e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

000-31635
(Commission file number)

ENDWAVE CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		95-4333817
(State of incorporation)		(I.R.S. Employer Identification No.)

130 Baytech Drive
San Jose, CA		95134
(Address of principal executive offices)		(Zip code)

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

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

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

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

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 number of shares of the registrant’s common stock outstanding as of October 26, 2007 was 11,620,503 shares. The number of shares of the registrant’s preferred stock outstanding as of October 26, 2007 was 300,000 shares.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ENDWAVE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)


	September 30,			December 31,
	2007			2006
	(unaudited)			(1)
ASSETS
Current assets:
Cash and cash equivalents	$	25,344		$	26,176
Short-term investments		33,388			41,411
Accounts receivable, net		10,089			8,713
Inventories		13,067			17,127
Other current assets		968			640

Total current assets		82,856			94,067
Long-term investments		6,629			—
Property and equipment, net		2,829			2,024
Other assets, net		227			110
Restricted cash		25			261
Goodwill and intangible assets, net		7,773			4,191

	$	100,339		$	100,653

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	3,981		$	4,280
Accrued warranty		2,975			2,928
Accrued compensation		2,664			2,652
Other current liabilities		1,906			1,164

Total current liabilities		11,526			11,024
Other long-term liabilities		116			231

Total liabilities		11,642			11,255

Contingencies (Note 8)
Stockholders’ equity:
Convertible preferred stock, $0.001 par value; 5,000,000 shares authorized; 300,000 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively		—			—
Common stock, $0.001 par value; 50,000,000 shares authorized; 11,620,503 and 11,556,946 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively		12			12
Additional paid-in capital		360,830			357,203
Treasury stock, at cost, 39,150 shares at September 30, 2007 and December 31, 2006		(79	)		(79	)
Accumulated other comprehensive loss		(11	)		(25	)
Accumulated deficit		(272,055	)		(267,713	)

Total stockholders’ equity		88,697			89,398

	$	100,339		$	100,653


(1)		Derived from the Company’s audited consolidated financial statements as of December 31, 2006.

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

ENDWAVE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(unaudited)


	Three months ended					Nine months ended
	September 30,					September 30,
	2007			2006		2007			2006
Revenues:
Product revenues	$	13,608		$	18,452	$	41,339		$	47,931
Development fees		186			384		745			977

Total revenues		13,794			18,836		42,084			48,908


Costs and expenses:
Cost of product revenues*		9,940			12,815		30,768			34,245
Cost of product revenues, amortization of intangible assets		149			113		399			337
Research and development*		2,792			2,389		7,906			6,579
Selling, general and administrative*		3,230			3,353		9,709			9,845
Amortization of intangible assets		180			39		352			117


Total costs and expenses		16,291			18,709		49,134			51,123


Income (loss) from operations		(2,497	)		127		(7,050	)		(2,215	)
Interest and other income, net		842			784		2,708			1,741

Net income (loss)	$	(1,655	)	$	911	$	(4,342	)	$	(474	)


Basic net income (loss) per share	$	(0.14	)	$	0.08	$	(0.37	)	$	(0.04	)
Diluted net income (loss) per share	$	(0.14	)	$	0.06	$	(0.37	)	$	(0.04	)

Shares used in computing basic net income (loss) per share		11,618,746			11,436,417		11,590,059			11,403,728
Shares used in computing diluted net income (loss) per share		11,618,746			14,676,969		11,590,059			11,403,728


*		Includes the following amounts related to stock-based compensation:


Cost of product revenues	$	200	$	120	$	495	$	334
Research and development	$	230	$	129	$	612	$	409
Selling, general and administrative	$	681	$	629	$	1,994	$	1,821

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

ENDWAVE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)


	Nine months ended
	September 30,
	2007			2006
Operating activities:
Net loss	$	(4,342	)	$	(474	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		730			670
Amortization of intangible assets		751			454
Stock compensation expense		3,101			2,564
Amortization of investments, net		(3	)		75
Loss on the sale of equipment		4			84
Changes in operating assets and liabilities:
Accounts receivable, net		(660	)		(2,335	)
Inventories		5,209			(1,843	)
Other assets		(170	)		(6	)
Accounts payable		(380	)		2,602
Accrued warranty		(111	)		(284	)
Accrued compensation, other current liabilities and other long-term liabilities		(590	)		684

Net cash provided by operating activities		3,539			2,191


Investing activities:
Purchase of ALC Microwave, Inc., net of cash acquired		(5,779	)		—
Change in restricted cash		236			(236	)
Proceeds on sale of property		11			5
Purchases of property and equipment		(748	)		(1,379	)
Proceeds on maturities of short-term investments		51,895			(30,550	)
Purchases of investments		(50,474	)		8,800

Net cash used in investing activities		(4,859	)		(23,360	)


Financing activities:
Proceeds from the sale of Series B preferred stock and warrants, net of issuance costs		(8	)		43,107
Proceeds from common stock issuance		368			379
Proceeds from exercises of stock options, net of issuance costs		138			257

Net cash provided by financing activities		498			43,743


Effect of foreign exchange rate changes on cash and cash equivalents		(10	)		—


Net increase (decrease) in cash and cash equivalents		(832	)		22,574
Cash and cash equivalents at beginning of period		26,176			8,456

Cash and cash equivalents at end of period	$	25,344		$	31,030

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

ENDWAVE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. Business and Basis of Presentation

Endwave Corporation and its wholly-owned subsidiaries, Endwave Defense Systems Incorporated and ALC Microwave, Inc. (together referred to as “Endwave” or the “Company”), design, manufacture and market radio frequency (“RF”) modules that enable the transmission, reception and processing of high frequency signals in telecommunication networks, defense electronics and homeland security systems. The Company’s RF modules are typically used in high-frequency applications and include:

	°		integrated transceivers – combinations of electronic devices that combine both the transmit and receive functions necessary for a bi-directional radio link;

	°		amplifiers — electronic devices used to increase the amplitude and power of an electronic signal;

	°		synthesizers — electronic devices that can be used to generate several different radio frequency signals from a single source;

	°		oscillators — electronic devices that generate radio frequency signals at a fixed frequency;

	°		up and down converters — electronic devices that shift the center frequency of a radio signal without altering the signal’s data modulation;

	°		frequency multipliers — electronic devices that increase the frequency of a radio signal in integer multiples; and

	°		microwave switch arrays — electronic devices that can switch the routing of a radio signal.

The accompanying unaudited condensed consolidated financial statements of Endwave have been prepared in conformity with accounting principles generally accepted in the United States of America and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not contain all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The year-end condensed consolidated balance sheet data was derived from the Company’s audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, the information contained herein reflects all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of the results of the interim periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2007 or any future periods. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2006.

2. Business Combination

On April 19, 2007, the Company purchased all of the outstanding shares of the capital stock of privately-held ALC Microwave, Inc. (“ALC”), a provider of logarithmic amplifier subsystems to defense markets, for approximately $7.0 million. The total purchase price of $7.0 million consists of $6.8 million in cash paid or payable to holders of ALC capital stock and related options and $115,000 in direct transaction costs. The purchase price is payable in three installments. The first installment of $5.7 million was paid at closing. A second installment of $140,000 was paid on April 30, 2007 and the third installment of up to $1.0 million is to be paid on the first anniversary of the closing. The acquisition has been accounted for as a purchase in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations.”

ALC’s products are incorporated in a variety of applications such as early warning radars, threat detection equipment, electronic countermeasures and missile guidance systems. ALC provides microwave and millimeter wave components and subsystems for defense electronic platforms. This acquisition is complementary to the Company’s existing portfolio of RF module products, and allows it to expand its product offerings and presence in the defense, commercial radar and homeland security markets.

The transaction was accounted for under the purchase method of accounting and, accordingly, the results of operations of ALC are included in the accompanying unaudited condensed consolidated statements of operations for all periods or partial periods subsequent to the acquisition date.

The net tangible assets acquired and liabilities assumed in the acquisition were recorded at fair value. The Company determined the valuation of the identifiable intangible assets using future revenue assumptions in a valuation analysis. The amounts allocated to the identifiable intangible assets were determined through established valuation techniques accepted in the technology industry.

The income approach, which includes an analysis of the cash flows and risks associated with achieving such cash flows, was used to value all of the identifiable intangible assets. Key assumptions used in analyzing the expected cash flows from the identifiable intangible assets included our estimates of revenue growth, cost of sales, discount rate, operating expenses and taxes. The purchase price in excess of the identified tangible and intangible assets was allocated to goodwill.

The aggregate purchase price for the ALC acquisition has been allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition as follows (in thousands):


Tangible assets acquired:
Cash	$	178
Accounts receivable		716
Inventory		1,121
Property, plant and equipment		802
Other current assets		275
Liabilities assumed:
Accounts payable		(81	)
Accrued compensation		(221	)
Accrued warranty		(158	)
Other current liabilities		(13	)
Identifiable intangible assets acquired:
Core/developed technology		880
Tradename		230
Customer relationships		900
Customer backlog		560
Non-compete agreement		370
Goodwill		1,393

Total purchase price	$	6,952

Pro forma financial information

The following table presents the unaudited pro forma financial information for the combined entity of Endwave and ALC for the three and nine month periods ended September 30, 2007 and 2006, as if the acquisition had occurred at the beginning of the periods presented after giving effect to certain purchase accounting adjustments. ALC was acquired on April 19, 2007. ALC’s results of operations for the period from April 1, 2007 through April 18, 2007 are excluded as they are considered immaterial.


	Three months ended					Nine months ended
	September 30,					September 30,
	2007			2006		2007			2006
	(in thousands except per share amounts)
Net revenue	$	13,794		$	20,341	$	43,434		$	53,082

Net income (loss)	$	(1,655	)	$	1,076	$	(4,563	)	$	(177	)

Basic net income (loss) per share	$	(0.14	)	$	0.09	$	(0.39	)	$	(0.02	)

Diluted net income (loss) per share	$	(0.14	)	$	0.07	$	(0.39	)	$	(0.02	)

These results are presented for illustrative purposes only and are not necessarily indicative of the actual operating results or financial position that would have occurred if the Company and ALC had been a consolidated entity during the periods presented.

3. Restricted Cash

At September 30, 2007, the Company had a $25,000 certificate of deposit that secured a letter of credit in connection with the Company’s building lease in Andover, Massachusetts. The $25,000 certificate of deposit will be maintained by the Company for the term of the lease, which terminates on November 30, 2008.

At December 31, 2006, the Company had $261,000 in restricted cash which represented two certificates of deposit held by a financial institution as collateral for two letters of credit in connection with two of the Company’s leases. As noted above, the $25,000 certificate of deposit secures a letter of credit in connection with the Company’s building lease in Andover, Massachusetts. A $236,000 certificate of deposit secured a letter of credit in connection with the Company’s building lease in San Jose, California. The $236,000 certificate of deposit was released in 2007 because the Company met certain revenue targets in accordance with the lease agreement.

4. Investments

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.


	September 30, 2007
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
	(In thousands)
Investments:
United States government agencies	$	1,507	$	4	$	—		$	1,511
Corporate securities		8,573		6		(11	)		8,568
Obligations of states and political subdivisions		29,938		—		—			29,938

Total	$	40,018	$	10	$	(11	)	$	40,017

Cash equivalents:
Commercial paper	$	14,444	$	—	$	—		$	14,444
Others	$	4,000	$	—	$	—		$	4,000

Total	$	18,444	$	—	$	—		$	18,444


	December 31, 2006
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
	(In thousands)
Short-term investments:
United States government agencies	$	2,000	$	—	$	(11	)	$	1,989
Corporate securities		3,871		—		(9	)		3,862
Obligations of states and political subdivisions		29,750		—		—			29,750
Commercial paper		5,815		—		(5	)		5,810

Total	$	41,436	$	—	$	(25	)	$	41,411

Cash equivalents:
Commercial paper	$	21,799	$	—	$	—		$	21,799

At September 30, 2007, the Company had $33.4 million of short-term investments with maturities of less than one year and $6.6 million of long-term investments with maturities between one and two years.

At September 30, 2007, the Company had net unrealized losses of $1,000 related to $10.1 million of investments in debt securities. None of these securities were in an unrealized loss position for a period of greater than one year. The decline in value of these investments is primarily related to changes in interest rates. The investments mature through 2009 and the Company believes that it has the ability to hold these investments until the maturity date. Realized gains and losses were insignificant for the three and nine month periods ended September 30, 2007 and 2006.

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 ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

5. Inventories

Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market and consisted of the following (in thousands):


	September 30,		December 31,
	2007		2006
Raw materials	$	9,564	$	10,174
Work in process		1,964		1,829
Finished goods.		1,539		5,124

	$	13,067	$	17,127

6. Goodwill and Intangible Assets

Goodwill

At September 30, 2007, the Company had goodwill of $3.0 million, $1.6 million associated with its purchase of JCA Technology, Inc. (“JCA”) in July of 2004 and $1.4 million associated with its purchase of ALC in April of 2007. The Company conducted its 2007 annual goodwill impairment analysis of the JCA and ALC related goodwill in the third quarter of 2007 and no goodwill impairment was indicated.

Intangible Assets

In April 2007, as part of the ALC acquisition, the Company acquired $2.9 million of identifiable intangible assets including $900,000 for customer relationships, $880,000 for developed technology, $560,000 for customer backlog, $370,000 for the non-compete agreement and $230,000 for the tradename. These assets are subject to amortization and have approximate estimated useful lives as follows: customer relationships – six years, developed

technology – six years, customer backlog – two years, non-compete agreement – four years, and tradename – six years.

In July 2004, as part of the JCA Technology, Inc. acquisition, we acquired $4.2 million of identifiable intangible assets, including $2.3 million for developed technology, $1.1 million for the tradename, $780,000 for customer relationships and $140,000 for customer backlog. The JCA intangible assets are subject to amortization and have approximate estimated useful lives as follows: developed technology — five years, customer backlog — six months and customer relationships — five years.

The components of intangible assets as of September 30, 2007 were as follows (in thousands):


	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
Developed technology	$	3,130	$	(1,487	)	$	1,643
Tradename		1,290		(17	)		1,273
Customer relationships		1,680		(557	)		1,123
Customer backlog		700		(257	)		443
Non-compete agreement		370		(38	)		332

Total intangible assets	$	7,170	$	(2,356	)	$	4,814

The components of intangible assets as of December 31, 2006 were as follows (in thousands):


	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
Developed technology	$	2,250	$	(1,088	)	$	1,162
Tradename		1,060		—			1,060
Customer relationships		780		(377	)		403
Customer backlog		140		(140	)		—

Total intangible assets	$	4,230	$	(1,605	)	$	2,625

The amortization of developed technology is a charge to cost of goods sold and was $149,000 and $113,000 for the three months ended September 30, 2007 and 2006, respectively, and $399,000 and $337,000 for the nine months ended September 30, 2007 and 2006, respectively. Amortization of all other intangible assets is a charge to operating expenses and was $180,000 and $39,000 for the three months ended September 30, 2007 and 2006, respectively, and $352,000 and $117,000 for the nine months ended September 30, 2007 and 2006, respectively.

The JCA tradename has a gross carrying value of $1.1 million and is not subject to amortization and is evaluated for impairment at least annually or more frequently if events and changes in circumstances suggest that the carrying amount may not be recoverable. The Company conducted its 2007 annual impairment analysis of the tradename in the third quarter of 2007 and no impairment was indicated. The ALC tradename is amortized as it has an estimated economic life.

The future amortization of the identifiable intangible assets is as follows (in thousands):


Years Ending December 31
2007 (October 1 through December 31)	$	328
2008		1,314
2009		874
2010		428
2011		366
Thereafter		444

	$	3,754

7. Warranty

The warranty periods for the Company’s products are between one and two years from date of shipment. Warranty expense is based on estimated in-warranty product returns. 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 product warranty liability were as follows (in thousands):


	Nine months ended
	September 30,
	2007			2006
Balance at January 1	$	2,928		$	3,257
Warranties accrued		660			654
Warranties settled or reversed		(613	)		(938	)

Balance at September 30	$	2,975		$	2,973

8. Contingencies

The Company is not currently party to any material litigation. The Company is, from time to time, involved in legal proceedings arising in the ordinary course of business such as worker’s compensation and accounts receivable collections, among others. While there can be no assurances as to the ultimate outcome of any litigation involving the Company, management does not believe any pending legal proceedings will result in judgment or settlement that will have a material adverse effect on the Company’s condensed consolidated financial position, results of operations or cash flows.

9. Stock-Based Compensation

Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised 2004) “Share-Based Payment” (“SFAS No. 123 (R)”). SFAS No. 123 (R) establishes accounting for stock-based awards exchanged for employee services. Under SFAS No. 123 (R), 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-based compensation awards are accounted for as equity instruments. The Company previously applied Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations and provided the required pro forma disclosures of SFAS No. 123, “Accounting for Stock-Based Compensation”.

