SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                               -------------------

                                   FORM 10-QSB
(Mark One)

 [ X ]    Quarterly Report Under Section 13 Or 15(d) Of The Securities Exchange
          Act Of 1934

          For the quarterly period ended June 30, 1998

 [     ]  Transition Report Under Section 13 or 15(d) of the Exchange Act
          For the transition period from __________ to ___________

                          Commission file number 0-5351

                               EIP MICROWAVE, INC.
        (Exact name of small business issuer as specified in its charter)

            Delaware                                              95-2148645
   (State or other jurisdiction                                 (IRS Employer
 of incorporation or organization)                           Identification No.)

6950 SW Hampton Street Suite 200, Portland, OR                      97223
(Address of principal executive offices)                          (Zip Code)

                                 (503) 598-2605
                           (Issuer's telephone number)

              (Former name, Former address and former fiscal year,
                         if changed since last report)
             4500 Campus Drive, Suite 219, Newport Beach, CA 92660

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. YES [ X ] NO [ ]

OUTSTANDING COMMON STOCK: As of June 30, 1998,  Registrant had only one class of
common  stock,  and had  7,234,152  shares of this $.01 par value  common  stock
outstanding.

Transitional Small Business Disclosure Format  (check one): YES [  ]    NO [ X ]



<PAGE>
                               EIP MICROWAVE, INC.

                                   FORM 10-QSB

                           Quarter Ended June 30, 1998
<TABLE>
<CAPTION>
<S>                                                                                  <C>
Part I  Financial Information
          
        Item 1.  Condensed Consolidated Financial Statements

                 Condensed Consolidated Balance Sheets as of 
                   June 30, 1998 (unaudited) and September 30, 1997                  Page       3

                 Condensed Consolidated Statements of Operations and
                   Retained Earnings for the three months and nine months
                   Ended June 30, 1998 and 1997 (unaudited)                          Page       4

                 Condensed Consolidated Statements of Cash Flows for the
                   nine months ended June 30, 1998 and
                   1997 (unaudited)                                                  Page       5

                 Notes to Unaudited Condensed Consolidated Financial Statements      Page       6
                   

        Item 2.  Management's Discussion and Analysis of Results of
                   Operations and Financial Condition                                Pages 7 - 12

Part II Other Information

        Item 2.  Changes in Securities                                               Page      13

        Item 4.  Submission of Matters to Vote of Security Holders                   Page      13

        Item 6.  Exhibits and Reports on Form 8-K                                    Page      13

        Signatures                                                                   Page      14

</TABLE>






 



                                       2
<PAGE>
                               EIP MICROWAVE, INC.

                         PART I - FINANCIAL INFORMATION
 
             ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    (Dollars in thousands except share data)

                                     ASSETS

                                                                          June 30,       September 30,
                                                                              1998           1997
                                                                        (Unaudited)
                                                                       -------------     -------------
<S>                                                                    <C>               <C>
Current assets:
     Cash and cash equivalents                                            $      57          $    280
     Accounts receivable, net                                                   201               405
     Inventories                                                                944             1,023
     Prepaid expenses                                                            61                62
                                                                       -------------     -------------
       Total current assets                                                   1,263             1,770

Property and equipment, net                                                     395               590
                                                                       -------------     -------------

Other assets                                                                      6                 0
                                                                       -------------     -------------
     Total Assets                                                         $   1,664          $  2,360
                                                                       =============     =============


                LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities:
     Accounts payable                                                     $     472          $    401
     Accrued liabilities                                                        508               629
     Bank borrowings                                                              -               296
     Notes payable to affiliates                                                100               400
     Current portion of obligations under capital leases                         34                34
                                                                       -------------     -------------
       Total current liabilities                                              1,114             1,760
Long term notes payable to affiliates                                             0               600
Long term obligations under capital leases                                       41                63
                                                                       -------------     -------------
       Total liabilities                                                      1,155             2,423
                                                                       -------------     -------------

Commitments and contingencies

Stockholders' equity (deficiency):
     Common stock, $.01 par value;
     authorized -10,000,000 shares;
     7,234,152 issued and outstanding, 424,907 on 9/30/97                        72                 5
     Additional paid-in capital                                               3,928               848
     Retained earnings (accumulated deficit)                                 (3,491)             (916)
                                                                       -------------     -------------
        Total stockholders' equity (deficiency)                                 509               (63)
                                                                       -------------     -------------
        Total liabilities and stockholders equity                         $   1,664          $  2,360
                                                                       =============     =============
</TABLE>





                                       3
<PAGE>
                               EIP MICROWAVE, INC.

