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

FORM 10-Q
______

For the quarterly period ended September 30, 2003

OR

For the transition period from ______to ______

000-31635
(Commission file number)
______

ENDWAVE CORPORATION
(Exact name of registrant as specified in its charter)
______

(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 [x] No[  ].

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

     The number of shares of the registrant’s Common Stock outstanding as of October 31, 2003 was 9,297,685 shares.

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ENDWAVE CORPORATION

INDEX

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ENDWAVE CORPORATION
CONDENSED BALANCE SHEETS
(In thousands, except share amounts)

(1)  Derived from the Company’s audited financial statements as of December 31, 2002

See accompanying notes.

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

See accompanying notes to the condensed financial statements.

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ENDWAVE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

See accompanying notes to the condensed financial statements.

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ENDWAVE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

1.     Unaudited Interim Financial Information

The accompanying unaudited condensed financial statements of Endwave Corporation (the “Company”) have been prepared in conformity with generally accepted accounting principles and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not contain all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying unaudited condensed financial statements reflect all adjustments, consisting of normal recurring accruals, 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, 2003. These condensed financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2002. The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

2.     Summary of Significant Accounting Policies

Revenue Recognition

     The Company’s customers are primarily wireless systems integrators and equipment manufacturers who integrate the Company’s products into their products. The Company recognizes product revenue at the time title passes, which is upon product shipment or when the product is withdrawn from a consignment location. Revenues related to product sales are recognized in accordance with SEC Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (SAB 101), when: (1) there is persuasive evidence that an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the seller’s price to the buyer is fixed or determinable, and (4) collectibility is reasonably assured. There are typically no significant acceptance requirements or post-shipment obligations on the part of the Company. The Company recognizes development fees ratably over the estimated term of the development period or when specific milestones are achieved. Up-front fees, if any, associated with development agreements are recognized over the estimated development and production period. In no event are revenues recognized prior to becoming payable by the customer. The costs incurred under these agreements are included in research and development expenses.

Related Party Transactions

     Northrop Grumman beneficially owns approximately 38.5% of the Company’s stock. In December 2001, the Company entered into an agreement with TRW, now owned by Northrop Grumman, to repair RF subsystems previously supplied by TRW to Nokia. This agreement terminates on completion of the repair of all units requiring repair. In the three and nine month periods ended September 30, 2003, the Company recognized revenues of approximately $84,000 and $223,000, respectively, related to this agreement. In the three and nine month periods ended September 30, 2002, the Company recognized revenues of approximately $104,000 and $710,000, respectively, related to this agreement.

Warranty

     The warranty periods for the Company’s products are generally between one and three years from date of shipment. The Company provides for estimated warranty expense at the time of shipment. While the Company engages in 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.

Allowance for Doubtful Accounts

     The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company provides an allowance for specific customer accounts where collection is doubtful and also provides an allowance for other accounts based on historical collection and write-off

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experience. If the financial condition of customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Cash Equivalents and Short-Term Investments

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

     The Company considers all highly liquid investments with maturity of 90 days or less when purchased to be cash equivalents. Investments with maturities between 90 days and one year are classified as short-term investments available-for-sale and are carried at fair value with unrealized gains and losses included in accumulated other comprehensive income (loss) in stockholders’ equity. If the fair value of a security is below its carrying value for each trading day for six consecutive months or if its decline is due to a significant adverse event, the impairment is considered to be other-than-temporary. Other-than-temporary declines in fair value of short-term marketable securities are charged against other income.

Restricted Cash

     The Company refinanced some of its capital leases during 2002 to take advantage of the low interest rate environment. The restricted cash is a compensating balance to the notes payable with a major bank and is in an interest-bearing note. The amount restricted declines as the Company pays it monthly obligation of principal and interest. The interest rate on the note payable is 25 basis points above LIBOR rates and is set quarterly.

Inventories

     Inventories are stated at the lower of standard cost or market (net realizable value). Standard costs approximate average actual costs. The Company uses a standard cost accounting system to value inventory and these standards are reviewed at a minimum of once a year. The Company provides for the inventory value for estimated excess and obsolete inventory, based on management’s assessment of future demand and market conditions. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Property, Plant and Equipment

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

Accounting for the Impairment of Long-Lived Assets

     Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values.