The impact of stock-based compensation expense for the three months ended September 30, 2007 and 2006 was as follows (in thousands, except per share data):


	Three months ended
	September 30,
	2007			2006
Stock-based compensation expense by type of award:
Employee stock options	$	1,004		$	799
Employee stock purchase plan		124			86
Amounts capitalized as inventory		(17	)		(7	)

Total stock-based compensation		1,111			878
Tax effect of stock-based compensation		—			—

Total stock-based compensation expense	$	1,111		$	878

Impact on basic net income (loss) per share	$	(0.10	)	$	(0.08	)

Impact on diluted net income (loss) per share	$	(0.10	)	$	(0.06	)

The impact of stock-based compensation expense for the nine months ended September 30, 2007 and 2006 was as follows (in thousands, except per share data):


	Nine months ended
	September 30,
	2007			2006
Stock-based compensation expense by type of award:
Employee stock options	$	2,842		$	2,288
Employee stock purchase plan		304			302
Amounts capitalized as inventory		(45	)		(26	)

Total stock-based compensation		3,101			2,564
Tax effect of stock-based compensation		—			—

Total stock-based compensation expense	$	3,101		$	2,564

Impact on net basic and diluted loss per share	$	(0.27	)	$	(0.22	)

During the three months ended September 30, 2007 and 2006, the Company granted options to purchase 15,100 and 58,700 shares of common stock, respectively, with an estimated total grant-date fair value of $74,000 and $413,000, respectively. Of these amounts, the Company estimated that the stock-based compensation expense of the awards not expected to vest was $21,000 and $119,000, respectively.

During the nine months ended September 30, 2007 and 2006, the Company granted options to purchase 763,350 and 599,900 shares of common stock, respectively, with an estimated total grant-date fair value of $4.9 million and $3.9 million, respectively. Of these amounts, the Company estimated that the stock-based compensation expense of the awards not expected to vest was $1.4 million and $1.1 million, respectively.

As of September 30, 2007, the unrecorded stock-based compensation balance related to stock options was $3.0 million and will be recognized over an estimated weighted-average service period of 1.4 years. As of September 30, 2007, the unrecorded stock-based compensation balance related to the employee stock purchase plan was $355,000 and will be recognized over an estimated weighted average service period of 0.6 years.

Valuation Assumptions

The Company estimates the fair value of stock options using a Black-Scholes option valuation model, consistent with the provisions of SFAS No. 123 (R) and Securities and Exchange Commission Staff Accounting Bulletin No. 107. 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:


	Three months ended						Nine months ended
	September 30,						September 30,
	2007			2006			2007			2006
Risk-free interest rate		4.56	%		5.45	%		4.74	%		4.69	%
Expected life of options	3.4 years			4.6 years			3.6 years			4.6 years
Expected dividends		0.0	%		0.0	%		0.0	%		0.0	%
Volatility		70	%		70	%		70	%		79	%

The fair value of purchase rights under the employee stock purchase plan is determined using the Black-Scholes option valuation model with the following weighted-average assumptions:


	Three months ended						Nine months ended
	September 30,						September 30,
	2007			2006			2007			2006
Risk-free interest rate		4.90	%		5.00	%		4.86	%		4.84	%
Expected life of options	1.1 years			1.3 years			1.2 years			0.8 years
Expected dividends		0.0	%		0.0	%		0.0	%		0.0	%
Volatility		51	%		51	%		51	%		61	%

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 and the expected moderation in future volatility 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 cancellations of options by employees.

The weighted-average grant date fair value of the options granted under the Company’s stock option plans was $4.91 and $7.04 per share for the three months ended September 30, 2007 and 2006, respectively. The total intrinsic value of options exercised during the three months ended September 30, 2007 and 2006 was $23,000 and $595,000, respectively.

The weighted-average grant date fair value of the options granted under the Company’s stock option plans was $6.43 and $6.51 per share for the nine months ended September 30, 2007 and 2006, respectively. The total intrinsic value of options exercised during the nine months ended September 30, 2007 and 2006 was $146,000 and $855,000, respectively.

Equity Incentive Program

The Company’s equity incentive program is a broad-based, long-term retention program designed to align stockholder and employee interests. Under the Company’s equity incentive program, stock options generally have a vesting period of four years, are exercisable for a period not to exceed ten years from the date of issuance and are generally granted at prices not less than the fair market value of the Company’s common stock at the grant date.

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


						Weighted-
				Weighted-		Average		Aggregate
				Average		Remaining		Intrinsic
	Number of			Exercise		Contractual		Value
	Shares			Price		Term (Years)		(In thousands)
Outstanding at December 31, 2006		1,732,669		$	13.59
Options granted		763,350			12.26
Options exercised		(23,812	)		6.02
Options cancelled		(19,794	)		13.73

Outstanding at September 30, 2007		2,452,413		$	13.25		8.01	$	2,328

Options vested and exercisable and expected to be exercisable at September 30, 2007		2,214,799		$	13.41		7.90	$	2,242
Options vested and exercisable at September 30, 2007		1,227,197		$	14.90		7.22	$	1,841

At September 30, 2007, the Company had 1,712,776 shares available for grant under its stock option plans.

The options outstanding and vested and exercisable at September 30, 2007 were in the following exercise price ranges:


							Options Vested and Exercisable
Options Outstanding at September 30, 2007							At September 30, 2007
					Weighted-Average
			Weighted-Average		Remaining				Weighted-Average
Range of Exercise Price	Shares		Exercise Price		Contractual Life		Shares		Exercise Price
$ 0.76 - $ 9.32		305,183	$	4.96		6.59		225,557	$	3.47
$ 9.56 - $ 9.75		34,332	$	9.64		8.01		15,168	$	9.70
$ 9.77 - $ 9.77		360,799	$	9.77		8.36		132,155	$	9.77
$9.90 - $10.20		322,022	$	10.04		8.30		105,498	$	10.18
$10.22 - $11.58		251,381	$	10.38		6.91		183,058	$	10.42
$11.75 - $12.90		161,937	$	12.45		8.08		65,533	$	12.46
$13.23 - $13.23		538,575	$	13.23		9.37		69,141	$	13.23
$15.14 - $21.47		308,834	$	19.64		7.44		261,737	$	20.19
$24.00 - $45.80		159,350	$	34.58		7.82		159,350	$	34.58
$56.00 - $56.00		10,000	$	56.00		2.82		10,000	$	56.00

$ 0.76 - $56.00		2,452,413	$	13.25		8.01		1,227,197	$	14.90

Employee Stock Purchase Plan

In October 2000, the Company established the Endwave Corporation Employee Stock Purchase Plan. All employees who work a minimum of 20 hours per week and are customarily employed by the Company (or an affiliate thereof) for at least five months per calendar year are eligible to participate. Under this purchase plan, employees may purchase shares of common stock through payroll deductions of up to 15% of their earnings with a limit of 3,000 shares per 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. The compensation expense in connection with the purchase plan for the three months ended September 30, 2007 and 2006 was $124,000 and $86,000, respectively. The compensation expense in connection with the purchase plan for the nine months ended September 30, 2007 and 2006 was $304,000 and $302,000, respectively. During the second quarter of 2007, there were 42,345 shares issued under the purchase plan at a weighted average price of $8.70 per share. During the second quarter of 2006, there were 41,522 shares issued under the purchase plan at a weighted average price of $9.14 per share. At September 30, 2007, there were 310,526 shares available for purchase under the purchase plan.

10. Net Income (Loss) Per Share

The Company computes basic net income (loss) per share by dividing the net income (loss) for the period by the weighted average number of shares of common stock outstanding during 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, warrant to purchase convertible preferred stock, stock options to purchase common stock, and shares to be purchased in connection with the Company’s stock purchase plan.

The shares used in the computation of the Company’s basic and diluted net income (loss) per common share were as follows:


	Three months ended September 30,				Nine months ended September 30,
	2007		2006		2007		2006
Weighted average common shares outstanding		11,618,746		11,436,417		11,590,059		11,403,728
Dilutive effect of convertible preferred stock		—		3,000,000		—		—
Dilutive effect of employee stock options		—		234,974		—		—
Dilutive effect of the employee stock purchase plan		—		5,578		—		—

Weighted average diluted common shares outstanding		11,618,746		14,676,969		11,590,059		11,403,728

The Company’s currently-outstanding 300,000 preferred shares were convertible into 3,000,000 shares of common stock as of September 30, 2007 and 2006. Additionally, as of September 30, 2007 and 2006, the Company had an outstanding warrant that granted the holder the right to purchase 90,000 shares of preferred stock, which would be convertible into 900,000 shares of common stock. Shares of common stock associated with the preferred stock issuable upon the exercise the outstanding warrant were not included in the calculation of diluted net income per share, as the effect would be anti-dilutive because the average market price of the Company’s common stock was below the effective exercise price of the warrant.

For the three and nine months ended September 30, 2007, shares associated with common stock issuable upon the conversion of the preferred shares, options to purchase 2,452,413 shares of common stock, and shares purchasable under the Company’s stock purchase plan were not included in the calculation of diluted net loss per share as the effect would have been anti-dilutive.

For the three months ended September 30, 2006, options to purchase 1,180,198 shares of common stock were not included in the calculation of diluted net income per share because these options were anti-dilutive as the exercise prices exceeded the average market price for the quarter ended September 30, 2006. Under the Company’s stock purchase plan, 45,680 shares purchasable were not included in the calculation of diluted net income per share because these purchasable shares were anti-dilutive at September 30, 2006. However, these options and purchasable shares could be dilutive in the future.

For the nine months ended September 30, 2006, shares associated with common stock issuable upon the conversion of the preferred shares, options to purchase 1,762,954 shares of common stock, and shares purchasable under the Company’s stock purchase plan were not included in the calculation of diluted net loss per share as the effect would have been anti-dilutive.

11. Comprehensive Income (Loss)

Comprehensive income (loss) generally represents all changes in stockholders’ equity except those resulting from investments or contributions by stockholders. These changes are recorded directly as a separate component of stockholders’ equity and are excluded from net income (loss). The Company’s comprehensive income (loss) includes unrealized gains and losses on its available-for-sale securities and translation adjustments.

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


	Three months ended September 30,					Nine months ended September 30,
	2007			2006		2007			2006
Net income (loss)	$	(1,655	)	$	911	$	(4,342	)	$	(474	)
Other comprehensive gain (loss)
Foreign currency translation adjustments		(10	)		—		(10	)		—
Change in net unrealized loss on Investments		39			29		24			24

Comprehensive income (loss)	$	(1,626	)	$	940	$	(4,328	)	$	(450	)

12. Segment Disclosures

The Company operates in a single segment. The Company’s product sales by geographic area (based on location of customer) for the three and nine months ended September 30, 2007 and 2006 were as follows (in thousands and as a percentage of total revenues):


	Three months ended September 30,
	2007				2006
United States	$	2,492	18.1	%	$	2,162	11.5	%
Finland		8,560	62.1	%		11,475	60.9	%
Italy		497	3.6	%		1,887	10.0	%
Norway		543	3.9	%		2,429	12.9	%
Other		1,702	12.3	%		883	4.7	%

Total	$	13,794	100.0	%	$	18,836	100.0	%


	Nine months ended September 30,
	2007				2006
United States	$	7,338	17.5	%	$	7,768	15.9	%
Finland		21,083	50.1	%		21,063	43.1	%
Italy		3,637	8.6	%		11,117	22.7	%
Norway		3,551	8.4	%		5,682	11.6	%
Other		6,475	15.4	%		3,278	6.7	%

Total	$	42,084	100.0	%	$	48,908	100.0	%

For the three months ended September 30, 2007, Nokia Siemens Networks accounted for 66% of the Company’s total revenues. For the three months ended September 30, 2006, Nokia, Nera and Siemens accounted for 61%, 13% and 10%, respectively, of the Company’s total revenues. For the three month periods presented, no other customer accounted for more than 10% of the Company’s total revenues.

For the nine months ended September 30, 2007, Nokia Siemens Networks, Nera and Nokia accounted for 38%, 17% and 15%, respectively, of the Company’s total revenues. For the nine months ended September 30, 2006, Nokia, Siemens and Nera accounted for 43%, 23% and 13%, respectively, of the Company’s total revenues. For the nine month periods presented, no other customer accounted for more than 10% of the Company’s total revenues.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements, related notes and “Risk Factors” section included elsewhere in this report on Form 10-Q, as well as the information contained under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2006. 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.

The terms “we,” “us,” “our” and words of similar import below refer to Endwave Corporation and its wholly-owned subsidiaries, Endwave Defense Systems Incorporated and ALC Microwave, Inc.

Overview

We design, manufacture and market radio frequency, or RF, modules that enable the transmission, reception and processing of high frequency signals in telecommunication networks, defense electronics and homeland security systems. Our RF modules are typically used in high-frequency applications and include integrated transceivers, amplifiers, synthesizers, oscillators, up and down converters, frequency multipliers and microwave switch arrays.

Revenues for the third quarter of 2007 were $13.8 million, representing a decrease of $5.0 million, or 27%, from the third quarter of 2006, and an increase of $255,000, or 2%, from the second quarter of 2007. Revenues for the first nine months of 2007 were $42.1 million, representing a decrease of $6.8 million, or 14%, from the first nine months of 2006. The decline in our nine month revenues in 2007 was due primarily to decreased demand from our telecommunications customers. During April 2007, our two largest customers, Nokia and Siemens, merged their telecommunications network businesses and created Nokia Siemens Networks. During the first nine months of 2007, we experienced a decrease in revenues from the Siemens product lines of Nokia Siemens Networks as they decreased purchases of legacy products that historically have been outsourced to us. The ongoing impact, if any, of this merger on our continuing relationship with the combined company is uncertain.

We continue to seek growth through enhancing our position as a leading merchant supplier of RF modules, continuing our expansion into the defense electronics and homeland security markets and pursuing strategic acquisitions. In support of this growth strategy, on April 19, 2007, we announced the acquisition of all of the outstanding capital stock of privately-held ALC Microwave, Inc. (“ALC”), a provider of logarithmic amplifier subsystems to defense markets, for approximately $6.8 million in cash.

Results of Operations

Three and nine months ended September 30, 2007 and 2006

The following table sets forth certain statement of operations data as a percentage of total revenues for the periods indicated:


	Three months ended						Nine months ended
	September 30,						September 30,
	2007			2006			2007			2006
Total revenues		100.0	%		100.0	%		100.0	%		100.0	%

Cost of product revenues		72.1			68.0			73.1			70.0
Cost of product revenues, amortization of intangible assets		1.1			0.6			0.9			0.7
Research and development		20.2			12.7			18.8			13.5
Selling, general and administrative		23.4			17.8			23.1			20.1
Amortization of intangible assets		1.3			0.2			0.8			0.2

Total costs and expenses		118.1			99.3			116.8			104.5

Income (loss) from operations		(18.1	)		0.7			(16.8	)		(4.5	)
Interest and other income, net		6.1			4.1			6.4			3.5

Net income (loss)		(12.0	)%		4.8	%		( 10.3	)%		( 1.0	)%

Total revenues


	Three months ended September 30,							Nine months ended September 30,
	2007		2006		% Change			2007		2006		% Change
	(In thousands)							(In thousands)
Total revenues	$	13,794	$	18,836		(26.8	%)	$	42,084	$	48,908		(14.0	%)
Product revenues	$	13,608	$	18,452		(26.3	%)	$	41,339	$	47,931		(13.8	%)
Development fees	$	186	$	384		(51.6	%)	$	745	$	977		(23.7	%)

Total revenues consist of product revenues and development fees. Product revenues are attributable to sales of our RF modules. Development fees are attributable to the development of product prototypes and custom products pursuant to development agreements that provide for payment of a portion of our research and development or other expenses. We expect to enter into more development contracts in the future as we seek to further penetrate the defense electronics market, where development contracts are customary, but we do not expect development fees to represent a significant percentage of our total revenues for the foreseeable future.

During the three months ended September 30, 2007, total revenues decreased by 27% compared to the same period in 2006. This decrease in total revenues was due to a $5.9 million decrease in revenues from our telecommunications customers which was offset in part by an $831,000 increase in revenues from our defense and homeland security customers. For the three months ended September 30, 2007, revenues from our defense electronics and homeland security customers comprised 23% of our total revenues and revenues from our telecommunication customers comprised 77% of our total revenues.

During the nine months ended September 30, 2007, total revenues decreased by 14% compared to the same period in 2006. This decrease in total revenues was primarily due to a $7.6 million decrease in revenues from our telecommunications customers which was offset in part by a $779,000 increase in revenues from our defense and homeland security customers. The decrease in telecommunication revenue was primarily attributable to decreased revenues from the Siemens product lines of Nokia Siemens Networks as they decreased purchases of legacy products that historically have been outsourced to us. For the nine months ended September 30, 2007, revenues from our defense electronics and homeland security customers comprised 20% of our total revenues and revenues from our telecommunication customers comprised 80% of our total revenues.

Cost of product revenues


	Three months ended September 30,									Nine months ended September 30,
	2007			2006			% Change			2007			2006			% Change
	(In thousands)									(In thousands)
Cost of product revenues	$	9,940		$	12,815			(22.4	%)	$	30,768		$	34,245			(10.2	%)
Percentage of total revenues		72.1	%		68.0	%					73.1	%		70.0	%

Cost of product revenues consists primarily of: costs of direct materials and labor utilized to assemble and test our products; equipment depreciation; costs associated with procurement, production control, quality assurance and manufacturing engineering; costs associated with maintaining our manufacturing facilities; fees paid to our offshore

manufacturing 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 the third quarter of 2007, the cost of product revenues as a percentage of revenues increased primarily due to the decreased absorption of our overhead costs resulting from decreased production. The cost of product revenues in both periods was favorably impacted by the utilization of inventory that was previously written off, amounting to approximately $62,000 during the third quarter of 2007 and $129,000 during the third quarter of 2006.

