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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

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

Commission file number: 000-31635

Endwave Corporation

(408) 522-3100

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

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

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

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

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

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

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

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

ENDWAVE CORPORATION

FORM 10-K

December 31, 2003

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Forward-Looking Statements

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

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PART I

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

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

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

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

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

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

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

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

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

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

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

Telecommunications Market Overview

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

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

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

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

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

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

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

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

Adjacent Market Overview

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

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

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

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The Challenge

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

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

Our Solution

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

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

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

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

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

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

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

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

Our Strategy

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

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

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

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

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

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

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

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

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

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

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

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

Products

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

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

Customers

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

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

Sales

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

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Competition

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

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

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

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

Backlog

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

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

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Governmental Regulations

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

Patents and Intellectual Property Rights

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

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

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

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

Research and Development

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

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

Employees

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

Available Information

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

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Risk Factors

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

	•	our financial performance or the performance of our competitors;
	•	technological innovations or other trends or changes in the broadband wireless access industry;
	•	successes or failures at significant product evaluations or site demonstrations;
	•	the introduction of new products by us or our competitors;
	•	acquisitions, strategic alliances or joint ventures involving us or our competitors;
	•	decisions by major participants in the communications industry not to purchase products from us or to pursue alternative technologies;
	•	decisions by investors to de-emphasize investment categories, groups or strategies that include our company or industry;
	•	market conditions in the industry, the financial markets and the economy as a whole; and
	•	because a small percentage of our stock is owned by public stockholders, it trades in low volumes which could cause volatility in our share price.

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

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

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

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

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

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

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

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

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

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

      None.

PART II

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

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

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

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

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

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

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

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

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

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

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Overview

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

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

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

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

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

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

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Restructuring Plans

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

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

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

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

Critical Accounting Policies

     General

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

     Revenue Recognition

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

     Allowance for Doubtful Accounts

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

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     Warranty Reserves

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

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

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

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

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

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

Results of Operations

Revenues

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

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

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

Cost and Expenses

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

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

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

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

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

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

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

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

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

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

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

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

Revenues

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

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

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

Cost and Expenses

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

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

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

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

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

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

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

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

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

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

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

Liquidity and Capital Resources

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

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

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

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

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

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Related Party Transactions

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

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

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

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

Recent Accounting Pronouncements

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

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

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

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

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INDEX TO FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders

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

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

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

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

	ERNST & YOUNG LLP

Palo Alto, California

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ENDWAVE CORPORATION

BALANCE SHEETS

See accompanying notes.

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ENDWAVE CORPORATION

STATEMENTS OF OPERATIONS

See accompanying notes.

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ENDWAVE CORPORATION

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY