Company’s total revenues. For the year ended December 31, 2009, revenues from two customers each accounted for greater than 10% of total revenues and combined they accounted for 88% of the Company’s total revenues, the largest of which was Nokia Siemens Networks which accounted for 70% of the Company’s total revenues. For the year ended December 31, 2008, revenues from Nokia Siemens Networks accounted for 83% of total revenues and no other customer accounted for more than 10% of our total revenues. In addition, the Company has purchased significant inventory balances to support these customers.

In 2010, 2009, and 2008, 76%, 97% and 97%, respectively, of the Company’s total revenues were derived from sales invoiced and shipped to customers outside the United States.

As of December 31, 2010, two customers accounted for 58% and 28%, respectively, of the Company’s accounts receivable. As of December 31, 2009, two customers accounted for 47% and 39%, respectively, of the Company’s accounts receivable.

The Company designs custom semiconductor devices. However, the Company does not own or operate a semiconductor fabrication facility (a “foundry”) and depends upon a limited number of third parties to produce these components. The Company’s use of various third-party foundries gives it the flexibility to use the process technology that is best suited for each application and eliminates the need for the Company to invest in and maintain its own foundry. The loss of the Company’s relationship with or access to the foundries it currently uses, and any resulting delay or reduction in the supply of semiconductors to the Company, would severely impact the Company’s ability to fulfill customer orders and could damage its relationships with its customers.

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

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

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company outsources the assembly and testing of most of its products to a Thailand facility of HANA Microelectronics Co., Ltd., (“HANA”) a contract manufacturer. The Company plans to continue this arrangement as a key element of its operating strategy. If HANA does not provide the Company with high quality products and services in a timely manner, or terminates its relationship with the Company, the Company may be unable to obtain a satisfactory replacement to fulfill customer orders on a timely basis. In the event of an interruption of supply from HANA, sales of the Company’s products could be delayed or lost and the Company’s reputation could be harmed. The Company’s manufacturing agreement with HANA currently expires in October 2011 but will renew automatically for successive one-year periods unless either party notifies the other of its desire to terminate the agreement at least one year prior to the expiration of the term. In addition, either party may terminate the agreement without cause upon 365 days prior written notice to the other party, and either party may terminate the agreement if the non-terminating party is in material breach and does not cure the breach within 30 days after notice of the breach is given by the terminating party. There can be no guarantee that HANA will not seek to terminate its agreement with the Company.

The Company utilizes a number of customized components that need to be qualified by our customers. This means that components in our products cannot be easily changed without the risks and delays associated with requalification. Accordingly, while a number of the components used in the Company’s products are made by multiple suppliers, the Company may effectively have single source suppliers for some of these components. In addition, the Company currently purchases a number of components from single source suppliers. Any delay or interruption in the supply of these or other components could impair the Company’s ability to manufacture and deliver products, harm the Company’s reputation and cause a reduction in revenues.

Fair Value of Financial Instruments

The amounts reported as cash and cash equivalents, accounts receivable, accounts payable and accrued warranty, compensation and other liabilities approximate fair value due to their short-term maturities. The fair value for the Company’s investments in marketable debt securities is estimated based on quoted market prices. Based upon borrowing rates currently available to the Company for capital leases with similar terms, the carrying value of its capital lease obligations approximates fair value.

The following estimated fair value amounts have been determined using available market information. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.


	December 31, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
	(In thousands)

Investments:
Commercial paper	$	4,248	$	—	$	—		$	4,248
United States government agencies		11,822		2		(3	)		11,821
Corporate securities		311		—		—			311

Total	$	16,381	$	2	$	(3	)	$	16,380

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	December 31, 2009
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
	(In thousands)

Investments:
Commercial paper	$	799	$	—	$	—		$	799
United States government agencies		8,759		5		(2	)		8,762
Corporate securities		1,734		12		—			1,746

Total	$	11,292	$	17	$	(2	)	$	11,307

At December 31, 2010, the Company had $16.4 million of short-term investments with maturities of less than one year and no long-term investments.

At December 31, 2010, the Company had unrealized losses of $3,000 related to $8.3 million of investments in United States government agencies securities. These securities were in an unrealized loss position for a period of less than one year.

The investments mature through 2011 and the Company believes that it has the ability and intent to hold these investments until the maturity date. Realized gains were $57,000 for the year ended December 31, 2008. Realized gains and losses were insignificant for the years ended December 31, 2010 and 2009.

The Company reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been less than the cost basis, credit quality and the Company’s intent and ability not to sell the investment for a period of time sufficient to allow for any anticipated recovery in market value. If the Company believes the carrying value of an investment is in excess of its fair value, and this difference is other-than-temporary, it is the Company’s policy to write down the investment to reduce its carrying value to fair value.

Fair Value Measurements

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 (in thousands):


			Quoted Prices in
	Balance as of		Active Markets of		Significant Other
	December 31,		Identical Assets		Observable Inputs
	2010		(Level 1)		(Level 2)

Assets:
Cash equivalents:
Money market funds	$	2,911	$	2,911	$	—
Commercial paper		2,454		—		2,454
Corporate bond		250		—		250
Short-term investments:
Commercial paper		4,248		—		4,248
United States government agencies		11,821		—		11,821
Corporate securities		311		—		311

Total	$	21,995	$	2,911	$	19,084

Liabilities:	$	—	$	—	$	—

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2009 (in thousands):


			Quoted Prices in
	Balance as of		Active Markets of		Significant Other
	December 31,		Identical Assets		Observable Inputs
	2009		(Level 1)		(Level 2)

Assets:
Cash equivalents:
Money market funds	$	54,097	$	54,097	$	—
Short-term investments:
Commercial paper		799		—		799
United States government agency		8,762		—		8,762
Corporate securities		1,746		—		1,746

Total	$	65,404	$	54,097	$	11,307

Liabilities:	$	—	$	—	$	—

The Company’s financial assets and liabilities are valued using market prices on both active markets (Level 1) and less active markets (Level 2). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 instrument valuations are obtained from readily-available pricing sources for comparable instruments. As of December 31, 2010, the Company did not have any assets or liabilities without observable market values that would require a high level of judgment to determine fair value (Level 3).

For the years ended December 31, 2010 and 2009, the Company did not have any significant transfers of investments between Level 1 and Level 2.

Foreign Currency Transactions

The U.S. dollar is the functional currency for the Company’s foreign operations. In consolidation, monetary assets and liabilities denominated in non-U.S. currencies, such as cash and payables, have been remeasured to the U.S. dollar using the current exchange rate. Non-monetary assets and liabilities and capital accounts denominated in non-U.S. currencies have been remeasured to the U.S. dollar using the historical exchange rate. Expense items relating to monetary assets denominated in non-U.S. currencies have been remeasured to the U.S. dollar using the average exchange rate for the period. Gains and losses from intercompany transactions and balances for which settlement is not planned or anticipated in the foreseeable future are accumulated as a separate component of stockholders’ equity. All other gains and losses resulting from foreign currency translation and transactions denominated in currencies other than the U.S. dollar are included in operations and have been immaterial for all periods presented.

Comprehensive Income (Loss)

Comprehensive income (loss) generally represents all changes in stockholders’ equity except those resulting from investments or contributions by stockholders. The Company’s unrealized gains and losses on its available-for-sale securities and gains and losses resulting from foreign exchange translations represent the only components of comprehensive income (loss) excluded from the reported net income (loss) and are displayed in the statements of stockholders’ equity.

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The components of accumulated other comprehensive income (loss) were as follows (in thousands):


	December 31,
	2010			2009

Accumulated other comprehensive income (loss):
Foreign currency translation adjustments	$	—		$	—
Unrealized gain (loss) on investments		(1	)		15

Total	$	(1	)	$	15

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of shares of common stock and potential common stock equivalents outstanding during the period, if dilutive. Potential common stock equivalents include convertible preferred stock, warrants to purchase convertible preferred stock, stock options to purchase common stock, unvested restricted stock units and shares to be purchased in connection with the Company’s employee stock purchase plan.

The following outstanding shares of common stock equivalents were excluded from the computation of diluted net income (loss) per share for the periods presented because including them would have been anitdilutive:


	Year Ended December 31,
	2010		2009		2008

Convertible preferred stock		—		3,000,000		3,000,000
Stock options to purchase common stock		1,228,187		1,010,561		3,008,917
Unvested restricted stock units		204,800		—		—
Warrant to purchase convertible preferred stock		—		—		900,000
Shares issuable under the employee stock purchase plan		30,012		46,113		128,589

In 2010, 2009 and 2008, basic and diluted net loss per share is the same due to the Company’s loss from continuing operations.

Advertising Costs

The Company expenses all advertising costs as incurred and the amounts were not material for any of the periods presented.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued new standards for fair value measurement and disclosures. These new standards require disclosures for significant transfers in and out of Level 1 and Level 2 fair value measurements and the reasons for the transfers and activity. For Level 3 fair value measurements, purchases, sales, issuances and settlements must be reported on a gross basis. Further, additional disclosures are required by class of assets or liabilities, as well as inputs used to measure fair value and valuation techniques. These standards were required to be adopted in the first quarter of 2010. The Company adopted these standards which did not have a material impact on the Company’s consolidated financial statements.

In February 2010, the FASB issued new standards which amend the subsequent event disclosure requirements for public company filers. An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. These standards were effective upon issuance and did not have a material impact on the Company’s consolidated financial statements.

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In July 2010, the FASB issued new standards which amend the receivable disclosure requirements, including the credit quality of financing receivables and the allowance for credit losses. These standards require additional disclosures that will facilitate financial statement user’s evaluation of the nature of credit risk inherent in financing receivables, how that risk is analyzed in arriving at the allowance for credit losses, and the reason for any changes in the allowance for credit losses. These new standards are required to be adopted for interim and annual reporting periods beginning on or after December 15, 2010. The Company adopted these standards which did not have a material impact on the Company’s consolidated financial statements.


3.	Inventories

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


	2010		2009

Raw materials	$	3,221	$	4,046
Work in process		149		292
Finished goods		349		541

Total	$	3,719	$	4,879

During 2010 and 2009, the Company recorded $1.8 million and $878,000, respectively, of inventory write-offs associated with excess and obsolete material related to a rapid drop in sales of a legacy product for a major customer’s radio platform.


4.	Note Receivable

During the third quarter of 2008, the Company was issued a note receivable by one of its customers, Allgon Microwave Corporation AB (“Allgon”), which previously failed to meet the terms of its account payable to the Company. The note was in the principal amount of $545,000, with payments of $25,000 due on a weekly basis. The note was to be paid in full by the end of the first quarter of 2009.

During the third and fourth quarters of 2008, Allgon made the first five payments under the note. However, during the fourth quarter of 2008, Allgon went in default on the note and filed for bankruptcy protection. At the time of default, the note receivable balance was $420,000. Based on Allgon’s bankruptcy liquidation and the related estimates of payments to Allgon’s creditors, the Company reserved 100% or $420,000 of the remaining balance of the note receivable.

Subsequent to Allgon’s default on the note receivable, the Company filed a complaint alleging that Allgon’s parent company, Advantech Advanced Microwave Technologies Inc. of Montreal, Canada (“Advantech”), had breached its contractual obligations with the Company and owes the Company $994,500, including the note receivable, purchased inventory and authorized and accepted purchase orders resulting in shippable finished goods. See additional discussion at Note 10, Commitments and Contingencies.

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


5.	Property and Equipment

Property and equipment consist of the following at December 31 (in thousands):


	2010			2009

Machinery and equipment	$	9,276		$	8,135
Software		1,065			1,064
Leasehold improvements		605			605

		10,946			9,804
Less accumulated depreciation		(8,898	)		(8,008	)

Property and equipment, net	$	2,048		$	1,796

During the first quarter of 2009, the Company occupied a lease in Salem, New Hampshire. For this property, the Company capitalized $99,000 of leasehold improvements that will be depreciated over the remaining life of the lease ending in 2013.

During the third quarter of 2006, the Company moved its corporate headquarters to San Jose, California. For this property, the Company capitalized $496,000 of leasehold improvements that will be depreciated over the remaining life of the lease ending in 2011.

During the second quarter of 2004, the Company finalized the sale of its land and buildings located in Diamond Springs, California. The Company received $4.3 million for the land and buildings, net of related closing costs and legal fees. The net book value of the property on the date of sale was $3.5 million. At the time of the closing, the Company entered into a five-year operating lease with the new owner for one of the buildings. As a result of the sale-leaseback transaction, the Company recognized a gain of $770,000 on a straight-line basis over the term of the lease, which expired in June 2009. Deferred gain recognized on the sale-leaseback was approximately $76,000 and $154,000 for the years ended December 31, 2009 and 2008, respectively, and is included in interest and other income, net in the consolidated statements of operations. There was no such deferred gain in 2010.

At December 31, 2010, the Company had $36,000 of capital leased equipment with an accumulated depreciation of $34,000, which is included in machinery and equipment. At December 31, 2009, the Company had $36,000 of capital leased equipment with an accumulated depreciation of $25,000, which is included in machinery and equipment.