During the first nine months of 2007, the cost of product revenues as a percentage of revenues increased due primarily to the decreased absorption of our overhead costs resulting from decreased total revenues, the write down of certain raw material inventory to the lower of cost or market pursuant to a price decrease from our supplier and increased inventory reserves associated with the end of life of one our customer programs. The cost of product revenues in both periods was favorably impacted by the utilization of inventory that was previously written off, amounting to approximately $477,000 during the first nine months of 2007 and $458,000 during the first nine months of 2006.

We intend to 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


	Three months ended September 30,									Nine months ended September 30,
	2007			2006			% Change			2007			2006			% Change
	(In thousands)									(In thousands)
Research and development expenses	$	2,792		$	2,389			16.9	%	$	7,906		$	6,579			20.2	%
Percentage of total revenues		20.2	%		12.7	%					18.8	%		13.5	%

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 the three months ended September 30, 2007, research and development costs increased both as a percentage of total revenues and in absolute dollars compared to the same period in 2006. The increase in research and development costs was primarily attributable to an increase of $190,000 for research and development project-related expenses, an increase of $136,000 related to acquisition of the ALC engineering group, and an increase of $101,000 for SFAS No. 123 (R) stock-based compensation expense.

During the first nine months of 2007, research and development costs increased both as a percentage of total revenues and in absolute dollars compared to the same period in 2006. The increase in research and development costs was primarily attributable to an increase of $443,000 for research and development project-related expenses, an increase of $383,000 of personnel-related expenses, an increase of $230,000 related to acquisition of the ALC engineering group, and an increase of $203,000 for SFAS No. 123 (R) stock-based compensation expense.

During the remainder of 2007, we anticipate research and development expenses will remain relatively constant in absolute dollar terms.

Selling, general and administrative expenses


	Three months ended September 30,									Nine months ended September 30,
	2007			2006			% Change			2007			2006			% Change
	(In thousands)									(In thousands)
Selling, general and administrative expenses	$	3,230		$	3,353			(3.7	%)	$	9,709		$	9,845			(1.4	%)
Percentage of total revenues		23.4	%		17.8	%					23.1	%		20.1	%

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

During the third quarter of 2007, selling, general and administrative expenses increased as a percentage of revenues but decreased in absolute dollars compared to the same period in 2006. The decrease in absolute dollars was due to a decrease of $161,000 in personnel-related expenses which was partially offset by an increase of $52,000 for SFAS No. 123 (R) stock-based compensation expense.

During the first nine months of 2007, selling, general and administrative expenses increased as a percentage of revenues but decreased in absolute dollars compared to the same period in 2006. The decrease in absolute dollars was primarily due to a decrease of $305,000 in sales commissions which was partially offset by an increase of $173,000 for SFAS No. 123 (R) stock-based compensation expense.

During the remainder of 2007, we anticipate selling, general and administrative expenses will remain relatively constant in absolute dollar terms.

Amortization of intangible assets


	Three months ended September 30,							Nine months ended September 30,
	2007		2006		% Change			2007		2006		% Change
	(In thousands)							(In thousands)
Cost of product revenues, amortization of intangible assets	$	149	$	113		31.9	%	$	399	$	337		18.4	%
Amortization of intangible assets	$	180	$	39		361.5	%	$	352	$	117		200.9	%

As part of our acquisition of ALC in April 2007, we acquired $2.9 million of identifiable intangible assets, including $900,000 for customer relationships, $880,000 for developed technology, $560,000 for customer backlog, $370,000 for the non-compete agreement and $230,000 for the tradename. These assets are subject to amortization and have approximate estimated useful lives as follows: customer relationships – six years, developed technology – six years, customer backlog – two years, non-compete agreement – four years, and tradename – six years.

As part of our acquisition of JCA Technology, Inc. in July 2004, we acquired $4.2 million of identifiable intangible assets, including $2.3 million for developed technology, $1.1 million for the tradename, $780,000 for customer relationships and $140,000 for customer backlog. These assets are subject to amortization and have approximate estimated useful lives as follows: developed technology – five years, customer backlog – six months and customer relationships – five years. The tradename intangible asset is not subject to amortization and will be evaluated for impairment at least annually or more frequently if events and changes in circumstances suggest that the carrying amount may not be recoverable.

The amortization associated with the developed technology is a charge to cost of product revenues. The amortization associated with the developed technology was $149,000 for the third quarter of 2007 and $113,000 for the third quarter of 2006. The increase in cost of product revenues, amortization of intangible assets was due to $36,000 of amortization for the ALC developed technology.

During the first nine months of 2007, the amortization associated with the developed technology was $399,000 compared to $337,000 during the first nine months of 2006. The increase in cost of product revenues, amortization of intangible assets for 2007 was due to the amortization of the ALC developed technology.

The amortization associated with the customer backlog, customer relationships, non-compete and tradename is a charge to operating expenses. During the third quarter of 2007, the $180,000 of amortization was comprised of the following: $77,000 for customer relationships, $70,000 for customer backlog, $23,000 for the non-compete agreement and $10,000 for the tradename. During the third quarter of 2006, the $39,000 of amortization was due to the amortization of customer relationships of JCA. This increase in amortization was attributable to the amortization of ALC intangibles.

During the first nine months of 2007, the $352,000 of amortization was comprised of the following: $180,000 for customer relationships, $117,000 for customer backlog, $38,000 for the non-compete agreement and $17,000 for the tradename. During the first nine months of 2006, the $117,000 of amortization was due to the amortization of customer relationships of JCA. This increase was attributable to the amortization of the ALC intangibles.

Interest and other income, net


	Three months ended September 30,							Nine months ended September 30,
	2007		2006		% Change			2007		2006		% Change
	(In thousands)							(In thousands)
Interest and other income, net	$	842	$	784		7.4	%	$	2,708	$	1,741		55.5	%

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 and gains and losses on the disposals of property and equipment. The increase in interest and other income, net during both the three and nine months ended September 30, 2007 was primarily the result of increased interest earned on our cash and investment balance maintained during the quarter.

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. For the three months ended September 30, 2007, we recorded a foreign currency transaction loss of $22,000. There were no such losses in the three and nine months ended September 30, 2006.

Liquidity and Capital Resources

At September 30, 2007, we had $25.3 million of cash and cash equivalents, $40.0 million of short-term and long-term investments, $71.3 million of working capital and no debt outstanding. The following table sets forth selected condensed consolidated statement of cash flows data:


	Nine months ended
	September 30,
	2007			2006
	(in thousands)
Net cash provided by operating activities	$	3,539		$	2,191
Net cash used in investing activities		(4,859	)		(23,360	)
Net cash provided by financing activities		498			43,743
Cash, cash equivalents, restricted cash, short- term and long-term investments at end of period	$	65,386		$	66,949

During the first nine months of 2007, operating activities provided $3.5 million of cash as compared to $2.2 million in the first nine months of 2006. Our net loss, adjusted for depreciation and other non-cash items, contributed $241,000 of cash in the first nine months of 2007 as compared to $3.4 million in first nine months of 2006. During the first nine months of 2007, the remaining $3.3 million of cash provided by operating activities was primarily due to a $5.2 million decrease in inventory which was partially offset by a $660,000 increase in accounts receivable, a $380,000 decrease in accounts payable, a $170,000 increase in other assets, a $111,000 decrease in accrued warranty and a $590,000 decrease in accrued compensation and other current and long-term liabilities.

During the first nine months of 2006, the $3.4 million of cash provided by net loss adjusted for depreciation and other non-cash items was partially offset by a use of $1.2 million due primarily to a $2.3 million increase in accounts receivable, a $1.8 million increase in inventories and a $284,000 decrease in accrued warranty partially offset by a $2.6 million increase in accounts payable and a $684,000 increase in accrued compensation, restructuring liabilities, other current and long-term liabilities.

Investing activities used cash of $4.9 million in the first nine months of 2007 and $23.4 million in the first nine months of 2006. The use of cash during the first nine months of 2007 was due to $5.8 million used for the purchase of ALC and $748,000 used for purchase of property and equipment partially offset by a $1.4 million decrease in investments and a $236,000 decrease in restricted cash. The use of cash during the first nine months of 2006 was due to a net increase of $21.8 million of short-term investments, $1.4 million of property and equipment purchases and a $236,000 increase in restricted cash.

Financing activities provided cash of $498,000 in the first nine months of 2007 as compared to $43.7 million in the first nine months of 2006. During the first nine months of 2007, we received $368,000 of cash from the proceeds of stock issuance and $138,000 from the exercise of stock options. During the second quarter of 2006, we generated $43.1 million in net proceeds from the sale of 300,000 shares of Series B preferred stock and a warrant to purchase 90,000 shares of Series B preferred stock to Oak Investment Partners XI, Limited Partnership (“Oak”). In addition to the proceeds received from Oak, during the first nine months of 2006, we received $379,000 from the sale of common stock under our employee stock purchase plan and $257,000 from the exercise of stock options.

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 summarized below, we have not entered into any off-balance sheet financing arrangements, we have not established or invested in any variable interest entities, we do not have any unconditional purchase obligations, nor do we have non-cancelable commitments for capital expenditures. We have not guaranteed the debt or obligations of other entities or entered into options on non-financial assets.

The following table summarizes our future payment obligations for all of our operating leases, excluding interest:


	Payment Due by Period
			Less Than						More Than
	Total		1 Year		1 – 3 Years		3-5 Years		5 Years
	(In thousands)
Contractual obligations:
Operating lease obligations	$	2,297	$	836	$	1,092	$	369	$	—

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Bulletin (“FASB”) issued FASB Interpretation No. 48 “Accounting for Uncertain Tax Positions – An Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109 “Accounting for Income Taxes.” It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 did not have a material impact on our financial statements or disclosures.

Item 3. Qualitative and Quantitative Disclosures about Market Risk

There have been no material changes in our reported market risks since our report on market risks in our Annual Report on Form 10-K for the year ended December 31, 2006 under the heading corresponding to that set forth above. Our exposure to market risk is materially limited to interest income sensitivity, which is affected by changes in the general level of U.S. interest rates, as our investments in cash equivalents include investment grade commercial paper and government securities. We place our investments with high-quality issuers and attempt to limit when possible the amount of credit exposure to any one issuer. Due to the nature of our investments, we do not believe we are subject to any material market risk exposure. We do not have any material equity investments or foreign currency or other derivative financial instruments.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective as of the end of the period covered by this report.

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

(b) Changes in internal controls over financial reporting.

There were no changes in our internal controls over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently party to any material litigation.

Although we are not a party to the litigation now pending in the Southern District of New York entitled “Securities and Exchange Commission v. Wood River Capital Management, LLC et al.” filed as Civil Action 05-CV-8713, we have filed a proof of claim with the Court reserving our rights to pursue claims against the defendants in such action, including possible claims for disgorgement of profits pursuant to Section 16 of the Exchange Act. We have entered into a settlement agreement and a registration rights agreement with the court appointed receiver, whom we refer to as the Receiver, for Wood River Capital Management, L.L.C. and certain of its affiliates, which we refer to collectively as the Wood River Entities, pursuant to which we have filed a registration statement covering the resale of the shares of Endwave common stock held by the Wood River Entities and have agreed to cooperate with the Receiver in a underwritten offering or registered direct offering of the Endwave shares held by the Wood River Entities.

Item 1A. Risk Factors

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

** Indicates risk factor has been updated since our Annual Report on Form 10-K for the year ended December 31, 2006.

Risks Relating to Our Business

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

We have had a history of losses. We had a net loss of $4.3 million for the first nine months of 2007. We also had net losses of $1.3 million and $874,000 for the years ended December 31, 2006 and 2005, 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 telecommunications industry for a large portion of our revenues. If we lose any of our major customers, particularly Nera or Nokia Siemens Networks, or there is any material reduction in orders for our products from any of these customers, our business, financial condition and results of operations would be adversely affected.**

We depend, and expect to continue to depend, on a relatively small number of telecom customers for a large portion of our revenues. The loss of any of our major customers, particularly Nera or Nokia Siemens Networks, 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 the first nine months of 2007, Nokia Siemens Networks accounted for 38% of our total revenues. In the first nine months of 2007, and in fiscal 2006 and 2005, revenues from Nokia accounted for 15%, 42% and 47% of our total revenues, respectively. During the same periods, revenues from Siemens accounted for 23% and 16% of our total revenues for 2006 and 2005, respectively, and revenues from Nera accounted for 17% of revenues in the first nine months of 2007 and 14% and 10% of our total revenues for 2006 and 2005, respectively. We had no other customers individually representing more than 10% of our total revenues for the first nine months of 2007, fiscal 2006 or for fiscal 2005.

During April 2007, Nokia and Siemens merged their telecommunication network businesses and created Nokia Siemens Networks. The ongoing impact, if any, of this merger on our continuing relationship with the combined company is uncertain. During the first nine months of 2007, we experienced a decrease in revenues from the Siemens product lines of Nokia Siemens Networks as they decreased purchases of legacy products that historically have been outsourced to us.

We depend on the telecommunications industry for most of our revenues. If this industry suffers another downturn or fails to grow as anticipated, our revenues could decrease and our profitability could suffer. In addition, consolidation in this industry could result in delays or cancellations of orders for our products, adversely impacting our results of operations.**

We depend, and expect to remain dependent, on the telecommunications industry for most of our revenues. Revenues from all of our telecom OEM customers comprised 80% of our total revenues in the first nine months of 2007 and 84% of our total revenues in 2006.

The telecommunications industry suffered a significant worldwide downturn beginning in 2000. In connection with this downturn, there were worldwide reductions in telecommunication network projects that resulted in the loss of some of our key customers and reduced revenues from our remaining customers. We also were forced to undertake significant cost reduction measures as a result. The telecommunications industry has begun to grow again, but at a more measured rate than in the 1990s. Our revenues are dependent, in part, on growth of wireless telephony particularly in developing countries, increasing data-intensive cellular traffic, deployment of third-generation, or “3G,” networks and the introduction of other high capacity data-only telecommunication networks. If similar downturns reoccur, or if the telecommunications industry fails to grow as we anticipate, our revenues may remain flat or decrease. Significantly lower revenues would likely force us to make provisions for excess inventory and abandoned or obsolete equipment and reduce our operating expenses. To reduce our operating expenses, we could be required to reduce the size of our workforce and consolidate facilities. We cannot guarantee that we would be able to reduce operating expenses to a level commensurate with the lower revenues resulting from such an industry downturn.

The telecommunications industry has undergone significant consolidation in the past few years and we expect that consolidation to continue. 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 of our products and, accordingly, delays or reductions in our anticipated revenues and reduced profitability or increased net losses. In particular, during April 2007 Nokia and Siemens merged their telecommunication network businesses. The ongoing impact, if any, of this merger on our ongoing relationship with the combined company is uncertain.

Implementing our acquisition strategy could result in dilution to our stockholders and operating difficulties leading to a decline in revenues and operating profit.**

One of our strategies is to grow through acquisitions. To that end, we have completed six acquisitions since our initial public offering in October 2000, including the acquisition of ALC Microwave, Inc. in April 2007. We intend to continue to pursue acquisitions in our markets that we believe will be beneficial to our business. The process of investigating, acquiring and integrating any business into our business and operations is risky and may create unforeseen operating difficulties and expenditures. The areas in which we may face difficulties include:

	•		diversion of our management from the operation of our core business;

	•		assimilating the acquired operations and personnel;

	•		integrating information technology and reporting systems;

	•		retention of key personnel;

	•		retention of acquired customers; and

	•		implementation of controls, procedures and policies in the acquired business.

In addition to the factors set forth above, we may encounter other unforeseen problems with acquisitions that we may not be able to overcome. Future acquisitions may require us to issue shares of our stock or other securities that dilute our other stockholders, expend cash, incur debt, assume liabilities, including contingent or unknown

liabilities, or create additional expenses related to write-offs or amortization of intangible assets with estimated useful lives, any of which could materially adversely affect our revenues and our operating profits.

Our future success depends in part on our ability to further penetrate into new markets, such as defense electronics and homeland security, and we may be unable to do so.**

Historically, a large majority of our revenues have been attributable to sales of our RF modules to telecom OEMs such as Nokia Siemens Networks. Part of our growth strategy is to design and sell high-frequency RF modules for and to OEMs and systems integrators in new markets, particularly defense electronics and homeland security. To date, only a modest percentage of our revenues have been attributable to sales of RF modules to defense systems integrators. We have only recently begun to design and sell products for the recently emerging homeland security market. The potential size of this market is unclear and we cannot predict how the market will evolve. If increased demand for high-frequency RF modules in the defense electronics and homeland security markets does not materialize, or if we fail to secure new design wins in these markets or if we are unable to design readily manufacturable products for these new markets, our growth and revenues could be adversely impacted, thereby decreasing our profitability or increasing our net losses.

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, overall growth in the telecommunications market, U.S. export law changes, changes in customer order patterns, 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.

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.

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-controlled oscillators;

	•		voltage regulators;

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

	•		high-frequency circuit boards;

	•		custom connectors; and

	•		yttrium iron garnet components.

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, including voltage-controlled oscillators, voltage regulators, metal enclosures and certain high-frequency circuit boards. 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.