Income Taxes

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

     The Company was formed through the merger of TRW Milliwave into Endgate Corporation. The merger of TRW Milliwave with and into Endgate was accomplished through a tax-free reorganization under the Internal Revenue Code. As such, Endgate’s and TRW Milliwave’s tax bases in their assets and liabilities carried over to the Company with no step-up in basis. Therefore, the amortization of intangible assets resulting from the merger, including goodwill, is not deductible for tax purposes. Since inception, Endgate incurred net losses and therefore generated significant net operating loss carry-forwards. These carry-forwards were not reflected on Endgate’s balance sheet as an asset because they were

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fully reserved due to uncertainty about Endgate’s ability to utilize these loss carryforwards. The merger with TRW Milliwave imposed limitations on the combined company’s ability to utilize these pre-existing net operating loss carryforwards. Generally accepted accounting principles require that deferred tax liabilities be recorded for identifiable intangible assets acquired in a business combination accounted for as a purchase. The deferred tax asset related to net operating loss carryforwards is greater than the deferred tax liabilities related to the identifiable intangible assets acquired. A valuation allowance has been provided to eliminate the net deferred tax asset because ultimate realization is uncertain. Because TRW Milliwave was a wholly-owned subsidiary of TRW, and therefore part of the consolidated TRW tax return prior to merging with Endgate, TRW was able to utilize TRW Milliwave’s net operating losses in the consolidated income tax return of TRW for periods prior to March 31, 2000, leaving TRW Milliwave with no net operating loss carryforwards.

Stock-Based Compensation

     The Company issues stock options to employees and non-employee directors and provides employees the right to purchase the Company’s stock pursuant to an employee stock purchase program. Currently the Company accounts for its stock-based compensation plans under the intrinsic value method of accounting. Compensation expense resulting from the issuance of fixed term stock option awards is measured as the difference between the exercise price of the option and the fair market value of the underlying share of company stock subject to the option on the award’s grant date. For purposes of pro forma disclosures, the Company estimates the fair value of its stock-based awards to employees using a Black-Scholes option pricing model. The pro forma effect on net loss and net loss per share are as follows for the three and nine month periods ended September 30, 2003 and September 30, 2002:

     In connection with the grant of stock options to employees prior to the initial public offering, Endwave recorded deferred stock compensation within stockholders’ equity of approximately $20,218,000, representing the difference between the deemed fair value of the common stock for financial statement presentation purposes and the option exercise price of these options at the date of grant. Deferred stock compensation is amortized using the graded vesting method over the vesting period of the related options, generally four years. For employees that were terminated, the unvested deferred compensation was reversed. The Company amortized approximately $21,000 and a recovery of approximately $20,000 for the three months ended September 30, 2003 and 2002, respectively and $617,000 and $2.0 million for the nine months ended September 30, 2003 and 2002, respectively.

Use of Estimates in the Preparation of Financial Statements

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

Research and Development Expenses

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

Financial Instruments and Concentration of Risk

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

     The Company sells its products primarily to wireless systems integrators and equipment manufacturers. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for potential credit losses and such losses have historically been immaterial and within management’s expectations. Concentrations of credit risk with respect to trade accounts receivable are due to the few number of entities comprising the Company’s customer base. The Company does not require collateral for trade accounts receivable, and, therefore, the Company could record losses up to $6.0 million as of September30, 2003 if all of these customers fail to pay.

     The Company does not own or operate a semiconductor fabrication facility and relies on the semiconductor fabrication facilities of Velocium and other third parties to manufacture substantially all of the gallium arsenide and other semiconductor devices incorporated in its products. The loss of the Company’s relationship with any of these third parties or the Company’s use of their semiconductor fabrication facilities, particularly Velocium’s facility, and any resulting delay or reduction in the supply of gallium arsenide devices, could impact the Company’s ability to fulfill customer orders and could damage its relationships with customers. In connection with the merger with TRW Milliwave, the Company entered into a supply agreement for these devices with TRW, which was subsequently renewed with Velocium, a former wholly-owned subsidiary of TRW that is now an operating unit of Northrop Grumman Space & Mission Systems. The Company expects to obtain a substantial portion of needed gallium arsenide devices from Velocium in the foreseeable future. The commercial terms of this agreement were renegotiated in March 2002 and the agreement expires in December 2005.