6.	Segment Disclosures

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


	2010				2009				2008

United States	$	4,015	24.0	%	$	605	3.1	%	$	1,064	2.7	%
Finland		10	0.1	%		9,997	51.3	%		31,266	80.8	%
Germany		8,451	50.6	%		3,567	18.3	%		—	0.0	%
Hungary		855	5.1	%		1,595	8.2	%		1,223	3.2	%
Slovakia		2,908	17.4	%		3,478	17.8	%		3,288	8.5	%
Rest of the world		477	2.8	%		260	1.3	%		1,845	4.8	%

Total	$	16,716	100.0	%	$	19,502	100.0	%	$	38,686	100.0	%

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

At December 31, 2010, 45% and 55% of the Company’s net book value of its long-lived assets were located in the United States of America and Thailand, respectively. At December 31, 2009, 70% and 30% of the Company’s net book value of its long-lived assets were located in the United States of America and Thailand, respectively


7.	Stock-Based Compensation

Stock Option Exchange

2009 Exchange Offer

On August 11, 2009, the Company filed a Tender Offer Statement on Schedule TO with the Securities and Exchange Commission. The tender offer related to an offer by the Company to certain optionholders to exchange some or all of their outstanding stock option grants to purchase shares of the Company’s common stock granted under the Company’s 2007 Equity Incentive Plan with an exercise price per share greater than $5.00 for new option grants at an exchange ratio of three old options for one new option. The exchange offer was made to employees and directors of the Company who, as of the date the exchange offer commenced, were actively employed and held 1,570,938 eligible options. The exchange offer expired on September 9, 2009. 1,559,113 options participated in the exchange offer and were exchanged for 519,624 new options. The new options primarily have a two-year vesting period. All new options have an exercise price of $2.53 per share, the closing price of the Company’s common stock on September 10, 2009.

The exchange of original options for new options was treated as a modification of the original options. As such, the Company will continue to incur compensation cost for the incremental difference between the fair value of the new options and the fair value of the original options immediately before modification, reflecting the current facts and circumstances on the modification date, over the expected term of the new options. Since the incremental difference between the fair value of the new options and the fair value of the original options immediately before modification was immaterial, the $661,000 value of the options is primarily due to the carry-forward value of the old options into the new options.

2008 Exchange Offer

On January 4, 2008, the Company filed a Tender Offer Statement on Schedule TO with the Securities and Exchange Commission. The tender offer related to an offer by the Company to certain optionholders to exchange some or all of their outstanding stock option grants under the Company’s 2007 Equity Incentive Plan with an exercise price per share greater than or equal to $21.47 for new option grants. The exchange offer was made to employees and directors of the Company who, as of the date the exchange offer commenced, were actively employed by or otherwise providing services to the Company and held eligible option grants. The exchange offer expired on February 6, 2008. A total of 331,950 stock options were eligible to participate in the exchange offer and a total of 327,921 options were exchanged. The exercise price of the new option grants was $6.59, the closing price of the Company’s common stock on February 7, 2008.

The exchange of original options for new options was treated as a modification of the original options, As such, the Company will continue to incur compensation cost for the incremental difference between the fair value of the

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

new options and the fair value of the original options immediately before modification, reflecting the current facts and circumstances on the modification date, over the expected term of the new options. The incremental value related to the Exchange Offer was $607,000 prior to forfeitures.

Stock Based Compensation

Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period. All of the Company’s stock compensation is accounted for as an equity instrument.

The effect of recording stock-based compensation for the years ended December 31 was as follows (in thousands, except per share data):


	Year Ended December 31,
	2010			2009			2008

Stock-based compensation expense by type of award:
Employee stock options and restricted stock units	$	511		$	2,166		$	3,434
Employee stock purchase plan		(130	)		179			666
Amounts capitalized into inventory during the year		(6	)		(46	)		(65	)
Amounts capitalized as inventory and expensed		11			41			60

Total stock-based compensation		386			2,340			4,095
Tax effect on stock-based compensation		—			—			—

Total stock-based compensation expense	$	386		$	2,340		$	4,095

Impact on basic and diluted net income (loss) per share	$	(0.04	)	$	(0.25	)	$	(0.44	)

For the compensation cost in connection with the Company’s employee stock purchase plan for the year ended December 31, 2010, the Company recognized a benefit of $130,000 due to actual contributions being less than expected contributions for the offering period due to forfeitures.

During the year ended December 31, 2010, the Company granted options to purchase 387,900 shares of its common stock with an estimated total grant date fair value of $564,000. Of this amount, the Company estimated that the stock-based compensation for the awards not expected to vest was $94,000.

During the year ended December 31, 2010, the Company granted restricted stock units to purchase 218,000 shares of its common stock with an estimated total grant date fair value of $583,000. Of this amount, the Company estimated that the stock-based compensation for the awards not expected to vest was $65,000. The Company did not grant restricted stock units during the years ended December 31, 2009 and 2008.

During the year ended December 31, 2009, the Company granted options to purchase 1,082,924 shares of common stock, including 519,624 options granted as part of the 2009 exchange offer noted above. The 519,624 options granted as part of the 2009 exchange offer had an estimated total grant-date fair value of $661,000 or $1.27 per option. The remaining 563,300 options had an estimated total grant-date fair value of $596,000 or $1.06 per option. The total estimated grant-date fair value of all 1,082,924 options granted was $1.3 million. Of this amount, the Company estimated that the stock-based compensation expense of the awards not expected to vest was a total of $274,000.

During the three months ended June 30, 2009, the Company fully accelerated the vesting of 165,600 options in connection with the closing of the Microsemi transaction and certain restructuring activities. The Company recorded additional stock-based compensation expense of $66,000 relating to the incremental value of the fully vested modified awards.

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During the three months ended December 31, 2009, the Company fully accelerated the vesting of 223,352 options in connection with certain restructuring activities. The Company recorded additional stock-based compensation expense of $164,000 relating to the incremental value of the fully vested modified awards.

During the year ended December 31, 2008, the Company granted options to purchase 1,025,821 shares of common stock, including 327,921 options granted as part of the 2008 exchange offer noted above. The 327,921 options granted as part of the 2008 exchange offer had an estimated total grant-date fair value of $607,000 or $1.85 per option. The remaining 697,900 options had an estimated total grant-date fair value of $2.2 million or $3.20 per option. The total estimated grant-date fair value of all 1,025,821 options granted was $2.8 million. Of this amount, the Company estimated that the stock-based compensation expense of the awards not expected to vest was a total of $810,000.

As of December 31, 2010, the unrecorded stock-based compensation balance related to all stock options was $392,000, net of estimated forfeitures, and will be recognized over an estimated weighted-average employee service period of 1.3 years. As of December 31, 2010, the unrecorded stock-based compensation balance related to all restricted stock units was $290,000, net of estimated forfeitures, and will be recognized over an estimated weighted-average employee service period of 1.1 years. As of December 31, 2010, the unrecorded deferred stock-based compensation balance related to the stock purchase plan was $97,000 and will be recognized over an estimated weighted average employee service period of 0.5 years.

Valuation Assumptions

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model and the graded-vesting method with the following weighted-average assumptions:


	Year Ended December 31,
	2010			2009			2008

Stock Option Plans
Expected dividend yield		0.0	%		0.0	%		0.0	%
Expected stock price volatility		69	%		70	%		70	%
Risk free interest rate		0.51 - 2.43	%		1.43 - 2.53	%		1.80 - 3.39	%
Expected life of options in years		4.6 years			4.1 years			3.6 years

The fair value of shares under the employee stock purchase plan is estimated using the Black-Scholes valuation model and the graded-vesting method with the following weighted average assumptions:


	Year Ended December 31,
	2010			2009			2008

Employee Stock Purchase Plan
Expected dividend yield		0.0	%		0.0	%		0.0	%
Expected stock price volatility		51	%		51	%		51	%
Risk free interest rate		0.18 - 1.06	%		0.16 - 0.95	%		1.61 - 4.74	%
Expected life of options in years		1.2 years			1.2 years			1.1 - 1.2 years

The dividend yield of zero is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. Expected volatility is based on the combination of historical volatility of the Company’s common stock over the period commensurate with the expected life of the options and other factors. The risk-free interest rates are taken from the Daily Federal Yield Curve Rates as of the grant dates as published by the Federal Reserve and represent the yields on actively traded Treasury securities for terms equal to the expected term of the options. The expected term calculation is based on the Company’s observed historical option exercise behavior and post-vesting forfeitures of options by employees.

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The weighted average grant date fair value for options granted during 2010, 2009, and 2008 was $1.45, $1.16, and $2.77, per share, respectively. The total intrinsic value of options exercised during the years ended December 31, 2010, 2009, 2008 was $55,000, $145,000, $7,000, respectively.

The weighted average grant date fair value of purchase rights granted under the employee stock purchase plan during the year was $0.72, $0.59, $1.17, for 2010, 2009, and 2008, respectively.


8.	Stockholders’ Equity

Preferred Stock and Warrant Purchase Agreement

The Company had 5,000,000 shares of convertible preferred stock authorized as of December 31, 2010 and 2009.

In April 2006, the Company entered into a purchase agreement with Oak Investment Partners XI, Limited Partnership (“Oak”). Pursuant to the purchase agreement, Oak purchased 300,000 shares of the Company’s Series B preferred stock, par value $0.001 per share, for $150 per preferred share, or a total of $45.0 million. The preferred shares were convertible initially into 3,000,000 shares of common stock, for an effective purchase price of $15 per common share equivalent. The Company also issued Oak a warrant granting Oak the right to purchase an additional 90,000 shares of Series B preferred stock at an exercise price of $150 per share. The warrant expired on April 24, 2009. The Company received net proceeds of $43.1 million from the sale of the Series B preferred stock and the warrant after the payment of legal fees and other expenses, including commissions.

On January 21, 2010, the Company repurchased all 300,000 outstanding shares of its preferred stock held by Oak for $120 per share, or a total of $36.0 million in cash. The total cost of the repurchase was $36.2 million, which included fees and expenses. The 300,000 outstanding shares represented 3,000,000 shares of Endwave common stock on an as-converted basis. Such shares had entitled Oak to a liquidation preference equal to its original investment of $45.0 million before any proceeds from a liquidation or sale of the Company would have been paid to the holders of Endwave’s common stock. In connection with the share repurchase, Eric Stonestrom, Oak’s designee to Endwave’s board of directors, resigned from the board of directors.

Since the Company repurchased the preferred stock for official retirement, the excess of the stated value, $43.1 million, over the effective repurchase price of $36.2 million was credited to additional paid-in capital.

Common Stock

At December 31, 2010, the Company had reserved 4,574,072 shares of common stock for issuance in connection with its stock option plans, and 446,473 shares in connection with its employee stock purchase plan.

Employee Stock Purchase Plan

In October 2000, the Company established the Endwave Corporation Employee Stock Purchase Plan (“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. 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 purchase period under the Purchase Plan. The price paid for the Company’s common stock purchased under the Purchase 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 Purchase Plan or the date of purchase.

During 2010, there were 64,390 shares issued under the Purchase Plan at a weighted average price of $2.01 per share. During 2009, there were 141,235 shares issued under the Purchase Plan at a weighted average price of $2.25 per share. During 2008, there were 207,222 shares issued under the Purchase Plan at a weighted average price of $3.82 per share.

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock Option Plans

The Company’s 2000 Stock Option Plan (the “2000 Plan”) was adopted in March 2000, amended in July 2000, and in July 2007 was succeeded by the 2007 Equity Incentive Plan. All shares reserved for issuance under the 2000 Plan were carried over into the 2007 Plan.

The Company’s 2007 Equity Incentive Plan (the “2007 Plan”) was adopted in July 2007 as the successor and continuation of the 2000 Plan and provides for the issuance of options to purchase common stock to directors, employees, and consultants. The 2007 Plan provides for annual reserve increases to the number of authorized shares beginning January 1, 2008 through January 1, 2012. Under the 2007 Plan, incentive stock options are granted under the plan at exercise prices not less than fair value and non-statutory stock options are granted at an exercise price not less than 85% of the fair value on the date of grant, as determined by the closing sales price of the Company’s common stock. Options granted under the 2007 Plan generally have a ten-year term. Options vest and become exercisable as specified in each individual’s option agreement, generally over a two to four year period. Subject to approval by the Company’s board of directors, options may be exercised early; however, in such event the unvested shares are subject to a repurchase option by the Company upon termination of the individual’s employment or services. As of December 31, 2010, the 2007 Plan provides for the issuance of up to 1,432,987 shares of common stock to directors, employees and consultants upon the exercise of options outstanding.

The Company’s 2000 Non-Employee Directors’ Stock Option Plan (“Director Plan”) was adopted in October 2000 and terminated in October 2010, such that no further options could be granted thereunder. No options remain outstanding in the 2000 Director Plan.

The Company granted restricted stock units to non-employee directors to purchase 30,000 shares of the Company’s common stock under the 2007 Plan for the year ended December 31, 2010.

The Company granted options to non-employee directors to purchase 117,143 and 60,000 shares of the Company’s common stock under the 2007 Plan for the years ended December 31, 2009 and 2008, respectively.

The Company’s equity incentive program is a broad-based, long-term retention program designed to align stockholder and employee interests. Upon exercise of stock options, the Company issues shares from the shares reserved under the Company’s stock option plans.

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes stock option activity under the equity incentive plans for the indicated periods:


						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Shares			Price		Term (Years)		Value
								(In thousands)

Outstanding at December 31, 2007		2,465,436			1.91
Options granted		1,025,821			6.44
Options exercised		(2,748	)		1.90
Options cancelled		(479,592	)		23.66

Outstanding at December 31, 2008		3,008,917			9.23
Options granted		1,082,924			2.21
Options exercised		(198,079	)		1.67
Options cancelled		(2,883,201	)		9.54

Outstanding at December 31, 2009		1,010,561			2.31
Options granted		387,900			2.61
Options exercised		(83,538	)		2.06
Options cancelled		(86,736	)		2.81

Outstanding at December 31, 2010		1,228,187		$	2.39		6.88	$	155

Options vested and exercisable and expected to be exercisable at December 31, 2010		1,172,967		$	2.39		6.77	$	151
Options vested and exercisable at December 31, 2010		681,146		$	2.35		5.23	$	110

The following table summarizes information concerning outstanding and exercisable options:


							Options Vested and
							Exercisable
							At December 31,
	Options Outstanding at December 31, 2010						2010
					Weighted-
			Weighted-		Average
			Average		Remaining				Weighted-
			Exercise		Contractual				Average
Range of Exercise Price	Shares		Price		Life		Shares		Exercise Price

$0.76 - $1.21		11,183	$	1.13		2.00		11,183	$	1.13
$1.81 - $1.81		271,026	$	1.81		5.46		175,036	$	1.81
$1.93 - $2.32		129,209	$	2.19		7.39		42,602	$	1.93
$2.40 - $2.40		43,000	$	2.40		8.58		15,937	$	2.40
$2.53 - $2.53		453,269	$	2.53		6.15		342,825	$	2.53
$2.55 - $2.55		30,300	$	2.55		8.34		30,112	$	2.55
$2.65 - $2.65		252,444	$	2.65		9.04		48,480	$	2.65
$2.92 - $13.23		37,756	$	4.00		7.92		14,971	$	5.10

		1,228,187	$	2.39		6.88		681,146	$	2.35

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes the restricted stock unit activity for the indicated periods:


						Weighted-
				Weighted-		Average
				Average		Remaining		Aggregate
	Number of			Grant Date		Contractual		Intrinsic
	Shares			Fair Value		Term (Years)		Value
								(In thousands)

Outstanding at December 31, 2009		—		$	0.00
Awarded		218,000			2.67
Released		—			0.00
Forfeited		(13,200	)		2.61

Outstanding at December 31, 2010		204,800		$	2.68		0.68	$	467

At December 31, 2010, the Company had 193,765 restricted stock units vested and expected to vest with a weighted average remaining contractual term of 0.67 years and an aggregate intrinsic value of $442,000.

At December 31, 2010, the Company had 4,574,072 options available for grant under its stock option plans. For the year ended December 31, 2010, 62 options expired.

At December 31, 2009 and 2008, options to purchase 439,125 and 1,585,385 shares of common stock were exercisable at weighted average exercise prices of $2.24 and $9.77 per share, respectively.


9.	Restructuring

During the first quarter of 2009, the Company undertook certain restructuring activities to reduce expenses. The components of the restructuring charge included severance, benefits, payroll taxes and other costs associated with employee terminations. The net charge for these restructuring activities was $1.2 million and all cash payments have been made. Of this amount, approximately $182,000 has been included in the discontinued operations line item on the consolidated statements of operations.

During the second quarter of 2009, the Company undertook certain additional restructuring activities to reduce expenses. The components of the restructuring charge included severance, benefits, payroll taxes and other costs associated with employee terminations. The net charge for these restructuring activities was $243,000 and all cash payments have been made. Of this amount, approximately $39,000 has been included in the discontinued operations line item on the consolidated statements of operations.

During the fourth quarter of 2009, the Company undertook certain additional restructuring activities, including the departure of a senior executive, to reduce expenses. The components of the restructuring charge included severance, benefits, payroll taxes and other costs associated with employee terminations. The net charge for these restructuring activities was $1.2 million. The remaining restructuring liability of $665,000 at December 31, 2010 is expected to be substantially paid by the end of the third quarter of 2012.

During the third quarter of 2010, the Company undertook certain additional restructuring activities to reduce expenses. The components of the restructuring charge included severance, benefits, payroll taxes and other costs associated with an employee termination. The net charge for these restructuring activities was $63,000 and all cash payments have been made.

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Changes in all of the Company’s restructuring liabilities discussed are summarized as follows (in thousands):


	2010			2009
	(In thousands)

Balance at January 1	$	1,208		$	—
Restructuring charge		63			2,705
Cash payments		(638	)		(1,421	)
Imputed interest		46			—
Restructuring charge adjustment		(14	)		(76	)

Balance at December 31	$	665		$	1,208

At December 31, 2010, $431,000 and $234,000 of accrued restructuring charges are included in current liabilities and long-term liabilities, respectively, on the consolidated balance sheet. At December 31, 2009, $570,000 and $638,000 of accrued restructuring charges are included in current liabilities and long-term liabilities, respectively, on the consolidated balance sheet. The restructuring liability related to a senior executive was recorded at its fair value based on an assumed interest rate of 5.0%, which represents the current market rate of interest at which the Company could borrow, due to the long-term nature of the liability.

The Company will recognize interest expense associated with amortizing the $77,000 discount on this liability over the 30 month term of the restructuring payout. During the year ended December 31, 2010, the Company recognized interest expense of $46,000. The amount related to 2009 was insignificant.

The Company’s restructuring estimates will be reviewed and revised quarterly and may result in an increase or decrease to restructuring charges. During the first quarter of 2010, the Company recorded a $14,000 positive adjustment as a result of lower benefit charges in connection with the first quarter 2009 restructuring plan than were originally anticipated.


10.	Commitments and Contingencies

Commitments

The Company leases its office, manufacturing and design facilities in San Jose, California, Chiang Mai, Thailand, Salem, New Hampshire and Folsom, California under non-cancelable lease agreements, which expire in various periods through November 2013. Rent expense under the operating leases was approximately $675,000, $692,000 and $616,000 for the years ended December 31, 2010, 2009 and 2008 respectively.

Future annual minimum lease payments under non-cancelable operating leases with initial terms of one year or more as of December 31, 2010 are as follows (in thousands):


Years Ending December 31,

2011	$	443
2012		178
2013		117

Total	$	738

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Future annual minimum lease payments under non-cancelable capital leases as of December 31, 2010 are as follows (in thousands):


Years Ending December 31,

2011	$	2
Less amount representing interest		—

Present value of future minimum lease payments		2
Less current portion		2

Long-term portion	$	—

The amounts due under capital leases are included in other current and long-term liabilities on the consolidated balance sheet.

Purchase Obligations

The Company has purchase obligations to certain suppliers. In some cases the products the Company purchases are unique and have provisions against cancellation of the order. At December 31, 2010, the Company had approximately $1.4 million of purchase obligations which are due within the following 12 months. This amount does not include contractual obligations recorded on the consolidated balance sheets as liabilities.

Contingencies

On October 31, 2008, the Company filed a complaint with the Canadian Superior Court in Montreal, Quebec alleging that Advantech, the parent company of Allgon Microwave Corporation AB, had breached its contractual obligations with Endwave and owes the Company $994,500 in a note receivable, purchased inventory and accepted purchase orders. The Company cannot predict the outcome of these proceedings. An adverse decision in these proceedings could harm the Company’s consolidated financial position and results of operations. Other than the complaint against Advantech, the Company is not currently a party to any material litigation.


11.	Discontinued Operations

On April 30, 2009, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Microsemi, pursuant to which Microsemi purchased the Company’s Defense and Security RF module business including all of the outstanding capital stock of Endwave Defense Systems, Incorporated (“EDSI”). As consideration, Microsemi assumed certain liabilities associated exclusively with the Defense and Security RF module business, including the Company’s building lease in Folsom, California, and paid $28.0 million in cash. The Purchase Agreement contains representations and warranties as to the Defense and Security RF module business that survive for two years following the closing. In connection with the transaction, the Company entered into an indemnification agreement pursuant to which the Company agreed to indemnify Microsemi for environmental, product liability and intellectual property infringement claims related to the Company’s operation of the Defense and Security RF module business prior to the closing date, as well as for any other excluded liability, and Microsemi agreed to indemnify the Company for any claims related to the operation of the Defense and Security RF module business following the closing date and for any other assumed liability, subject in some cases to a customary deductible and limitation on maximum damages.

Concurrently with the closing of the acquisition, the Company entered into a transition services agreement and an employee transition services agreement with Microsemi pursuant to which the Company agreed to provide to Microsemi for a limited period of time certain transitional services, including accounting, human resources, information technology and product supply services.

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company classified the results of the Defense and Security RF module business as a discontinued operation in the Company’s consolidated statements of operations for all periods presented. The results of operations for the Defense and Security RF module business classified as discontinued operations are as follows (in thousands):


	2009			2008

Revenues of discontinued operations	$	5,313		$	19,558

Loss from discontinued operations		(2,028	)		(10,787	)
Gain on sale of discontinued operations, net of tax		19,599			—

Net income (loss) from discontinued operations, net of tax	$	17,571		$	(10,787	)

The $19.6 million gain on sale of discontinued operations, net of tax, included the following: $28.0 million of cash received from Microsemi offset by $647,000 of deal fees, $9.1 million of assets transferred to Microsemi and $1.3 million of liabilities assumed by Microsemi.


12.	Income Taxes

Consolidated loss before income tax expense (benefit) includes non-U.S. loss of approximately $904,000, $804,000 and $853,000 for the years ended December 31, 2010, 2009 and 2008, respectively. The Company recorded a current tax benefit of $0, $105,000 and $66,000 for year ended December 31, 2010, 2009 and 2008, respectively.


	Years Ended December 31,
	2010		2009			2008

Current income tax expense (benefit):
Federal	$	—	$	(105	)	$	(57	)
State		—		—			(9	)

		—		(105	)		(66	)

Deferred income tax expense (benefit):
Federal		—		—			—
State		—		—			—

	$	—	$	(105	)	$	(66	)

As of December 31, 2010, the Company had a federal net operating loss carryforward of approximately $205.6 million. The Company also had federal research and development tax credit carryforwards of approximately $2.2 million. These net operating loss and credit carryforwards are currently expiring and will continue to do so through 2030, if not utilized.

As of December 31, 2010, the Company had a state net operating loss carryforward of approximately $82.2 million. The net operating losses will begin expiring in 2012, if not utilized. The Company also has state research and development tax credit carryforwards and miscellaneous credit carryforwards of approximately $2.4 million. The credits will carryforward indefinitely, if not utilized.

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

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

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

income tax purposes. Significant components of the Company’s net deferred tax assets and liabilities for federal and state income taxes are as follows at December 31 (in thousands):


	2010			2009

Deferred tax assets:
Net operating loss carryforwards	$	67,593		$	65,302
Net research credit		1,826			1,830
Other		6,437			7,422

Total deferred tax assets		75,856			74,554
Valuation allowance for deferred tax assets		(75,856	)		(74,554	)

Net deferred tax assets (liabilities)	$	—		$	—

Realization of deferred tax assets is 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 $1.3 million during 2010, decreased by $7.9 million during 2009 and increased by $3.9 million during 2008, respectively.

The Company is tracking the portion of its deferred tax assets attributable to stock option benefits in a separate memo account. Therefore, these amounts are no longer included in our gross or net deferred tax assets. The benefit of these stock options will only be recorded to equity when they reduce cash taxes payable. As of December 31, 2010, the Company had federal and state net operating loss carryforwards being accounted for in this memo account of $22.4 million.

The Company’s income tax expense (benefit) differed from the amount computed by applying the statutory U.S. federal income tax rate to the loss before income taxes as follows (in thousands):


	2010			2009			2008
	(In thousands)

Expense (benefit) from income taxes at statutory rate	$	(2,834	)	$	2,394		$	(5,186	)
State taxes		—			—			(9	)
Losses for which no benefit is taken		2,920			1,380			3,757
Non-deductible stock compensation		—			68			295
Sale of discontinued operation		—			(3,646	)		—
Goodwill impairment		—			—			1,045
Other		(86	)		(301	)		32

Total	$	—		$	(105	)	$	(66	)

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The aggregate changes in the balance of gross unrecognized tax benefits during the year were as follows (in thousands):


	Total
	(In
	thousands)

Balance at December 31, 2007	$	2,617
Increases related to current year tax positions		54
Increases related to prior year tax positions		37
Decreases related to prior year tax positions		—

Balance at December 31, 2008		2,708
Increases related to current year tax positions		95
Increases related to prior year tax positions		34
Decreases related to prior year tax positions		(330	)

Balance at December 31, 2009		2,507
Increases related to current year tax positions		64
Increases related to prior year tax positions		17
Decreases related to prior year tax positions		(67	)

Balance at December 31, 2010	$	2,521

If the ending balance of $2.5 million of unrecognized tax benefits at December 31, 2010 were recognized, approximately $124,000 would affect the effective income tax rate. In accordance with the Company’s accounting policy, it recognizes interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2010, the Company had no accrued interest and/or penalties. The Company does not anticipate a significant change to its unrecognized tax benefits over the next twelve months. The unrecognized tax benefits may change during the next year for items that arise in the ordinary course of business.

The Company files U.S. federal and state income tax returns. Tax years 1994 through 2010 remain subject to examination by the appropriate government agencies due to tax loss carryovers from those years.


13.	401(k) Plan

Substantially all U.S. 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 the maximum amount allowed under the Internal Revenue Code. The Company may match contributions based upon a percentage of employee contributions up to a maximum of 4% of employee compensation. Company contributions under these plans were $0, $71,000 and $281,000 for 2010, 2009 and 2008, respectively. During 2009, the Company suspended its match of contributions.

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


14.	Quarterly Financial Information (unaudited)


	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
	(In thousands, except per share data)

2010:
Total revenues	$	4,834		$	3,753		$	4,058		$	4,071
Cost of product revenues		3,391			4,036			3,169			3,406
Net loss(1)		(1,283	)		(2,814	)		(1,999	)		(1,996	)
Basic and diluted net loss per share(1)	$	(0.13	)	$	(0.29	)	$	(0.20	)	$	(0.20	)
2009:
Total revenues	$	7,242		$	5,580		$	3,126		$	3,554
Cost of product revenues		4,819			4,237			2,369			3,366
Loss from continuing operations(2)		(2,593	)		(1,957	)		(2,634	)		(3,442	)
Income (loss) from discontinued operations		(1,067	)		18,597			41			—
Net income (loss)(2)		(3,660	)		16,640			(2,593	)		(3,442	)
Basic and diluted net income (loss) per share(2)	$	(0.39	)	$	1.76		$	(0.27	)	$	(0.36	)


(1)		During the first and second quarters of 2010, the Company incurred $300,000 and $1.5 million, respectively, of inventory write-offs associated with excess and obsolete material related to a rapid drop in sales of a legacy product for a major customer’s radio platform.

(2)		During the fourth quarter of 2009, the Company incurred $878,000 of inventory write-offs associated with excess and obsolete material related to a rapid drop in sales of a legacy product for a major customer’s radio platform.


15.	Subsequent Events

Proposed Merger with GigOptix

On February 4, 2011, Endwave entered into an Agreement and Plan of Merger with GigOptix and Aerie Acquisition Corporation, a wholly-owned subsidiary of GigOptix, pursuant to which Merger Subsidiary will, subject to the satisfaction or waiver of the conditions therein, merge with and into Endwave, the separate corporate existence of Merger Subsidiary shall cease and Endwave will be the surviving corporation of the merger and a wholly-owned subsidiary of GigOptix. This agreement is referred to as the Merger Agreement and the proposed merger contemplated by the Merger Agreement as the Merger.

Upon the consummation of the Merger, (i) the outstanding shares of Endwave common stock will be converted into the right to receive an aggregate number of shares of GigOptix common stock equal to the product of (.425/.575) and the number of shares of GigOptix common stock outstanding immediately prior to consummation of the Merger, less 42.5% of the shares described in clause (ii) of this sentence and (ii) in-the-money options to acquire Endwave common stock outstanding immediately prior to the consummation of the Merger will be converted into that number of shares of GigOptix common stock determined by dividing the spread value of such options at closing by the closing price of GigOptix’s common stock on the trading day prior to closing, such that following the Merger, the pre-Merger holders of common stock and restricted stock units will own that number of shares equal to 42.5% of the outstanding stock of the combined company, less 42.5% of the shares issued in respect of Endwave stock options.

ENDWAVE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Merger Agreement contains customary “no-solicitation” covenants pursuant to which neither Endwave nor GigOptix is permitted to solicit any alternative acquisition proposals, provide any information to any person in connection with any alternative acquisition proposal, participate in any discussions or negotiations relating to any alternative acquisition proposal, approve, endorse or recommend any alternative acquisition proposal, or enter into any agreement relating to any alternative acquisition proposal. The “no-solicitation” provision is subject to certain exceptions that permit the Board of Directors of each of Endwave and GigOptix, as the case may be, to comply with their respective fiduciary duties, which, under certain circumstances, would enable Endwave or GigOptix, as the case may be, to provide information to, and engage in discussions or negotiations with, third parties with respect to alternative acquisition proposals.

The Merger which is subject to regulatory approvals as well as approvals by the stockholders of Endwave is not expected to close before the second quarter of 2011.

2011 Restructuring

During the first quarter of 2011, the Company will undertake certain restructuring activities to reduce expenses. The Company announced its plan to terminate the employment of a total of 14 employees and is closing its facilities in Salem, New Hampshire and Folsom, California in order to reduce the Company’s cost structure. These terminations will affect all areas of the Company’s operations. The components of the expected restructuring charge include facilities, severance, benefits, payroll taxes, acceleration of certain stock awards for the affected personnel, and other costs associated with these activities. The Company is expected to incur cash charges of approximately $700,000 and the payments are expected to be substantially completed by the end of the second quarter of 2011.


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

Not applicable.


Item 9A.	*Controls and Procedures*

Evaluation of Disclosure Controls and Procedures

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

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

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls can provide only reasonable assurances with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control may vary over time.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control — Integrated Framework. Based on its assessment using those criteria, our management concluded that, as of December 31, 2010, our internal control over financial reporting is effective.

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


Item 9B.	*Other Information*

Not applicable

PART III


Item 10.	*Directors, Executive Officers and Corporate Governance*

Our directors and executive officers, their ages as of January 31, 2011 and their positions with us, as well as certain biographical information of these individuals, are as follows:


Name	Age		Position

John J. Mikulsky		65	Chief Executive Officer, President and Director
Curt P. Sacks		40	Chief Financial Officer, Senior Vice President and Secretary
Steven F. Layton		56	Senior Vice President of Sales and Marketing
Daniel P. Teuthorn		47	Senior Vice President of Product Development and Operations
Joseph J. Lazzara(1)(2)(3)		59	Director
John F. McGrath, Jr.(1)(2)(3)		46	Director
Wade Meyercord(1)(2)(3)		70	Chairman of the Board of Directors


(1)		Member of the Audit Committee

(2)		Member of the Nominating and Governance Committee

(3)		Member of the Compensation Committee

The biographies of each of the directors below contain information regarding the person’s service as a director, business experience, director positions held currently or at any time during the last five years, and the experiences, qualifications, attributes or skills that caused the Nominating and Governance Committee of the Board to determine that the person should serve as a director for the Company. The Nominating and Governance Committee of the Board considers a number of factors to determine the qualifications of prospective Board members including the integrity, experience, judgment, commitment, skills and expertise appropriate for the Company.

John J. Mikulsky has served as our President and Chief Executive Officer since December 1, 2009. From August 2005 until November 2009, Mr. Mikulsky served as our Chief Operating Officer and Executive Vice President. From May 2001 until August 2005, Mr. Mikulsky served as our Chief Marketing Officer and Executive Vice President, Marketing and Business Development. From May 1996 until April 2001, Mr. Mikulsky served as our Vice President of Product Development. From 1993 until 1996, Mr. Mikulsky worked as a Technology Manager for Balazs Analytical Laboratory, a provider of analytical services to the semiconductor and disk drive industries. Prior to 1993, Mr. Mikulsky worked at Raychem Corporation, most recently as a Division Manager for its 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 S.M. in Management from the Sloan School at the Massachusetts Institute of Technology. We believe Mr. Mikulsky’s extensive industry knowledge and experience, including his nearly 14 years at Endwave as a Vice President and an Officer, in both technical and leadership roles, qualify him to sit on our Board of Directors.

Curt P. Sacks has served as Chief Financial Officer since June 2009. Prior to that, he served as Vice President of Finance and Corporate Controller since February 2006. He joined the company in 2004 as Corporate Controller, after serving in this capacity for two successive companies — first, for Com21, Inc., a manufacturer of system solutions for the broadband access market; and next with Finisar, Inc., a manufacturer of high-speed communication equipment for data and storage. Prior to 1998, Mr. Sacks worked in corporate finance at 3Com Corporation and as an auditor for Deloitte & Touche LLP. Mr. Sacks is a C.P.A. (inactive) in California with a B.A. in Business-Economics from the University of California, Los Angeles.

Steven F. Layton has served as Senior Vice President of Sales and Marketing, reporting to John Mikulsky, CEO since December 2009. Mr. Layton is responsible for all sales and marketing activities, including marketing communications and manufacturing of our independent representative network. Mr. Layton served as Senior Vice President of Telecom from 2005 to 2009. From 2003 to 2005, Mr. Layton served as Vice President of Sales for Endwave. He joined Endwave in 1998 as Director of Sales with over 20 years of engineering sales experience in the

microwave/millimeter wave telecommunications industry. Prior to Endwave, Mr. Layton was the Director of Sales for VertiCom, Inc. from 1995 to 1998 where he was responsible for establishing sales channels and launching products for the SatCOM and terrestrial communications markets. Mr. Layton holds a B.S. in engineering from the University of Hawaii and a B.S. in business from the University of Maryland. Mr. Layton is a graduate of the Stanford Executive Institute and Harvard General Management Program.

Daniel P. Teuthorn has served as Senior Vice President of Product Development & Operations, reporting to John Mikulsky, CEO since December 2009. On the technology side, Mr. Teuthorn is responsible for setting the technology strategy, product roadmap, and the overall management of the Endwave product development and advanced device design teams. On the operations side, Mr. Teuthorn is responsible for Endwave’s order fulfillment, inventory, supplier management, and quality assurance activities. Since joining Endwave in 1994, Mr. Teuthorn has progressed in his responsibilities, holding Engineering Manager, Director of Engineering and Vice President of Engineering positions. Prior to Endwave, from 1989 to 1994, Mr. Teuthorn was the Senior Microwave Engineer responsible for the YIG oscillator product line at Ferretec Inc. Mr. Teuthorn began his career at Litton Solid State in the position of Microwave Engineer from 1986 to 1989. Mr. Teuthorn holds a B.S. in electrical engineering from the University of California, Davis, an M.S. in electrical engineering from Santa Clara University, and M.B.A. degrees from the Haas School of Business at the University of California, Berkeley, and the Columbia Business School at Columbia University.

Joseph J. Lazzara has served as a director of Endwave since February 2004. From September 2006 to March 2008, Mr. Lazzara served as the Vice Chairman and a director of Omron Scientific Technologies, Inc. (formerly Scientific Technologies, Inc. (NASDAQ: STIZ)), a manufacturer of factory automation sensors and machine safeguarding products acquired by Omron Corporation in September 2006. Prior to the acquisition of Scientific Technologies, Mr. Lazzara served as President and Chief Executive Officer between 1993 and 2006, as the President of Scientific Technologies between 1989 and 1993 and as the Treasurer and a director of Scientific Technologies between 1984 and 2006. Mr. Lazzara also served as a Vice President of Scientific Technologies between September 1984 and June 1989. Since 2006, Mr. Lazzara also serves as the Vice Chairman and Director of Automation Products Group, Inc., a privately held manufacturer of automation sensors. He also served as Treasurer and a director of Scientific Technologies’ parent company, Scientific Technology Incorporated, from 1981 and 2006. Prior to 1981, Mr. Lazzara was employed by Hewlett-Packard Company, a global technology solutions provider, in Process and Engineering Management. Mr. Lazzara received a B.S. in Engineering from Purdue University and an M.B.A. from Santa Clara University. We believe that Mr. Lazzara’s extensive business expertise, both as the Chief Executive Officer and Board Member of a publicly traded company as well as his technical background qualify him to sit on our Board of Directors.

John F. McGrath, Jr. has served as a director of Endwave since January 2005. Mr. McGrath is the Chief Investment Officer at Kleiner Perkins Caufield & Byers (“KPCB”), a leading venture capital firm. Prior to KPCB, Mr. McGrath served as Vice President and Chief Financial Officer for Network Equipment Technologies, Inc., a position he held from 2001 to 2009. Prior experience includes Vice President of Finance for Aspect Communications, Director of Finance for TCSI Corporation, and Manager in the High Technology and Manufacturing practice at Ernst & Young. Mr. McGrath is registered C.P.A. (inactive) in the State of California and holds a B.S. in Accounting from the University of Wyoming and an M.B.A. from the Stanford Graduate School of Business. Mr. McGrath has previously served on the board of the Presidio Fund, a publicly traded mutual fund, and also served as Audit Committee Chairman on the board of Actel Corporation. We believe that Mr. McGrath’s financial expertise working as the Chief Financial Officer of a publicly traded company, his service as the Audit Committee Chair of another company and his background as a C.P.A. qualify him to sit on our Board of Directors.

Wade Meyercord has served as a director of Endwave since March 2004. From 1987 to present, Mr. Meyercord has served as President of Meyercord and Associates, a consulting firm specializing in board of directors and executive compensation. From 1999 to 2002, Mr. Meyercord served as Senior Vice President and Chief Financial Officer of RioPort.com, Inc., a company that delivered an integrated, secure platform for acquiring, managing and experiencing music and spoken audio programming from the Internet. RioPort was acquired by another private company in 2002. From 1998 to 1999, Mr. Meyercord served as Senior Vice President, e-commerce of Diamond Multimedia. Prior to 1998, Mr. Meyercord held various executive level positions with Read-Rite Corporation, Memorex Corporation and IBM Corporation. Mr. Meyercord received a B.S. in mechanical engineering from

Purdue University and an M.B.A. in engineering administration from Syracuse University. Mr. Meyercord serves as a member of the Board of Directors of Microchip Technology Inc. Mr. Meyercord also has served as a member on the Board of Directors of Magma Design Automation and California Micro Devices, which was acquired by ON Semiconductor in 2010. We believe that Mr. Meyercord’s extensive business expertise, both as a key executive with a number of large technology companies and as a Chief Financial Officer qualify him to sit on our Board of Directors.

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 our Board of Directors. No director has a contractual right to serve as a member of our Board of Directors. Other than Mr. Mikulsky, all of our directors are “independent” within the meaning of the NASDAQ Stock Market listing requirements and the requirements of the Securities and Exchange Commission.

We have a staggered Board of Directors, which may have the effect of deterring hostile takeovers or delaying changes in control of our management. For purposes of determining their term of office, directors are divided into three classes, with the term of office of the Class I directors to expire at our 2013 annual meeting of stockholders, the term of office of the Class II directors to expire at our 2011 annual meeting of stockholders and the term of office of the Class III directors to expire at our 2012 annual meeting of stockholders. Class I consists of Mr. Lazzara; Class II consists of Messrs. Meyercord and McGrath; and Class III consists of Mr. Mikulsky. Directors elected to succeed those directors whose terms expire will be elected to a three-year term of office. All directors hold office until the next annual meeting of stockholders in the year in which their terms expire and until their successors have been duly elected and qualified.

Section 16(a) Beneficial Ownership Reporting Compliance

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

To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations, no other reports were required. During the fiscal year ended December 31, 2010, our officers, directors and greater than ten percent beneficial owners complied with all applicable Section 16(a) filing requirements.

Committees of the Board of Directors

Our Board of Directors has three committees: an Audit Committee, a Compensation Committee and a Nominating and Governance Committee. Below is a description of each committee of our Board of Directors. Each of the committees has authority to engage legal counsel or other experts or consultants, as it deems appropriate, to carry out its responsibilities. Our Board of Directors has determined that each member of each committee meets the applicable rules and regulations regarding “independence” and that each member is free of any relationship that would interfere with his or her individual exercise of independent judgment with regard to Endwave.

Audit Committee

The Audit Committee of the Board of Directors was established by the Board in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 to oversee our corporate accounting and financial reporting processes and audits of our financial statements. For this purpose, the Audit Committee performs several functions. The Audit Committee evaluates the performance of and assesses the qualifications of our independent registered public accounting firm; determines and approves the engagement of our independent registered public accounting firm; determines whether to retain or terminate our existing independent registered public accounting firm or to appoint and engage a new independent registered public accounting firm; reviews and approves the retention of our independent registered public accounting firm to perform any proposed permissible non-audit services; monitors the rotation of partners of our independent registered public accounting firm on our audit

engagement team as required by law; confers with management and our independent registered public accounting firm regarding the effectiveness of internal controls over financial reporting; establishes procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters; and meets to review our annual audited financial statements and quarterly financial statements with management and our independent registered public accounting firm, including reviewing our disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The Audit Committee is composed of three non-employee directors: Messrs. Lazzara, McGrath (Chairman) and Meyercord. The Audit Committee has adopted a written charter that is available to stockholders on our website at www.endwave.com.

The Board of Directors annually reviews the NASDAQ listing standards definition of independence for Audit Committee members and has determined that all members of our Audit Committee are independent (as independence is currently defined in Rule 4350(d)(2)(A)(i) and (ii) of the NASDAQ listing standards). The Board of Directors has also determined that each of Messrs. Lazzara, McGrath and Meyercord qualifies as an “audit committee financial expert,” as defined in applicable rules promulgated by the Securities and Exchange Commission, or the SEC. The Board made a qualitative assessment of each of Messrs. Lazzara, McGrath, and Meyercord’s level of knowledge and experience based on a number of factors, including their respective formal education and financial experience for public reporting companies.

Compensation Committee

The Compensation Committee of our Board of Directors reviews and approves our overall compensation strategy and policies. The Compensation Committee reviews and approves corporate performance goals and objectives relevant to the compensation of our executive officers and other senior management; reviews and approves the compensation and other terms of employment of our Chief Executive Officer; reviews and approves the compensation and other terms of employment of our other officers; and administers our stock option and purchase plans, pension and profit sharing plans, stock bonus plans, deferred compensation plans and other similar programs. The Compensation Committee is composed of three non-employee directors: Messrs. Lazzara, McGrath and Meyercord (Chairman). All current members of our Compensation Committee are independent within the meaning of Rule 4200(a)(15) of the NASDAQ listing standards. The Compensation Committee has adopted a written charter that is available to stockholders on our website at www.endwave.com.

The responsibilities of the Compensation Committee, as stated in its charter, include the following:


	•	Developing compensation policies that will attract and retain the highest quality executives, that will clearly articulate the relationship of corporate performance to executive compensation and will reward executives for Endwave’s progress;

	•	Proposing to the Board of Directors the adoption, amendment and termination of stock option plans, stock appreciation rights plans, pension and profit sharing plan, stock bonus plans, stock purchase plans, bonus plans, deferred compensation plans and other similar plans;

	•	Granting rights, participation and interests in such plans to eligible participants, subject in certain cases to ratification by the Board;

	•	Reviewing and approving such other compensation matters as may be necessary or appropriate in view of the Compensation Committee’s overall responsibility; and

	•	Reviewing with management our Compensation Discussion and Analysis and considering whether to recommend that it be included in proxy statements and other filings.

Our Compensation Committee plays an integral role in setting executive officer compensation each year. Generally, in the first quarter of each year, our Compensation Committee holds a regular meeting in which our Chief Executive Officer and Chief Financial Officer review with the Compensation Committee Endwave’s financial and business performance for the previous year and management’s business outlook and operating plan for the current year. In reviewing the prior year’s performance, the Compensation Committee compares our performance to the

financial and operational goals set for such year and the bonus targets. In this meeting, the Chief Executive Officer also reviews with the Compensation Committee his assessment of the individual performance of each executive officer, including his own performance, according to a variety of qualitative performance criteria and salary and bonus trends. In addition, generally during the fourth quarter of each year, the Chairman of the Compensation Committee discusses with the full Board recent data and current trends in equity ownership programs for comparable companies. Taking into account the information conveyed and discussed at these meetings and the recommendations of our Chief Executive Officer, the Compensation Committee then determines, subject in some cases to ratification by the full Board of Directors:


	•	The amount of the bonus to be awarded to each executive officer in respect of the prior year’s performance;

	•	Whether to raise, lower or maintain the executive officer’s base salary for the current year;

	•	The bonus targets to be set for the executive officers for the current year; and

	•	Option grants and restricted stock units, if any, to be awarded to each executive officer.

Nominating and Governance Committee

The Nominating and Governance Committee of our Board of Directors is responsible for: identifying, reviewing and evaluating candidates to serve as members of our Board of Directors, consistent with criteria approved by our Board of Directors; reviewing and evaluating incumbent directors and recommending candidates for election to our Board of Directors; making recommendations to our Board of Directors regarding the membership of the committees of our Board of Directors; and assessing the performance of management and our Board of Directors. The Nominating and Governance Committee is composed of three non-employee directors: Messrs. Lazzara (Chairman), McGrath and Meyercord. All members of the Nominating and Governance Committee are independent (as independence is currently defined in Rule 4200(a)(15) of the NASDAQ listing standards). The Nominating and Governance Committee has adopted a written charter that is available to stockholders on our website and www.endwave.com.

Code of Business Conduct and Ethics

We have adopted the Endwave Corporation Code of Business Conduct and Ethics that applies to all officers, directors and employees. The Endwave Corporation Code of Business Conduct and Ethics is available on our website at www.endwave.com. We will post on our website any amendments to this code or any waivers of this code that apply to directors or executive officers. A copy of this code may be obtained without charge by making a written request to:

Endwave Corporation

Attention: Investor Relations

130 Baytech Drive

San Jose, CA 95134


Item 11.	*Executive Compensation*

COMPENSATION OF EXECUTIVE OFFICERS

Compensation Discussion and Analysis

Our primary objectives with respect to executive compensation are to attract and retain the best possible executive talent, to link annual cash compensation and long-term stock-based compensation to achievement of measurable corporate goals and individual performance, and to align executives’ incentives with stockholder value creation. To achieve these objectives, we have implemented and maintain compensation plans that tie a portion of executives’ overall compensation to our financial performance and common stock price. Overall, the total compensation opportunity is intended to create an executive compensation program that is competitive with comparably-sized companies, as it is these companies with whom we compete most vigorously for executive and

technical talent. We refer to these companies in this compensation discussion and analysis as comparable companies.

Role of Compensation Committee and Chief Executive Officer

Our Compensation Committee approves, administers and interprets our executive compensation and benefit policies and plans. Our Compensation Committee is appointed by our Board of Directors, and consists entirely of directors who are “outside directors” for purposes of Section 162(m) of the Internal Revenue Code and “non-employee directors” for purposes of Rule 16b-3 under the Exchange Act. Our Compensation Committee comprises of Mr. Joseph J. Lazzara, Mr. John McGrath and Mr. Wade Meyercord. Our Compensation Committee is chaired by Mr. Meyercord, President of Meyercord and Associates, a consulting firm specializing in board member and executive compensation.

Our Compensation Committee has primary responsibility for ensuring that our executive compensation and benefit program is consistent with our compensation philosophy and corporate governance guidelines and is responsible for determining the executive compensation packages offered to our executive officers. The responsibilities of the Compensation Committee, as stated in its charter, include the following:


	•	Developing compensation policies that will attract and retain the highest quality executives, will clearly articulate the relationship of corporate performance to executive compensation and will reward executives for Endwave’s progress;

	•	Proposing to the Board of Directors the adoption, amendment and termination of stock option plans, stock appreciation rights plans, pension and profit sharing plan, stock bonus plans, stock purchase plans, bonus plans, deferred compensation plans and other similar plans;

	•	Granting rights, participation and interests in such plans to eligible participants, subject in certain cases to ratification by the Board of Directors; and

	•	Reviewing and approving such other compensation matters as may be necessary or appropriate in view of the Compensation Committee’s overall responsibility.

Our Compensation Committee plays an integral role in setting executive officer compensation each year. Generally, during the fourth quarter of each year, the Chairman of the Compensation Committee discusses with the full Board recent data and current trends in equity ownership programs for comparable companies. Generally, in the first quarter of the following year, our Compensation Committee holds a regular meeting in which our Chief Executive Officer and Chief Financial Officer review with the Compensation Committee Endwave’s financial and business performance for the prior year and management’s business outlook and operating plan for the current year. In reviewing the prior year’s performance, the Compensation Committee compares our performance to the financial and operational goals set for such year and the bonus targets set for such year. In this meeting, the Chief Executive Officer also reviews with the Compensation Committee his assessment of the individual performance of each executive officer, including his own performance, according to a variety of qualitative performance criteria and salary and bonus trends. Taking into account the information conveyed and discussed at these meetings and the recommendations of our Chief Executive Officer, the Compensation Committee then determines, subject in some cases to ratification by the full Board of Directors:


	•	The amount of bonus compensation to be awarded to each executive officer in respect of the prior year’s performance;

	•	Whether to raise, lower or maintain the executive officer’s base salary for the current year;

	•	The bonus targets to be set for the executive officers for the current year; and

	•	Option grants and restricted stock units, if any, to be awarded to each executive officer.

Each element of our executive compensation system is described in more detail below.

Comparable Company Comparisons

Each year, the Compensation Committee reviews the executive compensation programs and amounts at comparable companies. Endwave’s total cash compensation packages are designed to be at the median of total target cash compensation among comparable companies for median performance by comparable executives. Our equity compensation program is designed to provide a percentage ownership of Endwave that is comparable to the median percentage ownership among these comparable companies. However, the individual elements of our executive program (base salary, annual incentive compensation, equity compensation and benefits) may vary from group medians as the Compensation Committee or the Board of Directors deems appropriate.

Since our initial public offering in 2000, the Compensation Committee has studied comparable companies to calibrate executive compensation. For this purpose, for 2010, the Compensation Committee looked at companies with less than $50 million in annual revenues as described in the quarterly executive salary survey published by Radford, a unit of Aon Consulting Company. We believe this survey is appropriate for benchmarking executive compensation because: the companies surveyed are similar in size, both in terms of revenues and market capitalization, to Endwave; Endwave competes with many of the surveyed companies for executive and technical talent; and companies in the indices are selected independently by Radford. We do not benchmark our executive compensation solely against companies in our industry because few of our competitors are close to our size. Most of our competitors are very large, diversified companies or very small, privately-held companies. Rather, we focus on the companies with whom we compete most vigorously for executive and technical talent.

Elements of Executive Compensation

Our executive compensation consists of base salary, annual cash incentive, equity plan participation and customary broad-based employee benefits. Consistent with our pay for performance philosophy, the Compensation Committee believes that we can better motivate executive officers to enhance stockholder return if a portion of their compensation is “at risk”— that is, contingent upon the achievement of performance objectives and overall strong company performance. The mix of base salary, annual cash bonus opportunity based on achievement of objectives and anticipated long-term stock-based compensation incentive (in the form of appreciation in shares underlying stock options) varies depending on the officer’s position level. Long-term stock-based compensation has always been a significant component of executive compensation, as we believe that best aligns our executive officers’ interests with that of our stockholders. An annual cash bonus opportunity has historically also formed a significant component of executive compensation; however, as explained in more detail below, it was not a component of executive compensation in 2010 and is not likely to form a significant component of executive compensation in 2011.

Base Salary: Base salaries for our executives are established based on the scope of their responsibilities, taking into account market compensation paid by comparable companies for equivalent positions. Base salaries are reviewed on an annual basis and any increases are similar in scope to our overall corporate salary increase. For comparison purposes, we have utilized compensation survey data from Radford. Our philosophy is to target executive base salaries near the median range of salaries for executives in equivalent positions at comparable companies. We believe targeting executive salaries at the median relative to comparable companies reflects our best efforts to ensure we are neither overpaying nor underpaying our executives.

Annual Cash Incentive: Our executive cash incentive compensation plan typically provides for a cash bonus award, payable once per year, that is dependent, in part, upon attaining stated corporate objectives for the prior fiscal year. The goal of our executive cash incentive compensation plan is to reward executives in a manner that is commensurate with the level of achievement of certain financial and strategic goals that we believe, if attained, result in greater long-term shareholder value. The Compensation Committee approves these financial and strategic goals on an annual basis. These financial and strategic goals typically have a one-year time horizon. During 2009, and continuing through 2010, the Compensation Committee suspended the cash incentive compensation plan due to the difficult economic environment and its impact on Endwave’s financial performance. Therefore, the Compensation Committee determined there would be no payment of 2010 annual bonuses for our Chief Executive Officer or our other officers. For 2011, the Compensation Committee has not established any cash incentive program, but may

determine to award bonuses on a discretionary basis, which it currently does not intend to do unless Endwave is profitable in 2011.

Stock Options and Restricted Stock Units: We believe that stock ownership is an important factor in aligning corporate and individual goals. Therefore, we utilize stock options and, beginning in 2010, restricted stock units, to encourage long-term performance, with excellent corporate performance (as manifested in our common stock price) and extended officer tenure producing potentially significant value. Upon joining Endwave, executive officers have received an initial stock option grant. This grant has been based on relevant industry comparisons, including data from Radford, and was intended to be commensurate with the experience level and scope of responsibilities of the incoming executive officer. In addition, all executive officers receive annual option grants, and beginning in 2010, restricted stock unit grants. On an annual basis, the Compensation Committee, reviews with the Board the percentage ownership of Endwave held by employees, and compares that to the employee ownership of comparable companies. The Compensation Committee uses this metric because it is easy to measure and compare to comparable companies. Based on its review, the Compensation Committee approves an annual grant. For 2010, the aggregate annual grant to all employees was approximately 3.6% of fully-diluted shares.

All option and restricted stock unit grants are approved by the Compensation Committee at Endwave’s regular quarterly Board of Directors meeting. The options and restricted stock units are approved so that the grant date is three days after the release of our financial results for the preceding quarter. The exercise price for option awards is determined as the closing price on the day prior to grant. As permitted under U.S. generally accepted accounting principles, Endwave has historically determined fair market value under its stock option plans based upon the closing market price as reported by the NASDAQ Global Market for the day preceding the date of grant.