Our cash requirements will be impacted by our need to increase inventories.**

As part of our expansion in the telecommunications market and our increased emphasis on the defense electronics and homeland security markets, we have significantly increased the number of our products during recent fiscal years. The products we manufacture require hundreds or thousands of components obtained from a wide variety of suppliers and we have faced component shortages and quality issues from our suppliers from time to time. In addition, in order to maintain and enhance our competitive position, we must be able to satisfy our customers’ short lead-times and rapidly-changing needs. As a result of these challenges, we have significant raw materials inventory and finished products in our key customers’ consignment stocks so that they will be better-positioned to meet their own customers’ demand. The raw materials and finished goods have significantly increased our working capital needs and may further increase our capital needs in the future.

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

We outsource the assembly and testing of most of our telecommunication related products to a Thailand facility of HANA Microelectronics Co., Ltd., or 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 2008, 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 rely on the semiconductor foundry operations of Northrup Grumman Space Technology, Inc. (formerly known as Velocium) and other third-party semiconductor foundries to manufacture the semiconductors contained in our products. The loss of our relationship with any of these foundries, particularly Northrup Grumman Space Technology, Inc., without adequate notice would adversely impact our ability to fill customer orders and could damage our customer relationships.**

We design 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 these components. Our largest semiconductor foundry supplier is the semiconductor foundry operations of Northrup Grumman Space Technology, Inc. If Northrop Grumman Space Technology, Inc. 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, particularly Northrop Grumman Space Technology, Inc., 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.

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 one to two years. As a result of component, manufacturing or design defects, we may be required to repair or replace a substantial number of products under our product warranties, incurring significant expenses as a result. Further, our customers may discover latent defects in our products that were not apparent when the warranty period expired. These 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 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.

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

Over the past year, we have reduced many of our prices by 10% to 15% in order to remain competitive and we expect market conditions will cause us to reduce our prices in the future. In order to reduce our per-unit cost of product revenues, we must continue to design and re-design products to require lower cost materials, improve our manufacturing efficiencies and successfully move production to lower-cost, offshore locations. 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.

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

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 of its ‘parent’ system. In the past, we have had difficulty meeting some of our major customers’ stated volume and cost requirements. The length of our product development and sales cycle makes us particularly vulnerable to the loss of a significant customer or a significant reduction in orders by a customer because we may be unable to quickly replace the lost or reduced sales.

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 telecommunication network products is designed for a specific range of frequencies. Because different national governments license different portions of the frequency spectrum for the telecommunication network 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.

In our other markets, our customers have specific requirements that can be at the forefront of technological development and therefore difficult and expensive to develop. 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 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;

	•		labor disputes;

	•		transportation disruptions;

	•		changes in import/export regulations;

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

	•		natural disasters;

	•		acts of terrorism; and

	•		political instability.

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.

As part of our strategy, we may expand our domestic manufacturing capacity beyond the level required for our current sales in order to accommodate anticipated increases in our defense electronics business. As a result, our domestic manufacturing facilities may be underutilized from time to time. Conversely, if we do not maintain adequate manufacturing capacity to meet demand for our defense electronic products, we may lose opportunities for additional sales. Any failure to have sufficient manufacturing capacity to meet demand could cause us to lose revenues, thereby reducing our profitability, or increasing our net losses, and could harm our reputation with customers.

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

Some of our customer contracts require us to manufacture products designed by our customers. While we intend to convert many of these products to products of our own design, such transitions may be difficult and/or expensive to implement and delays or difficulties in doing so could harm our operating results.

Some of our customer contracts are based on the transfer of product manufacturing from our customers’ factories to those of our contract manufacturer, HANA. Under these contracts, we may be required to manufacture the products in a manner similar to the way our customers previously manufactured them until we are able to convert these products to products of our own design. The objective of converting a product to one of our own design is to improve manufacturability and lower costs, thereby improving our gross margins. If we encounter difficulties or delays in transitioning a customer’s product to our manufacturing process, revenues attributable to that product could be delayed or lost. The cost of manufacturing a customer-designed product is typically higher than the cost of manufacturing a product of our own design. In the short term, while we are manufacturing a customer-designed product, our gross margins will be adversely impacted. Similarly, difficulties and delays in transitioning a product to a product of our own design will result in reduced profitability over the long-term.

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 September 30, 2007, we had 42 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 2007 and 2024. 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 enter into 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 design around our patents. In addition, effective patent, copyright, trademark and trade secret protection may be unavailable or limited outside of the United States, Europe and Japan. We may not be able to obtain any meaningful intellectual property protection in other countries and territories. Additionally, we may, for a variety of reasons, decide not to file for patent, copyright, or trademark protection outside of the United States. We occasionally agree to incorporate a customer’s or supplier’s intellectual property into our designs, in which 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. Moreover, litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of proprietary rights of others, including our customers. Litigation of this type could result in substantial costs and diversion of our resources.

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.

Risks Relating to Our Industry

We have increased our focus on sales to the United States government and other governmental agencies. Our revenues in this market largely depend upon the funding and implementation decisions of Congress and government agencies. These decisions could change abruptly and without notice, unexpectedly reducing our current or future revenues in this market.

Our growth is partially dependent on growth in sales to defense electronics and homeland security prime contractors as a first-tier subcontractor. Government appropriations and prime contractor reactions to changing levels of contract funding availability can cause re-programming of first-tier subcontractor requirements by prime contractors in a way that reduces our current revenues or future revenue forecasts. These funding and implementation decisions are difficult to predict and may change abruptly. As such, our quarterly revenues from these customers may fluctuate significantly from quarter to quarter. Additionally, if these funding and implementation decisions change in a manner unfavorable to us, we could find that previously expected and forecasted revenues do not materialize at all.

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

Among merchant suppliers in the telecommunication network market, we primarily compete with Compel Electronics Inc., Filtronic plc, Linkra Srl, Microelectronics Technology Inc., Remec Broadband Wireless, Inc., and Teledyne Technologies Incorporated. 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 their high-frequency RF transceiver modules, rather than use merchant suppliers like us. Additionally, during the first nine months of 2007, we experienced a decrease in revenues from the former-Siemens product lines of Nokia Siemens Networks as they increased the use of their captive resources for the manufacture of their modules. We believe that over one half of the high-frequency RF transceiver modules manufactured today are being produced by these captive resources. To the extent that telecom OEMs presently, or may in the future, produce their own RF transceiver modules, we lose the opportunity to gain a customer and the potential related sales. Further, if a telecom OEM were to sell its captive operation to a competitor, we would lose the opportunity to acquire those potential sales. In the defense electronics and homeland security markets, we primarily compete with internal captive groups within many of the large defense OEMs, along with other companies such as Aeroflex Incorporated, AML Communications Inc., Chelton, Ltd., Ciao Wireless, CTT Inc., Herley Industries, Inc., KMIC Technology, Inc., M/A-Com, Miteq, Inc. and Teledyne Technologies Incorporated.

Many of our current and potential competitors are substantially larger than us and have greater financial, technical, manufacturing and marketing resources. In addition, we have only recently begun to design and sell products for homeland security applications as the market for homeland security is only now emerging. If we are unable to compete successfully, our future operations and financial results will be harmed.

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 Restriction of Hazardous Substances Directive, or 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 new 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. In response to the new environmental regulations on health and safety in Europe and China, we are required to design and build a lead-free product. Changes to these regulations may require that we alter the performance of our products.

Risks Relating to Ownership of Our Stock

The assets of Wood River Capital Management, L.L.C. and certain of its affiliates, the holders of shares of common stock representing approximately 26.4% of our outstanding capital stock as of September 30, 2007, have been placed into receivership by the Securities and Exchange Commission, and the receiver may dispose of such shares of our common stock. Such disposition may adversely affect the trading price of our common stock.**

As of September 30, 2007, the Wood River Entities owned approximately 26.4% of our outstanding capital stock (all outstanding stock measured on an as-converted to common stock basis and assuming exercise in full of the warrant held by Oak Investment Partners XI, Limited Partnership, which we refer to as Oak). On October 13, 2005, the Securities and Exchange Commission filed an emergency action against the Wood River Entities and, concurrently with the filing of the action, an order was entered placing the Wood River Entities into receivership. As a result, Arthur J. Steinberg, solely in his capacity as the Receiver and not in his individual capacity, may also be deemed to have beneficial ownership of such shares. We have entered into a settlement agreement and a registration rights agreement with the Receiver pursuant to which we have filed the a registration statement covering the resale of the shares of Endwave common stock held by the Wood River Entities and have agreed to cooperate with the Receiver in a underwritten offering or registered direct offering of the Endwave shares held by the Wood River Entities. Any disposition of the Endwave shares held by the Wood River Entities may have the effect of reducing the trading price of our common 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 the first nine months of 2007, the lowest daily closing sales price for our common stock was $8.38 and the highest daily closing sales price for our common stock was $13.59. In 2006, the lowest daily closing sales price for our common stock was $8.98 and the highest daily closing sales price for our common stock was $17.15. 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, or short-selling or other transactions involving our securities, particularly by the Wood River Entities, Oak or other large stockholders;

	•		technological innovations or other trends or changes in the telecommunication network, defense electronics or homeland security markets;

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

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

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

	•		decisions by major participants in the communications industry not to purchase products from us or to pursue alternative technologies;

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

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

	•		the low trading volume of our common stock.

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 two shareholders that 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.**

The Wood River Entities own 4,102,247 shares of our outstanding common stock. In addition, Oak owns 300,000 shares of our Series B preferred stock that are convertible into 3,000,000 shares of our common stock and a warrant to purchase 90,000 shares of our Series B preferred stock that upon issuance will be convertible into 900,000 shares of our common stock. Assuming the exercise in full of the warrant issued to Oak and the conversion of Oak’s preferred shares into common stock, as of September 30, 2007, Oak owned approximately 25.1% of our outstanding capital stock and the Wood River Entities owned approximately 26.4% of our outstanding capital 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 Oak and the Wood River Entities allows Oak and the Wood River Entities, and the receiver of the Wood River Entities, to affect significantly 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 contain provisions that could delay or prevent a change in control.**

We are subject to certain Delaware anti-takeover laws by virtue of our status as a Delaware corporation. These laws prevent us from engaging in a merger or sale of more than 10% of our assets with any stockholder, including all affiliates and associates of any stockholder, who owns 15% or more of our outstanding voting stock, for three years following the date that the stockholder acquired 15% or more of our voting stock, unless 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 66 2/3% of our outstanding voting stock not owned by the interested stockholder. A corporation may opt out of the Delaware anti-takeover laws in its charter documents, however we have not chosen to do so. 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, during 2005, our board of directors adopted a Stockholder Rights Plan, providing for the distribution of one preferred share purchase right for each outstanding share of common stock held as of December 12, 2005, that may lead to the delay or prevention of a change in control that is not approved by our board of directors. We have an Executive Officer Severance and Retention 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 4. Submission of Matters to a Vote of Security Holders

We held our Annual Meeting of Stockholders on July 18, 2007. The results of the voting were as follows:


1.	To elect one director, Joseph J. Lazzara, to hold office until the 2010 Annual Meeting of Stockholders.

	FOR:	12,825,810	WITHHOLD:	814,232

2.	To elect one director, Eric D. Stonestrom, to hold office until the 2010 Annual Meeting of Stockholders.

	FOR:	3,000,000	WITHHOLD:	0

3.	To approve an amendment to our Certificate of Incorporation to decrease the authorized number of shares of common stock from 100,000,000 to 50,000,000.

	FOR:	12,963,282	AGAINST:	676,683	ABSTAIN:	77

4.	To approve our 2007 Equity Incentive Plan.

	FOR:	5,180,819	AGAINST:	1,647,568	ABSTAIN:	1,814

5.	To ratify the selection by the Audit Committee of the Board of Directors of Burr, Pilger & Mayer LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2007.

	FOR:	13,626,445	AGAINST:	12,094	ABSTAIN:	1,503

Item 6. Exhibits.


Number		Description
2.1(4)		Stock Purchase Agreement among the Registrant and the stockholders and option holders of ALC Microwave, Inc. dated April 19, 2007.

3.1(1)		Amended and Restated Certificate of Incorporation effective October 20, 2000.

3.2(2)		Certificate of Amendment of Amended and Restated Certificate of Incorporation effective June 28, 2002.

3.3(1)		Amended and Restated Bylaws effective October 20, 2000.

3.4(9)		Certificate of Designation for Series A Junior Participating Preferred Stock.

3.5(12)		Certificate of Designation for Series B Preferred Stock.

3.6(7)		Amendment to Amended and Restated Bylaws.

3.7		Certificate of Amendment of Amended and Restated Certificate of Incorporation effective July 26, 2007.

4.1(1)		Form of specimen Common Stock Certificate.

4.2(9)		Rights Agreement dated as of December 1, 2005 between the Registrant and Computershare Trust Company, Inc.

4.3(9)		Form of Rights Certificate

4.4(12)		Preferred Stock and Warrant Purchase Agreement by and between Oak Investment Partners XI, Limited Partnership and the Registrant dated April 24, 2006.

4.5(12)		Warrant issued to Oak Investment Partners XI, Limited Partnership.

4.6(14)		Registration Rights Agreement by and between the Registrant and Arthur Steinberg, as receiver for Wood River Capital Management, L.L.C., Wood River Associates, L.L.C., Wood River Partners, L.P. and Wood River Partners Offshore, Ltd., dated May 17, 2007.

10.1(1)		Form of Indemnity Agreement entered into by the Registrant with each of its directors and officers.

10.2(1)*		1992 Stock Option Plan.

10.3(1)*		Form of Incentive Stock Option under 1992 Stock Option Plan.

10.4(1)*		Form of Nonstatutory Stock Option under 1992 Stock Option Plan.

10.5(16)*		2007 Equity Incentive Plan.

10.6(17)*		Form of Stock Option Agreement under 2007 Equity Incentive Plan.

10.7(1)*		2000 Employee Stock Purchase Plan.

10.7(17)*		Form of Stock Option Agreement for Non-Employee Directors under the 2007 Equity Incentive Plan.

10.8(1)*		Form of 2000 Employee Stock Purchase Plan Offering.

10.9(10)*		2000 Non-Employee Directors’ Stock Option Plan, as amended.

10.10(1)*		Form of Nonstatutory Stock Option Agreement under the 2000 Non-Employee Director Plan.

10.11(11)*		Description of Compensation Payable to Non-Employee Directors.

10.12(11)*		2007 Base Salaries for Named Executive Officers.

10.13(11)*		2007 Executive Incentive Compensation Plan.

10.14(5)*		Executive Officer Severance and Retention Plan.

10.15(1)		License Agreement by and between TRW Inc. and TRW Milliwave Inc. dated February 28, 2000.

10.16(15)†		Purchase Agreement between Nokia and the Registrant dated January 1, 2006.

10.17(15)†		Frame Purchase Agreement by and between the Registrant and Siemens Mobile Communications Spa dated January 16, 2006.

10.18(13)†		Lease Agreement by and between Legacy Partners I San Jose, LLC and the Registrant dated May 24, 2006.

10.19(13)†		Supply Agreement by and between Northrop Grumman Space and Mission Systems Corp. and the Registrant dated July 25, 2006.

10.20(8)†		Services Agreement by and between Hana Microelectronics Co., Ltd. and the Registrant dated October 15, 2006.

10.21(14)		Settlement Agreement by and between the Registrant and Arthur Steinberg, as receiver for Wood River Capital Management, L.L.C., Wood River Associates, L.L.C., Wood River Partners, L.P. and Wood River Partners Offshore, Ltd., dated May 17, 2007.

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 Registration Statement on Form S-1 (Registration No. 333-41302) and incorporated herein by reference.

(2)		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.


(3)		Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on March 25, 2005 and incorporated herein by reference.

(4)		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.

(5)		Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 and incorporated herein by reference.

(6)		Previously filed as an exhibit to an amendment to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 filed on August 4, 2004 and incorporated herein by reference.

(7)		Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on February 5, 2007 and incorporated herein by reference.

(8)		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.

(9)		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.

(10)		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.

(11)		Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on February 7, 2007 and incorporated herein by reference.

(12)		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.

(13)		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.

(14)		Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on May 30, 2007 and incorporated herein by reference.

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

(16)		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.

(17)		Previously filed as an exhibit to the Registrant’s Registration Statement on Form S-8 (Registration No.333-144851) 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.


	ENDWAVE CORPORATION

Date: November 5, 2007

	By:	/s/ Edward A. Keible, Jr.
	Edward A. Keible, Jr. President and Chief Executive Officer (Duly Authorized Officer and Principal Executive Officer)

	By:	/s/ Brett W. Wallace

	Brett W. Wallace Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer)

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements		3

	Condensed Consolidated Balance Sheets as of September 30, 2007 (unaudited) and December 31, 2006		3

	Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2007 and 2006		4

	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and 2006		5

	Notes to Condensed Consolidated Financial Statements (unaudited)		6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18

Item 3.	Qualitative and Quantitative Disclosure about Market Risk		24

Item 4.	Controls and Procedures		24

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		25

Item 1A.	Risk Factors		25

Item 4.	Submission of Matters to a Vote of Security Holders		36

Item 6.	Exhibits		37

SIGNATURES			39

EXHIBITS			40
EXHIBIT 3.7
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1


Number		Description
3.7		Certificate of Amendment of Amended and Restated Certificate of Incorporation effective July 26, 2007.

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.