     The Company may not be successful in forming alternative supply arrangements that provide a sufficient supply of gallium arsenide devices. Because there are limited numbers of third-party semiconductor fabrication facilities that use the particular process technologies the Company uses for its products and that have sufficient capacity to meet its needs, using alternative or additional third-party semiconductor fabrication facilities would require an extensive qualification process that could prevent or delay product shipments. Because the Company does not own or control any of these third party semiconductor suppliers, any change in the corporate structure or ownership of the corporations that own these foundries could have a negative effect on future relationships and ability to negotiate favorable supply agreements.

3.      Restructuring Charges

     As a result of a continued decline in overall economic conditions and further reductions in capital spending by telecommunications service providers, on February 28, 2002, the Company announced a restructuring plan designed to reduce operating expenses in order to further align resources with long-term growth opportunities. During the first quarter of 2002, the Company recorded a restructuring charge of $3.5 million (“the First Quarter 2002 Plan”), the components of which were $1.1 million for severance payments, $310,000 for lease cancellations, and a non cash charge of $2.1 million for excess equipment, offset by a $142,000 adjustment for excess severance benefits. We have substantially completed our execution of the First Quarter 2002 Plan, with the exception of a vacated leased facility that has a lease term expiring in 2006. Restructuring accrual balances at September 30, 2003 and December 31, 20002 were approximately $197,000 and $255,000, respectively.

     During the third quarter of 2002, the Company recorded a restructuring charge of $4.9 million (“the Third Quarter 2002 Plan”), the components of which were $1.8 million for severance payments and a non-cash charge of $3.1 million for excess equipment. During the third and fourth quarters, the Company eliminated 102 positions and made cash payments of $1.1 million under the Third Quarter 2002 Plan. Of the 102 positions that were eliminated, 77 were in operations, 14 were in engineering and 11 were in sales, general and administration. The Company executed the Third Quarter 2002 Plan by the end of 2002, and severance payments will be substantially complete by the end of 2003. Below is a table summarizing activity relating to the Third Quarter 2002 Plan (in thousands):

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     During the third quarter of 2003, the Company recorded a restructuring charge of $490,000 (“the Third Quarter 2003 Plan”), all of which was for severance payments. During the third quarter, the Company eliminated 18 positions and made cash payments of $ 416,000 under the Third Quarter 2003 Plan. Of the 18 positions that were eliminated, 10 were in operations, 3 were in engineering and 5 were in sales, general and administration. Severance payments will be complete by the end of fiscal 2003.

4.      Inventories

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

5.      Notes Payable

     On May 29, 2002, the Company obtained a loan, secured by fixed assets, in the amount of $1.5 million from U.S. Bancorp Finance Inc. This loan has a term of 3 years, and has a variable interest rate. The rate is 25 basis points above LIBOR and is set quarterly. The annualized weighted average cost of the debt is approximately 4.5% for the nine months ended September 30, 2003.

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6.      Guarantees

     The Company typically offers a one to two year warranty for all of its products. The specific terms and conditions of those warranties vary depending upon the product sold and the specific customer agreement. The Company estimates the costs that may be incurred under its warranty, and records a liability in the amount of such costs at the time product revenue is recognized. The Company’s product warranty accrual reflects management’s best estimate of probable liability. Management determines the warranty based on historical experience and other current available evidence. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

     From time to time, the Company enters into contracts with customers of its products in which the Company provides some indemnification to the customer in the event of claims of patent or other intellectual property infringement resulting from the customer’s use of the technology. Such provisions are customary in the industry and do not reflect an assessment by the Company of the likelihood of a claim. The Company has not recorded a liability for potential obligations under these indemnification provisions and would not record such a liability unless the Company believed that the likelihood of a material obligation was probable. See Note 13, Commitments and Contingencies.

     Warranty accrual for the nine months ended September 30, 2003 was as follows (in thousands):

7.     Impairment of Property, Plant and Equipment

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

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

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

8.      Net Loss Per Share

     Basic net loss per share is computed by dividing the net loss for the nine months ended September 30, 2003, by the weighted average number of shares of common stock outstanding during the period.

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     Potential common shares from the assumed exercise of stock options, warrants and convertible securities have been excluded from the net loss per share calculations as their effect would be anti-dilutive due to the Company’s reported net loss.

9.      Comprehensive Income (Loss)

     The Company had $8,000 of other comprehensive income in the three months ended September 30, 2003 and $35,000 of other comprehensive loss in the nine months ended September 30, 2003 resulting from unrealized gains and losses on its available for sale investments. There were no other items of other comprehensive income (loss) during the nine months ended September 30, 2003.