Other Benefits: Executive officers are eligible to participate in all of our employee benefit plans, such as medical, dental, group life, disability, and accidental death and dismemberment insurance, our 401(k) plan and our 2000 Employee Stock Purchase Plan (“ESPP”). During 2010, we made group life insurance payments as reflected in the Summary Compensation Table below. We do not maintain any pension plan, retirement benefit or deferred compensation arrangements other than our 401(k) plan. During 2009, and continuing into 2010, Endwave suspended its program applicable to all of its 401(k) plan participants under which it matched 50% of employee contributions up to a maximum of 4% of base salary.

Chief Executive Officer Compensation

In general, the factors utilized in determining Mr. Mikulsky’s compensation were similar to those applied to the other executive officers in the manner described in the preceding paragraphs. A significant percentage of his potential compensation was, and continues to be, subject to consistent, positive, long-term company performance. Based on a review of the above mix of factors, for 2010, the Compensation Committee granted to Mr. Mikulsky compensation as detailed in the Summary Compensation Table below. Based on these figures, over 47% of Mr. Mikulsky’s total compensation (measured according to the Summary Compensation Table and reflecting the Estimated Possible Target Payout as discussed in the Grants of Plan-Based Awards Table) was based on variable components such as stock options.

Employment, Severance and Change in Control Agreements

We believe that the retention of our executive officers is critical to our business. Given the competitive nature of the technology industry, the demand for experienced executives is high. Moreover, the level of involuntary terminations of executives in the technology industry is high. In order to encourage our key employees to remain with Endwave, our board of directors has established and maintains our Senior Executive Officer Severance and Retention Plan and our Executive Officer Severance Plan. Our Chief Executive Officer participates in the Senior Executive Officer and Retention Plan and our Senior Vice Presidents participate in the Executive Officer Severance Plan.

Executive Officer Severance and Retention Plan Assuming No Change of Control: Under the Senior Executive Officer Severance and Retention Plan, if our Chief Executive Officer is terminated without cause, or resigns for certain specified reasons constituting constructive termination, the executive officer will receive (i) salary and benefits continuation based on the executive officer’s position and length of service with us and

(ii) acceleration of vesting of all of his stock options. The salary and benefits continuation period for our Chief Executive Officer will be equal to the greater of 1.5 months for every year of service to us, or a total of nine months, if the termination of employment does not occur in connection with a change of control transaction.

Under the Executive Officer Severance Plan, if a participating executive officer is terminated without cause, or resigns for certain specified reasons constituting constructive termination, the executive officer will receive salary and benefits continuation based on the executive officer’s position and length of service with us. In the case of the participating Senior Vice Presidents, the salary and benefits continuation period will be equal to the greater of six months or one month for every year of service to a maximum of twelve months, if the termination of employment does not occur in connection with a change of control transaction.

Potential 2010 Severance and Retention Benefits Assuming No Change of Control

The following table shows the potential payout to our Chief Executive Officer and Senior Vice Presidents assuming termination does not occur in connection with, or within six months after, a change of control. The analysis assumes the employees were terminated without cause on December 31, 2010:


			COBRA		Option		Total
Name	Salary(1)		Benefits(2)		Awards(3)		Benefit

John J. Mikulsky	$	493,500	$	52,500	$	30,168	$	576,168
Curt P. Sacks	$	110,000	$	7,500	$	4,113	$	121,613
Daniel P. Teuthorn	$	229,000	$	15,000	$	5,154	$	249,154
Steven F. Layton	$	215,000	$	15,000	$	9,715	$	239,715


(1)		Reflects the greater of 9 months’ salary or 1.5 months’ salary for each full year of employment for Mr. Mikulsky (21 months) and the greater of 6 months’ salary or 1 month salary for each full year of employment up to a maximum of 12 months for Mr. Sacks (6 months), Mr. Teuthorn (12 months) and Mr. Layton (12 months).

(2)		Reflects the greater of 9 months coverage or 1.5 months coverage for each full year of employment for Mr. Mikulsky (21 months) and the greater of 6 months coverage or 1 month coverage for each full year of employment up to a maximum of 12 months for Mr. Sacks (6 months), Mr. Teuthorn (12 months) and Mr. Layton (12 months).

(3)		Reflects value of options accelerated in the event of termination without cause without a change of control. Since the closing price of Endwave’s common stock on December 31, 2010, was $2.28 and the exercise prices of certain options outstanding and in-the-money on December 31, 2010, were below the closing price, the value of the in-the-money options that would have been accelerated are reflected above.

Executive Officer Severance and Retention Plan Assuming a Change of Control: The Compensation Committee believes that it is in the best interests of stockholders if our executive officers are able to focus on our business during both strong and weak business cycles without being distracted by the near-term financial impact that a potential termination of employment might have on them personally. The Compensation Committee also believes it is in the best interests of stockholders if our executive officers are able to evaluate the potential merits of a change of control transaction objectively without being distracted by the potentially adverse personal impact on themselves. The Compensation Committee believes that the total potential value of all change of control agreements with our executive officers is not disproportionate to the overall market value of Endwave.

Under the Senior Executive Officer Severance and Retention Plan, if our Chief Executive Officer is terminated without cause, or resigns for certain specified reasons constituting constructive termination, he will receive (i) salary and benefits continuation based on his length of service with us and (ii) acceleration of vesting of all of his stock options. If our Chief Executive Officer’s employment is terminated by us without cause or by the Chief Executive Officer for certain specified reasons in connection with, or within six months after, the change of control transaction, the Chief Executive Officer will receive salary continuation for twice the period that would have applied had such termination not occurred in connection with a change of control as well as the acceleration of vesting of all of his stock options.

Under the Executive Officer Severance Plan, if an executive officer is terminated without cause, or resigns for certain specified reasons constituting constructive termination, the participating Senior Vice Presidents will receive salary and benefits continuation based on the length of service with us. Upon the closing of a change of control transaction, if an executive officer’s employment is terminated by us without cause or by the executive officer for certain specified reasons in connection with, or within six months after, the change of control transaction, the executive officer will receive salary continuation for twelve months and the accelerated vesting for all of the executive officer’s outstanding stock options.

The following table shows the potential payout to named executive officers under our Senior Executive Officer Severance and Retention Plan and our Executive Officer Severance and Retention Plan assuming termination occurs in connection with, or within six months after, a change of control. The analysis assumes the employees were terminated without cause on December 31, 2010:


			COBRA		Option		Total
Name	Salary(1)		Benefits(2)		Awards(3)		Benefit

John J. Mikulsky	$	987,000	$	105,000	$	30,168	$	1,122,168	(4)
Curt P. Sacks	$	220,000	$	15,000	$	9,400	$	244,400
Daniel P. Teuthorn	$	229,000	$	15,000	$	10,441	$	254,441
Steven F. Layton	$	215,000	$	15,000	$	15,003	$	245,003


(1)		Reflects the greater of 18 months’ salary or three months’ salary for each full year of employment for Mr. Mikulsky (42 months) and 12 months’ salary for Mr. Sacks, Mr. Teuthorn and Mr. Layton.

(2)		Reflects the greater of nine months coverage or 1.5 months coverage for each full year of employment for Mr. Mikulsky (21 months) and 12 months coverage for Mr. Sacks, Mr. Teuthorn and Mr. Layton.

(3)		Reflects value of options accelerated in the event of termination without cause in connection with a change of control. Since the closing price of Endwave’s common stock on December 31, 2010, was $2.28 and the exercise prices of certain options outstanding and in-the-money on December 31, 2010 were below the closing price, the value of the in-the-money options that would have been accelerated are reflected above.

(4)		In connection with the proposed Merger with GigOptix, it is anticipated that Mr. Mikulsky’s benefit will be reduced to an amount that maximizes the aggregate present value of such benefit without causing any payment to create an excise tax liability under Section 4999 of the Internal Revenue Code of 1986, as amended.

Named Executive Officer Compensation

The following table provides information regarding all plan and non-plan compensation awarded to, earned by or paid to our chief executive officer, our chief financial officer, each of our other executive officers serving as such at the end of 2010 for all services rendered in all capacities to us during 2008, 2009 and 2010. We refer to these executive officers as our named executive officers.

Summary Compensation Table


									Non-Equity
							Stock		Incentive Plan		All Other		Total
Name and Principal Position	Year		Salary		Bonus		Awards		Compensation		Compensation		Compensation
	(1)						(2)				(3)

John J. Mikulsky		2010	$	282,000		0	$	267,504	$	0	$	9,496	$	559,000
President and Chief Executive Officer		2009	$	282,000		0	$	130,576	$	0	$	2,618	$	415,194
		2008	$	280,385		0	$	222,316	$	42,300	$	7,287	$	552,288
Curt P. Sacks		2010	$	213,462		0	$	77,128	$	0	$	1,471	$	292,061
Senior Vice President and		2009	$	199,615		0	$	112,430	$	0	$	9,718	$	321,763
Chief Financial Officer
Steven F. Layton		2010	$	215,000		0	$	77,128	$	0	$	1,310	$	293,438
Senior Vice President		2009	$	215,000		0	$	65,289	$	0	$	2,243	$	282,532
Sales and Marketing		2008	$	213,731		0	$	111,158	$	21,500	$	5,492	$	351,881
Daniel F. Teuthorn		2010	$	229,000		0	$	77,128	$	0	$	2,178	$	308,306
Senior Vice President		2009	$	229,000		0	$	60,862	$	0	$	2,333	$	292,195
Product Development and Operations		2008	$	227,731		0	$	93,540	$	22,900	$	86,921	$	431,092


(1)		Mr. Mikulsky has held the position of Chief Executive Officer since December 2009, and prior to that, Mr. Mikulsky was an Executive Officer for the Company since 2001. Mr. Sacks has held the position of Chief Financial Officer since June 2009.

(2)		The amounts in this column represent the compensation cost related to stock option and restricted stock unit awards issued to named executive officers. For purposes of this table, the fair value excludes the impact of estimated forfeitures. For a discussion of other valuation assumptions, see Note 7 to our consolidated financial statements included elsewhere in this report.

(3)		The amounts in this column represent all other compensation payments. Also included are total payments made by Endwave for group insurance, educational reimbursement. Other compensation for Mr. Teuthorn included educational reimbursement of $81,123 in 2008.

The following table provides information with regard to potential cash bonuses paid or payable in 2010 under our performance-based, non-equity incentive plan, and with regard to stock option and restricted stock units granted to each named executive officer during 2010.

Grants of Plan-Based Awards in Fiscal 2010


															Grant Date
											All				Closing
									All		Other				Market
									Other		Stock				Price of		Grant Date
			Estimated Possible Payouts						Option		Awards:		Exercise		Securities		Fair
			Under Non-Equity Incentive						Awards:		Number of		or Base		Underlying		Value of
			Plan Awards						Number of		Shares of		Price of		Stock and		Stock and
									Securities		Restricted		Option		Option		Option
	Grant		Threshold		Target		Maximum		Underlying		Stock		Awards		Awards		Awards
Name	Date		($)		($)		($)		Options		Units		($/Sh)		($/Sh)(1)		($)
John J. Mikulsky		2/5/10	$	0	$	0	$	0		50,000			$	2.65	$	2.58	$	74,683	(2)

John J. Mikulsky		2/5/10	$	0	$	0	$	0		60,000			$	2.65	$	2.58	$	89,620	(2)

John J. Mikulsky		2/5/10	$	0	$	0	$	0				40,000		—	$	2.58	$	103,200	(3)

Curt P. Sacks		2/5/10	$	0	$	0	$	0		24,000			$	2.65	$	2.58	$	35,848	(2)

Curt P. Sacks		2/5/10	$	0	$	0	$	0				16,000		—	$	2.58	$	41,280	(3)

Daniel P. Teuthorn		2/5/10	$	0	$	0	$	0		24,000			$	2.65	$	2.58	$	35,848	(2)

Daniel P. Teuthorn		2/5/10	$	0	$	0	$	0				16,000		—	$	2.58	$	41,280	(3)

Steven F. Layton		2/5/10	$	0	$	0	$	0		24,000			$	2.65	$	2.58	$	35,848	(2)

Steven F. Layton		2/5/10	$	0	$	0	$	0				16,000		—	$	2.58	$	41,280	(3)


(1)		The exercise price for option awards is determined as the closing price on the day prior to grant. Therefore, the grant date closing price of the security underlying the option can differ materially, positively or negatively, from the exercise price of the option award. The restricted stock unit awards do not have an exercise price.

(2)		Each option vests as to 1/8 of the shares of common stock underlying it on the six month anniversary of the grant date, with the remaining seven-eighths of the grant vesting in equal quarterly installments over the remaining four-year vesting period. For the purposes of this table, the value excludes the impact of estimated forfeitures. For a discussion of other valuation assumptions, see Note 7 to our consolidated financial statements.

(3)		Each restricted stock unit vests as to 50% of the shares of common stock underlying it on the one year anniversary of the grant date, with the remainder vesting on the second anniversary of the grant date. For the purposes of this table, the value excludes the impact of estimated forfeitures.

The following table provides information regarding each unexercised stock option and unvested restricted stock units held by each of our named executive officers as of December 31, 2010. Other than stock options/restricted stock units (RSUs) as noted, there were no other stock awards outstanding at December 31, 2010.

Outstanding Equity Awards at December 31, 2010


										Number of Securities
	Number of Securities Underlying					Option		Option		Underlying
	Unexercised Options/(1)(2)(3)					Exercise		Expiration		Unvested RSUs/(4)
Name and Principal Position	Exercisable			Unexercisable		Price		Date		Unvested

John J. Mikulsky		5,860			0	$	1.17		1/30/2013		0
		13,894			0	$	1.93		6/05/2013		0
		40,000			0	$	1.81		2/05/2019		0
		13,333	(3)		0	$	2.53		9/10/2019		0
		1,552	(3)		0	$	2.53		9/10/2019		0
		3,447	(3)		0	$	2.53		9/10/2019		0
		10,000	(3)		0	$	2.53		9/10/2019		0
		10,000	(3)		0	$	2.53		9/10/2019		0
		5,000	(3)		0	$	2.53		9/10/2019		0
		2,038	(3)		0	$	2.53		9/10/2019		0
		6,295	(3)		0	$	2.53		9/10/2019		0
		1,641	(3)		0	$	2.53		9/10/2019		0
		13,333	(3)		0	$	2.53		9/10/2019		0
		50,000	(2)		0	$	2.65		2/04/2020		0
		60,000	(2)		0	$	2.65		2/04/2020		0
											40,000	(4)
Curt P. Sacks		20,000			0	$	1.81		2/05/2019		0
		40,000			0	$	2.40		7/30/2019		0
		6,666	(3)		0	$	2.53		9/10/2019		0
		875	(3)		0	$	2.53		9/10/2019		0
		1,000	(3)		0	$	2.53		9/10/2019		0
		2,500	(3)		0	$	2.53		9/10/2019		0
		13,333	(3)		0	$	2.53		9/10/2019		0
		833	(3)		0	$	2.53		9/10/2019		0
		6,666	(3)		0	$	2.53		9/10/2019		0
		24,000	(2)		0	$	2.65		2/04/2020		0
											16,000	(4)
Steven F. Layton		1,351			0	$	1.17		1/30/2013		0
		2,813			0	$	1.93		6/05/2013		0
		8,910			0	$	1.93		6/05/2013		0
		20,000			0	$	1.81		2/05/2019		0
		6,666	(3)		0	$	2.53		9/10/2019		0
		1,552	(3)		0	$	2.53		9/10/2019		0
		947	(3)		0	$	2.53		9/10/2019		0
		5,000	(3)		0	$	2.53		9/10/2019		0
		5,000	(3)		0	$	2.53		9/10/2019		0
		2,916	(3)		0	$	2.53		9/10/2019		0
		2,446	(3)		0	$	2.53		9/10/2019		0
		3,554	(3)		0	$	2.53		9/10/2019		0
		6,666	(3)		0	$	2.53		9/10/2019		0
		24,000	(2)		0	$	2.65		2/04/2020		0
											16,000	(4)
Daniel P. Teuthorn		938			0	$	1.17		1/30/2013		0
		20,000			0	$	1.81		2/05/2019		0
		6,666	(3)		0	$	2.53		9/10/2019		0
		1,358	(3)		0	$	2.53		9/10/2019		0
		829	(3)		0	$	2.53		9/10/2019		0


										Number of Securities
	Number of Securities Underlying					Option		Option		Underlying
	Unexercised Options/(1)(2)(3)					Exercise		Expiration		Unvested RSUs/(4)
Name and Principal Position	Exercisable			Unexercisable		Price		Date		Unvested

		2,500	(3)		0	$	2.53		9/10/2019		0
		5,000	(3)		0	$	2.53		9/10/2019		0
		2,500	(3)		0	$	2.53		9/10/2019		0
		2,038	(3)		0	$	2.53		9/10/2019		0
		2,961	(3)		0	$	2.53		9/10/2019		0
		6,666	(3)		0	$	2.53		9/10/2019		0
		24,000	(2)		0	$	2.65		2/04/2020		0
											16,000	(4)


(1)		Each option vests as to 1/8 of the shares of common stock underlying it on the six month anniversary of the grant date, with the remaining seven-eighths of the grant vesting in equal quarterly installments over the remaining four-year vesting period. Each option expires ten years after the date of grant or, if earlier, three months after termination of employment in most cases.

(2)		All options described in the above table are reflected as exercisable because all options granted to our executive officers have an “early exercise” feature that allows optionees to exercise unvested options, subject to our right to repurchase the unvested shares at cost upon the optionee’s termination of employment. Options unvested as of December 31, 2010 are as follows: Mikulsky, 136,865; Sacks, 67,703; Layton, 43,781; and Teuthorn, 42,195.

(3)		This option was replaced in our 2009 option exchange program for an option with an exercise price per share of $2.53. As required by such program, the new option vests over two years beginning in September, 2009.

(4)		Each restricted stock unit vests as to 50% of the shares of common stock underlying it on the one year anniversary of the grant date, with the remainder vesting at the second anniversary of the grant date. The restricted stock units do not have early exercisability rights. Restricted Stock Units unvested as of December 31, 2010 are as follows: Mikulsky, 40,000; Sacks, 16,000; Layton, 16,000; and Teuthorn, 16,000.

2010 Option Exercises

There were no stock options exercised by our named executive officers during 2010.

Compensation of Non-Employee Directors

The following table provides information regarding compensation paid to our non-employee directors who served on our board as of December 31, 2010.


			Restricted
	Fees Paid		Stock		Total
Name	In Cash		Awards(1)		Compensation

Joseph J. Lazzara	$	50,500	$	31,500	$	82,000
John F. McGrath	$	45,500	$	31,500	$	77,000
Wade Meyercord	$	48,000	$	31,500	$	79,500


(1)		The amounts included in the “Restricted Stock Unit Awards” column represent the compensation cost related to restricted stock units issued in 2010. For purposes of this table, the value excludes the impact of estimated forfeitures. For a discussion of other valuation assumptions, see Note 7 to our consolidated financial statements.

At its April 2010 meeting, the Compensation Committee completed its annual review of cash and equity compensation of the board. The Compensation Committee reviewed the cash and equity board compensation paid by a set of technology companies with revenues and market capitalization similar to those of Endwave. The levels of cash compensation shown below were reviewed and approved based on projected current median pay levels of the peer group. The members of the Board of Directors are also eligible for reimbursement for travel expenses incurred in connection with attendance at Board of Directors and committee meetings in accordance with Endwave company policy.

Board Membership Fees Payable to Non-Employee Directors


Non-Employee Director Annual Retainer	$	25,000
Board Chair Annual Retainer	$	10,000
Audit Committee Chair Annual Retainer	$	16,000
Audit Committee Member Annual Retainer	$	8,000
Compensation Committee Chair Annual Retainer	$	8,000
Compensation Committee Member Annual Retainer	$	4,000
Nominating and Governance Committee Chair Annual Retainer	$	6,000
Nominating and Governance Committee Member Annual Retainer	$	2,000
Board Meeting Fee	$	0
Committee Meeting Fee	$	0

Non-employee directors are eligible to receive automatic option grants or restricted stock units made under our Company’s 2007 Equity Incentive Plan. Pursuant to this plan, each non-employee director is granted an option or restricted stock units, referred to as an initial option, to purchase 20,000 shares of common stock automatically upon his or her initial election or appointment to the Board of Directors. Each non-employee director is also granted an option or restricted stock units, referred to as an annual award, to purchase an additional 10,000 shares of common stock each year after his or her election or appointment to the Board of Directors. Such annual award is granted on May 1. In either case, if any non-employee director has not served in that capacity for the entire period since the preceding grant date, then the number of shares subject to the annual award will be reduced, pro rata, for each full quarter the director did not serve during the previous period. All such option grants expire after ten years and have an exercise price equal to the closing fair market value on the day prior to the date of grant. All initial options vest over four years at the rate of 1/48 of the total option shares per month. Annual options granted after February 2008 vest over one year at the rate of 1/12 of the total option shares per month. Annual restricted stock units vest 100% annually on the anniversary of the grant date. Our Company’s non-employee directors are also eligible to participate in our Company’s 2007 Equity Incentive Plan on a discretionary basis. No discretionary awards were made to non-employee directors during 2010.

Report of the Compensation Committee¹

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis, or CD&A, contained in this report. Based on this review and discussion, the Compensation Committee has recommended to our board of directors that the CD&A be included in this report as well as our proxy statement for our 2011 annual meeting of stockholders.

Joseph Lazzara

John McGrath

Wade Meyercord

¹ The material in this report is not “soliciting material,” is not deemed “filed” with the Securities and Exchange Commission and is not to be incorporated by reference in any of our filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.


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

The following table sets forth certain information regarding the ownership of our common stock as of January 31, 2011 by: (i) each of our named executive officers; (ii) each director; (iii) our executive officers and directors as a group; and (iv) all those known by us to be beneficial owners of more than five percent of our common stock. Except as otherwise indicated, the address of each of the persons set forth below is c/o Endwave Corporation, 130 Baytech Drive, San Jose, California 95134.


	Common Stock
Name and Address	Number		Percent(2)

Entities affiliated with Empire Capital Management, LLC(3)		1,336,592		13.59
1 Gorham Island, Suite 201 Westport, CT 06880
Entities affiliated with Wells Fargo Investments LLC(4)		615,270		6.26
420 Montgomery Street San Francisco, CA 94104
Entities affiliated with Dimensional		731,826		7.44
Fund Advisors LP(5) 1299 Ocean Avenue Santa Monica, CA 90401
Entities affiliated with ERIP LLC		622,329		6.33
104 West 27th Street, 6th Floor(6) New York, NY 10001
Entities affiliated with Potomac Capital Management(7)		597,541		6.08
825 Third Avenue New York, NY 10022
John J. Mikulsky(8)		330,298		3.36
Curt P. Sacks(9)		138,959		1.41
Daniel P. Teuthorn(10)		113,167		1.15
Steven F. Layton(11)		105,602		1.07
Joseph J. Lazzara(12)		22,092		*
John F. McGrath, Jr.(13)		21,406		*
Wade Meyercord(13)		21,167		*
All directors and executive officers as a group (7 persons)(14)		752,691		7.65


*		Less than one percent.

(1)		This table is based upon information supplied to us by our officers, directors and principal stockholders and upon any Schedules 13D or 13G filed with the Securities and Exchange. Unless otherwise indicated in the footnotes to this table, and subject to community property laws where applicable, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned.

(2)		Applicable percentages are based on 9,832,684 shares outstanding on January 31, 2011, adjusted as required by rules promulgated by the Securities and Exchange Commission.

(3)		Empire GP, the general partner of Empire Capital, has the power to direct the affairs of Empire Capital, including decisions respecting the disposition of the proceeds from the sale of the Common Stock. Empire Management, the investment manager of the Empire Overseas Fund has the power to direct the affairs of the Empire Overseas Fund, including decisions respecting the disposition of the proceeds from the sale of the Common Stock. Empire Management, pursuant to investment management agreements with Charter Oak, Charter Oak II and Charter Oak Master, has the power to dispose of the proceeds from the sale of the Common Stock with respect to those assets of the Charter Oak Funds under its discretion. Empire Management, pursuant to an investment management agreement with the Enhanced Master Fund, has the power to dispose


		of the proceeds from the sale of the Common Stock with respect to those assets under its discretion. Messrs. Fine and Richards are the Members of Empire GP and Empire Management, and in their capacities direct the operations of Empire GP and Empire Management.

(4)		Wells Fargo & Company is the beneficial owner of 615,270 shares of the issuer’s common stock on behalf of Wells Fargo Investments LLC.

(5)		Dimensional Fund Advisors LP (formerly, Dimensional Fund Advisors, Inc.) (“Dimensional”), an investment advisor registered under Section 203 of the Investment Advisors Act of 1940, furnishes investment advice to four investment companies registered under the Investment Company Act of 1940, and serves as investment manager to certain other commingled group trusts and separate accounts. These investment companies, trusts and accounts are the “Funds”. In its role as investment advisor or manager, Dimensional possesses investment and/or voting power over the securities of the Issuer described in this schedule that are owned by the Funds, and may be deemed to be the beneficial owner of the shares of the Issuer held by the Funds. However, all securities reported are owned by the Funds. Dimensional disclaims beneficial ownership of such securities. Mr. Christopher Crossan, Global Chief Compliance Officer, is a General Partner of Dimensional Holdings Inc.

(6)		The shares are held by ERIP LLC and Ms. Chernaya, the manager of ERIP LLC. Ms. Chernaya is the beneficial owner of 622,329 shares of the issuer’s common stock and has the sole power to vote or to direct the vote of 622,329 shares of the issuer’s common stock.

(7)		Potomac Capital Partners LP is a private investment partnership formed under the laws of the State of Delaware. Potomac Capital Management LLC is the General Partner of Potomac Capital Partners LP. Mr. Paul J. Solit is the Managing Member of Potomac Capital Management LLC.

(8)		Includes 20,000 restricted stock units releasable within 60 days of the date of this table. Also includes 236,393 shares issuable upon exercise of options exercisable within 60 days of the date of this table. If exercised in full within 60 days of the date of this table, 119,160 shares would be subject to repurchase by us.

(9)		Includes 8,000 restricted stock units releasable within 60 days of the date of this table. Also includes 115,873 shares issuable upon exercise of options exercisable within 60 days of the date of this table. If exercised in full within 60 days of the date of this table, 58,469 shares would be subject to repurchase by us.

(10)		Includes 8,000 restricted stock units releasable within 60 days of the date of this table. Also includes 75,456 shares issuable upon exercise of options exercisable within 60 days of the date of this table. If exercised in full within 60 days of the date of this table, 35,631 shares would be subject to repurchase by us.

(11)		Includes 8,000 restricted stock units releasable within 60 days of the date of this table. Also, includes 91,821 shares issuable upon exercise of options exercisable within 60 days of the date of this table. If exercised in full within 60 days of the date of this table, 36,689 shares would be subject to repurchase by us.

(12)		Includes 21,092 shares issuable upon exercise of options exercisable within 60 days of the date of this table. Also includes 1,000 shares held jointly in the name of Joseph J. and Nancy B. Lazzara.

(13)		Represents shares issuable upon exercise of options exercisable within 60 days of the date of this table.

(14)		See footnotes 8 through 13 above, as applicable. Includes 583,208 shares issuable upon exercise of options exercisable within 60 days of the date of this table. If exercised in full within 60 days of the date of this table, 249,949 shares would be subject to a repurchase right by us.