10.      Segment Disclosures

     The Company operates in a single segment. The Company’s product sales by geographic location for the three and nine months ended September 30, 2003 and 2002 were as follows (in thousands and as a percentage of net sales):

     For the three months ended September 30, 2003, Nokia and DMC Stratex accounted for 54% and 14% of total sales listed above, respectively. For the nine months ended September 30, 2003, Nokia and DMC Stratex accounted for 58% and 13% of total sales listed above, respectively. Nokia, located in Finland, was the only customer in Finland in 2003 and 2002. No other customer accounted for more than 10% of the Company’s revenues in the aggregate or in these geographical areas listed above.

11.      Treasury Stock

     In January 2002, the Company announced a plan to repurchase up to an aggregate of 750,000 shares of the company’s common stock. The repurchases will be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market. During the nine months ended September 30, 2003, the Company did not repurchase any shares and during the nine months ended September 30, 2002, the Company repurchased 19,950 shares for $62,000 under this repurchase program. To date, 39,150 shares have been repurchased for $79,000. Treasury stock is carried at cost.

12.      Acquisition of Assets

     On May 13, 2003, the Company completed the acquisition of certain assets of Verticom, Inc., for $250,000 in cash. The asset purchase included the product design for Verticom’s MTS-2000 synthesizer, which is used in a military and device application, as well as the inventory, equipment and intellectual property licenses required to manufacture and supply production units to a new Endwave customer. The entire purchase price was allocated to inventory acquired.

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13.      Commitments and Contingencies

     From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of business. These claims, even if not meritorious, could result in the expenditure of significant financial and other resources. The Company is not currently aware of any legal proceedings or claims, and management does not believe that the Company is subject to claims that would constitute material contingencies.

14.      Subsequent Events

     On October 9, 2003 the Company entered into a sublease with an unrelated party to occupy a 20,000 square foot building, in Diamond Springs, California owned by the Company. The building was formerly used for a portion of the Company’s manufacturing operations, and was vacated in the first quarter of 2003 as a result of the transition of over 60% of production to the Company’s subcontract manufacturing partner. The lease has a term of 5 years, and an inception date of December 1, 2003.

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

     This Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, including statements regarding our expectations, beliefs, intentions or strategies regarding the future. The following discussion should be read together with our financial statements and notes to those financial statements included elsewhere in this Form 10-Q. 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 described in our forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. In the past, our operating results have fluctuated and are likely to continue to fluctuate in the future.

     The following discussion should be read together with our financial statements, and notes to those financial statements, included elsewhere in this 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 financial statements and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2002.

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

     We depend, and expect to remain dependent, on a small number of wireless systems integrators, original equipment manufacturers, and major government contractors for sales of our products. For the three months ended September 30, 2003, sales attributable to Nokia and DMC Stratex accounted for 54% and 14%, respectively, of our net sales during the period. During the nine months ended September 30, 2003, sales attributable to Nokia and DMC Stratex accounted for 58% and 13%, respectively, of our net sales during the period.

     We have a master supply agreement with Velocium, a former wholly-owned subsidiary of TRW that is now an operating unit of Northrop Grumman Space and Missions Systems Corp which expires on December 31, 2005. This agreement expands our access to Velocium’s custom wafer processing services, to state-of-the-art gallium arsenide technologies, products operating at lower frequency bands for wireless infrastructure applications, indium phosphide products for advanced applications and guaranteed pricing and purchase commitments.

     We maintain an on-site inventory management program with Nokia. This program provides storage of Endwave finished goods at Nokia’s factory and allows Nokia to draw against this inventory based on their manufacturing needs. Revenues are recognized as Nokia draws the inventory from this stocking location.

     On February 26, 2003, we announced the acquisition of certain broadband assets of Arcom Wireless Inc., a subsidiary of Dover Corporation for $55,000 in cash. The acquisition was structured as an asset purchase. The assets purchased included a transceiver design, equipment and intellectual property licenses required to manufacture and supply a 58 GHz integrated transceiver product to an existing customer. We began shipping product attributable to the acquired designs in the third quarter of 2003.

     On March 25, 2003, we announced that we had been selected by Siemens as a supplier of wireless transmitter/receiver (Tx/Rx) modules for the Siemens SRA L family of digital radios. Under our agreement with Siemens, we will manufacture and supply Tx/Rx modules to Siemens for integration into production units of the SRA L radio to be deployed in certain markets within Europe in support of third generation (3G) mobile service deployments. Delivery of the transceiver units began in December 2002.

     On May 13, 2003, we completed the acquisition of certain assets of Verticom, Inc. for $250,000 in cash. The asset purchase included the product design for Verticom’s MTS-2000 synthesizer, which is used in a military and device application, as well as the inventory, equipment and intellectual property licenses required to manufacture and supply production units to a new Endwave customer. The entire purchase price was allocated to inventory acquired.

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     On July 28, 2003, we announced the execution of a development agreement with SafeView, Inc., a privately held developer of a revolutionary security portal screening system, to develop and manufacture millimeter wave transceiver modules. Under the agreement, we will design and develop the millimeter wave module that transmits the RF signal and receives the signal reflection as an initial design phase of the development project. Following the design phase, we will manufacture and supply prototype units of the transceiver module for design qualification and system testing.

     On July 29, 2003, we announced that we would effect a reduction in force of approximately 20%, eliminating positions across all functions of the company. During the third quarter of 2003, we recorded a restructuring charge of $490,000 for severance payments. During the third quarter, we eliminated 18 positions and made cash payments of $416,000 under the Third Quarter 2003 Plan. Of the 18 positions that were eliminated, 10 were in operations, 3 were in engineering and 5 were in sales, general and administration. Severance payments will be complete by the end of fiscal 2003. The reduction is expected to reduce anticipated 2004 operating expenses by $2.0 million. Additionally, we accelerated our plan to transition other high-volume manufacturing programs offshore, resulting in approximately 70% of production occurring offshore by the end of the fourth quarter of 2003.

     On September 15, 2003, we announced the execution of a development agreement with Nokia Networks, the world leader in mobile communications, to develop a new line of millimeter wave transceiver modules. Under the development agreement, we will design and produce integrated transceiver modules that transmit and receive the communication signal, forming the core of the “next generation” mobile network infrastructure. These modules will have twice the performance of our current transceivers. Once integrated within the radio, these modules will enable significantly increased spectral efficiency as compared with the current design.

Results of Operations for the three and nine months ended September 30, 2003 and 2002

     Revenues

     Revenues were $8.2 million for the three months ended September 30, 2003, a 64% increase from $5.0 million for the same period in 2002. Revenues were $24.3 million for the nine months ended September 30, 2003, a 56% increase from $15.6 million for the same period in 2002. The increase in product revenues for the three and nine months ended September 30, 2003 is related to increased shipments to several of our commercial transceiver customers and increased interest in defense and military applications, as well as from new customers as a result of our acquisition strategy. Additionally, during the first quarter of 2002, there was a decrease in the number of transceivers sold to Nokia, as a result of implementing a consignment stock location at their production facilities. We expect revenue in the fourth quarter of 2003 to be higher than in the third quarter as a result of increased customer demand.

     Costs and Expenses

     Cost of product revenues. Cost of product revenues consists primarily of the costs of direct materials and labor utilized to assemble and test our products, costs associated with procurement, production control, quality assurance and manufacturing engineering, maintenance of our manufacturing facilities, transition to offshore manufacturing vendors, building and equipment depreciation, and costs associated with warranty returns.

     Cost of product revenues for the three months ended September 30, 2003 was $5.9 million, a 40% decrease in absolute dollars from $9.8 million for the same period in 2002. As a result of cost reduction efforts and the utilization of previously reserved inventory, cost of product revenues for the three months ended September 30, 2003 decreased by 40% as compared to the three months ended September 30, 2002 although revenues increased 64% from period to period.

     Cost of product revenues for the nine months ended September 30, 2003 was $19.0 million, a 19% decrease in absolute dollars from $23.6 million for the same period in 2002. As a result of cost reduction efforts and the utilization of previously reserved inventory, cost of product revenues for the nine months ended September 30, 2003 decreased by 19% as compared to the nine months ended September 30, 2002 although revenues increased 56% from period to period.

     The decrease in cost of product revenues as a percentage of product revenues is attributable to cost reduction programs that have been implemented during the last 24 months. These programs include the outsourcing of over 60% of the assembly and testing of our products to an offshore manufacturer, elimination of excess equipment and capacity, reduction of manufacturing and overhead positions and introduction of cost-reduced product designs. The cost of product revenues as a percentage of product revenues was impacted by the utilization of previously reserved inventory amounting to $580,000 and $996,000 for the three and nine months ended September 30, 2003. We expect cost of product revenues as a percentage of sales to decrease in the fourth quarter of 2003 as we experience higher product revenues, as well as cost efficiencies from the move of more of our manufacturing activities to the facility of our offshore partner and the introduction of lower cost designs.