Item 13.	*Certain Relationships and Related Transactions and Director Independence*

Indemnification

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

Related-Person Transactions Policy and Procedures

We have a corporate policy with regard to our policies and procedures for the identification, review, consideration and approval or ratification of “related-person transactions.” For purposes of our policy only, a “related-person transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which Endwave and any “related person” are participants involving an amount that exceeds $5,000. Transactions involving compensation for services provided to Endwave as an employee, director, consultant or similar capacity by a related person are not covered by this policy. A related person is any executive officer, director, or more than 5% stockholder of the Company, including any of their immediate family members, and any entity owned or controlled by such persons.

In the event any transaction in which Endwave proposes to engage is a related-person transaction, our management must present information regarding the proposed related-person transaction to the disinterested non-employee members of our board of directors for consideration and approval or ratification. The presentation must include a description of, among other things, the material facts, the interests, direct and indirect, of the related persons, the benefits to Endwave of the transaction and whether any alternative transactions were available. To identify related-person transactions in advance, we rely on information supplied by our executive officers, directors and significant stockholders. In considering related-person transactions, the disinterested non-employee members of the board take into account the relevant available facts and circumstances including, but not limited to (a) the risks, costs and benefits to Endwave, (b) the impact on a director’s independence in the event the related person is a director, immediate family member of a director or an entity with which a director is affiliated, (c) the terms of the transaction, (d) the availability of other sources for comparable services or products and (e) the terms available to or from, as the case may be, unrelated third parties or to or from employees generally. In the event a director has an interest in the proposed transaction, the director must recuse himself or herself form the deliberations and approval. The policy requires that, in determining whether to approve, ratify or reject a related-person transaction, the disinterested non-employee members of the board look at, in light of known circumstances, whether the transaction is in, or is not inconsistent with, the best interests of Endwave and its stockholders, as determined in the good faith exercise of such directors’ discretion.

Independence of the Board of Directors

As required under the NASDAQ Stock Market, or NASDAQ, listing standards, a majority of the members of our Board of Directors must qualify as “independent,” as affirmatively determined by our board of directors. Our board of directors consults with our counsel to ensure that the board’s determinations are consistent with relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in pertinent listing standards of the NASDAQ, as in effect time to time.

Consistent with these considerations, after review of all relevant transactions or relationships between each director, or any of his or her family members, and Endwave, its senior management and its independent registered public accounting firm, our board of directors has affirmatively determined that the following five directors are independent directors within the meaning of the applicable NASDAQ listing standards: Mr. Meyercord, Mr. Lazzara and Mr. McGrath. In making this determination, the board found that none of these directors had a material or other disqualifying relationship with Endwave. Mr. Mikulsky, our President and Chief Executive Officer, is not an independent director by virtue of his employment with Endwave.


Item 14.	*Principal Accounting Fees and Services*

The following table shows the fees paid or accrued by Endwave for the audit and other services provided by our independent registered public accounting firm Burr Pilger Mayer, Inc. or BPM, for fiscal 2010 and 2009 (in thousands):


	2010		2009

Audit Fees(1)	$	251	$	336
Audit-related Fees(2)		—		13
Tax Fees		—		—
All Other Fees		—		—

Total	$	251	$	349


(1)		Audit fees represent fees for professional services provided in connection with the audit of our annual consolidated financial statements, review of our quarterly condensed consolidated financial statements and services that are normally provided by BPM in connection with statutory and regulatory filings or engagements.

(2)		Audit-related fees consist of assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported above under audit fees. The services provided for the fees disclosed under this category include due diligence and accounting consultations in connection with acquisitions.

Independence of Independent Registered Public Accounting Firm and Pre-Approval Policy

Our Audit Committee has determined that the provision by BPM of non-audit services is compatible with maintaining the independence of BPM. The Audit Committee has adopted a policy for the pre-approval of audit and non-audit services rendered by our independent registered public accounting firm. The policy generally pre-approves specified services in the defined categories of audit services, audit-related services and tax services for up to $5,000. Pre-approval may also be given as part of the Audit Committee’s approval of the scope of the engagement of the independent registered public accounting firm or on an individual explicit case-by-case basis before the independent registered public accounting firm is engaged to provide each service. The pre-approval of services may be delegated to one or more of the Audit Committee’s members, but the decision must be reported to the full Audit Committee at its next scheduled meeting. During fiscal 2010, all services provided by BPM were pre-approved by the Audit Committee.

PART IV


Item 15.	*Exhibits and Financial Statement Schedules*

(a) Financial Statements Schedules and Exhibits.

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

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

(2) The following financial statement schedule is included in Item 15(d): Schedule II — Valuation and Qualifying Accounts.

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

(3) Listing of Exhibits:

(b) Intentionally omitted

INDEX TO EXHIBITS


Number			Description

	2	.1(1)	Stock Purchase Agreement among the Registrant and the stockholders and option holders of ALC Microwave, Inc. dated April 19, 2007.
	2	.2(18)	Asset Purchase Agreement among the Registrant, Microsemi Corporation and SHR Corporation dated April 30, 2009.
	2	.3(18)	Indemnification Agreement between the Registrant and Microsemi Corporation dated April 30, 2009.
	2	.4(22)	Agreement and Plan of Merger, dated as of February 4, 2011, by and among GigOptix, Inc., the Registrant and Aerie Acquisition Corporation.
	3	.1(2)	Amended and Restated Certificate of Incorporation effective October 20, 2000.
	3	.2(3)	Certificate of Amendment of Amended and Restated Certificate of Incorporation effective June 28, 2002.
	3	.3(4)	Certificate of Designation for Series A Junior Participating Preferred Stock.
	3	.4(5)	Certificate of Designation for Series B Preferred Stock.
	3	.5(6)	Certificate of Amendment of Amended and Restated Certificate of Incorporation effective July 26, 2007.
	3	.6(7)	Amended and Restated Bylaws.
	4	.1(2)	Form of Specimen Common Stock Certificate.
	4	.2(4)	Rights Agreement dated as of December 1, 2005 between the Registrant and Computershare Trust Company, Inc.
	4	.3(4)	Form of Rights Certificate
	4	.4(8)	Amendment No. 1 to Rights Agreement, dated as of December 21, 2007, between the Registrant and ComputerShare Trust Company, Inc.
	4	.5(22)	Amendment No. 2 to Rights Agreement, dated as of February 4, 2011, by and between the Registrant and Computershare Trust Company, N.A., successor in interest to Computershare Trust Company, Inc.
	10	.1(2)	Form of Indemnity Agreement entered into by the Registrant with each of its directors and officers.
	10	.2(2)*	1992 Stock Option Plan.
	10	.3(2)*	Form of Incentive Stock Option under 1992 Stock Option Plan.
	10	.4(2)*	Form of Nonstatutory Stock Option under 1992 Stock Option Plan.
	10	.5(9)*	2007 Equity Incentive Plan.
	10	.6(10)*	Form of Stock Option Agreement under 2007 Equity Incentive Plan.
	10	.7(10)*	Form of Stock Option Agreement for Non-Employee Directors under the 2007 Equity Incentive Plan.
	10	.8(21)*	Form of Restricted Stock Unit Award under 2007 Equity Incentive Plan.
	10	.9(2)*	2000 Employee Stock Purchase Plan.
	10	.10(2)*	Form of 2000 Employee Stock Purchase Plan Offering.
	10	.11(11)*	2000 Non-Employee Directors’ Stock Option Plan, as amended.
	10	.12(2)*	Form of Nonstatutory Stock Option Agreement under the 2000 Non-Employee Director Plan.
	10	.13(12)*	Description of Compensation Payable to Non-Employee Directors.
	10	.14(21)*	2010 Base Salaries for Named Executive Officers.
	10	.15(2)	License Agreement by and between TRW Inc. and TRW Milliwave Inc. dated February 28, 2000.


Number			Description

	10	.16(14)†	Purchase Agreement between Nokia and the Registrant dated January 1, 2006.
	10	.17(14)†	Frame Purchase Agreement by and between the Registrant and Siemens Mobile Communications Spa dated January 16, 2006.
	10	.18(15)†	Lease Agreement by and between Legacy Partners I San Jose, LLC and the Registrant dated May 24, 2006.
	10	.19(16)†	Services Agreement by and between Hana Microelectronics Co., Ltd. and the Registrant dated October 15, 2006.
	10	.20(17)	Lease Agreement by and between 8812, a California limited partnership, and the Registrant dated May 20, 2008.
	10	.21(17)†	Amended and Restated Supply Agreement by and between Northrop Grumman Space and Mission Systems Corp. and the Registrant dated May 12, 2008.
	10	.22(13)†	First Amendment, dated as of December 1, 2008, to Amended and Restated Supply Agreement by and between Northrop Grumman Space and Mission Systems Corp. and the Registrant dated May 12, 2008.
	10	.23(13)†	Amendment, dated as of February 13, 2009, to Amended and Restated Supply Agreement by and between Northrop Grumman Space and Mission Systems Corp. and the Registrant dated May 12, 2008.
	10	.24(19)*	Executive Officer Severance Plan.
	10	.25(19)*	Senior Executive Officer Severance and Retention Plan.
	10	.26(20)	Stock Purchase Agreement, dated as of January 21, 2010, between Oak Investment Partners XI, Limited Partnership and the Registrant.
	23	.1	Consent of Burr Pilger Mayer, Inc. independent registered public accounting firm.
	31	.1	Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.2	Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	.1	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


(1)		Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on April 24, 2007 and incorporated herein by reference.

(2)		Previously filed as an exhibit to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-41302) and incorporated herein by reference.

(3)		Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 and incorporated herein by reference.

(4)		Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on December 5, 2005 and incorporated herein by reference.

(5)		Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on April 26, 2006 and incorporated herein by reference.

(6)		Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference.

(7)		Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on July 28, 2008 and incorporated herein by reference.

(8)		Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on December 28, 2007 and incorporated herein by reference.

(9)		Previously filed as an appendix to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on June 13, 2007 and incorporated herein by reference.

(10)		Previously filed as an exhibit to the Registrant’s Registration Statement on Form S-8 (Registration No. 333-144851) and incorporated herein by reference.


(11)		Previously filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 and incorporated herein by reference.

(12)		Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on February 1, 2008 and incorporated herein by reference.

(13)		Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed for the quarter year ended March 31, 2009 and incorporated herein by reference.

(14)		Previously filed as an exhibit to the Registrant’s Registration Statement on Form S-3 (Registration No. 333-144054) and incorporated herein by reference.

(15)		Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 and incorporated herein by reference.

(16)		Previously filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and incorporated herein by reference.

(17)		Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter year ended June 30, 2008 and incorporated herein by reference.

(18)		Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter year ended June 30, 2009 and incorporated herein by reference.

(19)		Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on September 17, 2009 and incorporated herein by reference.

(20)		Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on January 21, 2010 and incorporated herein by reference.

(21)		Previously filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and incorporated herein by reference.

(22)		Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on February 4, 2011 and incorporated herein by reference.

*		Indicates a management contract or compensatory plan or arrangement.

†		Confidential treatment has been requested for a portion of this exhibit.

(d) Financial Statement Schedule

SIGNATURES

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

ENDWAVE CORPORATION


	By:	/s/ Curt P. Sacks

Curt P. Sacks

Chief Financial Officer and

Senior Vice President

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of John J. Mikulsky and Curt P. Sacks as 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:


Signatures	Title	Date


/s/ JOHN J. MIKULSKY John J. Mikulsky	President, Chief Executive Officer and Director (Principal Executive Officer)	February 25, 2011

/s/ CURT P. SACKS Curt P. Sacks	Chief Financial Officer and Senior Vice President (Principal Financial and Accounting Officer)	February 25, 2011

/s/ WADE MEYERCORD Wade Meyercord	Chairman of the Board of Directors	February 25, 2011

/s/ JOSEPH J. LAZZARA Joseph J. Lazzara	Director	February 25, 2011

/s/ JOHN F. MCGRATH, JR. John F. McGrath, Jr.	Director	February 25, 2011

100


	12/05		12/06		12/07		12/08		12/09		12/10
Endwave Corporation		100.00		91.94		61.71		20.37		20.71		19.35
NASDAQ Composite		100.00		111.74		124.67		73.77		107.12		125.93
NASDAQ Telecommunications		100.00		131.50		146.22		85.43		118.25		129.78


		Page No.

PART I
Item 1.	Business		4
Item 1A.	Risk Factors		13
Item 1B.	Unresolved Staff Comments		25
Item 2.	Properties		25
Item 3.	Legal Proceedings		25

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		26
Item 6.	Selected Consolidated Financial Data		28
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		44
Item 8.	Financial Statements and Supplementary Data		45
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		76
Item 9A.	Controls and Procedures		76
Item 9B.	Other Information		76

PART III
Item 10.	Directors, Executive Officers and Corporate Governance		77
Item 11.	Executive Compensation		81
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		92
Item 13.	Certain Relationships and Related Transactions and Director Independence		94
Item 14.	Principal Accounting Fees and Services		95

PART IV
Item 15.	Exhibits and Financial Statement Schedules		95
SIGNATURES			100
EX-23.1
EX-31.1
EX-31.2
EX-32.1


*		$100 invested on 12/31/05 in stock or index-including reinvestment of dividends.
		Fiscal year ending December 31.


Item 8.	*Financial Statements and Supplementary Data*


	Page
	Number

Report of Independent Registered Public Accounting Firm		46
Consolidated Balance Sheets		47
Consolidated Statements of Operations		48
Consolidated Statements of Stockholders’ Equity		49
Consolidated Statements of Cash Flows		50
Notes to Consolidated Financial Statements		51


			Additions
			(Reductions)
	Balance at		Charged to			Deductions		Balance Transferred			Balances at
	Beginning of		Costs and			and		Due to Sale of the			End of
	Period		Expense			Write-offs		Business			Period
	(In thousands)

Year ended December 31, 2010	$	19	$	(1	)	$	—	$	—		$	18

Year ended December 31, 2009	$	64	$	(27	)	$	—	$	(18	)	$	19

Year ended December 31, 2008	$	67	$	(3	)	$	—	$	—		$	64