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     Research and development expenses. Research and development expenses primarily include the costs of engineering personnel, outside services, prototyping materials and equipment depreciation. Research and development expenses for the three months ended September 30, 2003 were $1.1 million, a 49% decrease from $2.1 million for the same period in 2002. Research and development expenses for the nine months ended September 30, 2003 were $3.6 million, a 54% decrease from $7.9 million for the same period in 2002. The decrease for each period was primarily attributable to cost containment efforts, work force reductions, and leverage of existing designs for new development programs. We expect research and development expenses to remain relatively constant for the fourth quarter of 2003 as savings from headcount reductions are offset by increased project material costs.

     Selling, general and administrative expenses. Selling, general and administrative expenses consist primarily of salaries and related expenses for executive, sales, marketing, finance, accounting, information technology, facilities and human resources personnel, professional fees, bad debt expense and promotional activities. Selling, general and administrative expenses for the three months ended September 30, 2003 were $1.6 million, a 27% decrease from $2.2 million for the same period in 2002. Selling, general and administrative expenses for the nine months ended September 30, 2003 were $6.8 million, a 1% decrease from $6.9 million for the same period in 2002. The decreases were primarily attributable to lower bad debt expense, cost reduction efforts and reduced staffing in each of the functional areas. We expect selling, general and administrative expenses to remain relatively constant for the fourth quarter of 2003.

     Restructuring Charge. On July 29, 2003, we announced a reduction in force of approximately 20%, eliminating positions across all functions of the Company. During the third quarter of 2003, we recorded a restructuring charge of $490,000 for severance payments. During the third quarter, we eliminated 18 positions and made cash payments of $416,000 under the Third Quarter 2003 Plan. Of the 18 positions that were eliminated, 10 were in operations, 3 were in engineering and 5 were in sales, general and administration. Severance payments will be complete by the end of fiscal 2003. The reduction is expected to reduce anticipated 2004 operating expenses by approximately $2.0 million. Additionally, we accelerated our plan to transition other high-volume manufacturing programs offshore, resulting in approximately 70% of production occurring offshore by the end of the fourth quarter of 2003.

     During the third quarter of 2002, we announced a restructuring plan, designed to further reduce costs. This plan included the reduction of 102 positions and consolidation of excess facilities and charges related to excess property and equipment. As a result, a restructuring charge of $4.9 million was recorded in the third quarter of 2002, the components of which were $1.8 million for severance payments and $3.1 million for excess equipment.

     On February 28, 2002, we announced a restructuring plan, designed to reduce operating expenses in order to align resources with long-term growth opportunities. This plan included the reduction of 107 positions and consolidation of excess facilities and charges related to excess property and equipment. As a result, a restructuring charge of approximately $3.5 million was recorded in the first quarter of 2002, the components of which were $1.1 million for severance payments, $310,000 for lease cancellations and $2.1 million for excess equipment offset by $490,000 resulting from settlement of lease obligations for vacated leased space in Sunnyvale, California.

     Amortization of deferred stock compensation. Deferred stock compensation charges consist of charges related to the difference between deemed fair market values on the date of employee option grants and the option price. The Company amortized approximately $21,000 and recorded a recovery of approximately $20,000 associated with forfeitures for the three months ended September 30, 2003 and 2002, respectively and $ 617,000 and $ 2.0 million of amortization for the nine months ended September 30, 2003 and 2002, respectively. The decrease is primarily due to using an accelerated method to amortize deferred stock compensation that results in higher expense in earlier periods and credits from the forfeiture of options by terminated employees. Deferred stock compensation will be fully amortized in June 2004.

     Loss on building sublease. During the first quarter of 2003, the Company subleased 12,700 square feet of its Sunnyvale, California headquarter building to an unrelated third party. The rental income for the lease period is less than the rental expense that will be incurred, and therefore a loss at sublease inception of $662,000 was incurred. There have been no other losses on subleases recorded in periods presented.

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

     During the first quarter of 2003, the Company evaluated the carrying value of long-lived assets utilized in its manufacturing process. As the Company moves more of its production to its offshore partner, the Company does not need as much manufacturing equipment, and therefore an impairment charge of $2.4 million for excess manufacturing equipment has been recorded. The impairment charge was calculated as the difference between the carrying value and the salvage value of the equipment, less selling costs.

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     Interest and other income, net

     Interest and other income, net consists primarily of interest income earned on our cash, cash equivalents and short-term investments offset by interest expense on capital equipment leases and notes payable. Interest and other income, net was $262,000 and $97,000, for the three months ended September 30, 2003 and 2002, respectively. Interest and other income, net was $404,000 and $1.5 million, for the nine months ended September 30, 2003 and 2002, respectively. Interest income for the three months ended September 30, 2003 was $73,000, a 64% decrease from $200,000 for the same period in 2002. Interest income for the nine months ended September 30, 2003 was $246,000, a 69% decrease from $804,000 for the same period in 2002. The decrease in interest income was primarily attributable to lower interest rates, lower average invested cash balances and lower yields on interest-bearing investments. Interest expense represented interest on capital leases and a note payable collateralized by capital equipment. Interest expense decreased to $11,000 for the three months ended September 30, 2003, from $100,000 for the three months ended September 30, 2002 as a result of a decreased number of capital equipment leases and overall lower interest rates. Interest expense decreased to $108,000 for the nine months ended September 30, 2003, from $410,000 for the nine months ended September 30, 2002 as a result of a decreased number of capital equipment leases and overall lower interest rates. Other income for the three and nine months ended September 30, 2002 included $1.2 million from the gain on contract termination offset by cost of $66,000 for capital lease termination.

Liquidity and Capital Resources

     Our principal source of liquidity as of September 30, 2003 consisted of approximately $28.9 million in cash, cash equivalents, restricted cash and short-term investments. In the nine months ended September 30, 2003, we used $541,000 for operating activities, as compared to $19.4 million for the same period in 2002. The decrease in the use of cash in operations was primarily due to a significant decrease in the net loss for the period and an increase in accounts receivable.

     Investing activities provided $5.9 million of cash in the nine months ended September 30, 2003, as compared to $15.4 million in the same period in 2002. The decrease in the proceeds of cash in investing activities was primarily due to fewer sales of short-term investments.

     Financing activities in the nine months ended September 30, 2003 used $1.2 million of cash, as compared to $2.6 million in the same period in 2002. The decrease in the use of cash for financing activities is primarily attributable to fewer capital lease obligation payments. During the second quarter of 2003, $643,000 of capital leases were paid in advance, in order to minimize interest expense in future periods. Therefore, capital lease payments and interest expense will be lower in the future.

     We believe that our existing cash and investment balances and anticipated cash flows from operations will be sufficient to meet our operating and capital requirements for at least the next 12 months. However, we could be required, or could elect, to raise additional funds during that period and we may need to raise additional capital in the future. Additional capital may not be available at all, or may only be available on terms unfavorable to us.

     There have been no material changes in contractual obligations as reported in our annual report on Form 10-K for the year ended December 31, 2002.

Item 3. Qualitative and Quantitative Disclosures about Market Risk

     We believe that there have been no material changes in our reported market risks faced since our report on market risks in our annual report on Form 10-K for the year ended December 31, 2002 under the heading corresponding to that set forth above. Our exposure to market risk is 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 short-term 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.

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     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-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the “Exchange Act”)) were effective as of the end of the period covered by this report to ensure that information that we are required to disclose in reports that we file or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

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

     There were no significant changes in our internal controls or in other factors that could significantly affect these controls during the most recent quarter. There were no significant deficiencies or material weaknesses in our internal controls, and therefore there were no corrective actions taken.

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PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

     (a)  Exhibits.

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

     (b)  Reports on Form 8-K

We filed a Current Report on Form 8-K dated July 14, 2003 to furnish a press release in which we announced that based on preliminary results, our financial results for the quarter ended June 30, 2003 were expected to exceed prior projections.

We filed a Current Report on Form 8-K dated July 29, 2003 to furnish a press release in which we announced our financial results for the quarter ended June 30, 2003.

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SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ENDWAVE CORPORATION

Date: November 14, 2003

By: /s/ Edward A. Keible, Jr.          Edward A. Keible, Jr.          President and Chief Executive Officer

By: /s/ Julianne M. Biagini          Julianne M. Biagini          Senior Vice President          and Chief Financial Officer          (Duly Authorized Officer and Principal          Financial and Accounting Officer)

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Index of Exhibits

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

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