     PART I/ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                              AND RETAINED EARNINGS

             (Dollars in thousands except per share data, unaudited)


                                                                 Three Months                  Nine Months
                                                                Ended  June 30,              Ended  June 30,
                                                               1998          1997           1998          1997
                                                            ----------    ----------     ----------    ----------
<S>                                                         <C>           <C>            <C>           <C>
Net sales                                                   $     647     $   1,013      $   2,532      $  3,560
                                                            ----------    ----------     ----------    ----------

Costs and expenses:
    Cost of sales                                                 536           575          2,585         2,170
    Research, development and engineering                         253           228            766           722
    Selling, general and administrative                           413           453          1,501         1,416
    Interest and other, net                                         3            35            255            45
                                                            ----------    ----------     ----------    ----------
      Total costs and expenses                                  1,205         1,291          5,107         4,353
                                                            ----------    ----------     ----------    ----------

Net (loss)                                                       (558)         (278)        (2,575)         (793)

Accumulated retained earnings
(deficit) at beginning of period                               (2,933)         (141)          (916)          374
                                                            ----------    ----------     ----------    ----------

Accumulated deficit at end of period                        $  (3,491)    $    (419)     $  (3,491)    $    (419)
                                                            ==========    ==========     ==========    ==========

Net (loss) per share                                        $   (0.08)    $   (0.65)     $   (0.88)    $   (1.87)
                                                            ==========    ==========     ==========    ==========

Weighted average common shares outstanding                      7,178           425          2,928           425
                                                            ==========    ==========     ==========    ==========

</TABLE>





                                       4
<PAGE>
                               EIP MICROWAVE, INC.

     PART I/ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                        (Dollars in thousands, unaudited)

                                                              Nine Months Ended
                                                         June 30,            June 30,
                                                           1998                1997
                                                       ------------        ------------
<S>                                                    <C>                 <C>
Cash flows from operating activities:
     Net loss                                          $    (2,575)        $      (793)
     Adjustments to reconcile net loss to net cash
       provided by (used in) operating activities:
       Depreciation and amortization                           165                 190
       Write down of inventory                                 600                  --
       (Gain) loss on sale of capital equipment                 (6)                (98)
       Change in assets and liabilities:
         Accounts receivable                                   204                 378
         Inventories                                          (521)                (58)
         Prepaid expenses                                      (5)                 (12)
         Accounts payable                                       71                (392)
         Accrued liabilities                                  (121)                (27)
         Advanced payments from customers                       --                (190)
                                                       ------------        ------------
Cash used in operating activities                           (2,188)             (1,002)
                                                       ------------        ------------

Cash flows from investing activities:
     Sale of short-term investments                             --                 297
     Capital expenditures                                       --                (192)
     Proceeds from the sale of capital equipment                36                 101
                                                       ------------        ------------
Cash provided by investing activities                           36                 206
                                                       ------------        ------------

Cash flows from financing activities:
     Proceeds from notes payable to affiliates               1,250                 750
     Repayment of notes payable to affiliates               (2,150)               ----
     Repayment of bank borrowings                             (296)                111
     Repayment of obligations under capital leases             (22)                (24)
     Proceeds from issuance of common stock                  3,147                  --
                                                       ------------        ------------
Cash provided by financing activities                        1,929                 837
                                                       ------------        ------------

Increase (decrease) in cash and cash equivalents              (223)                 41
Cash and cash equivalents at beginning of period               280                 216
                                                       ------------        ------------
Cash and cash equivalents at end of period             $        57         $       257
                                                       ============        ============

</TABLE>





                                       5
<PAGE>
                               EIP MICROWAVE, INC.

     PART I/ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                    NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS

(a)    The condensed  consolidated  financial  statements presented in this Form
       10-QSB have been prepared from the accounting  records without audit on a
       basis consistent with the financial  statements included in the Company's
       annual report filed with the Securities  and Exchange  Commission for the
       preceding  fiscal year.  Certain  information  and  footnote  disclosures
       normally  included in financial  statements  prepared in accordance  with
       generally accepted  accounting  principles have been condensed or omitted
       pursuant to the rules and  regulations  of the  Securities  and  Exchange
       Commission.  The  information  furnished  reflects  all  adjustments  and
       disclosures,  which  are,  in the  opinion  of  management,  of a normal,
       recurring  nature,  and necessary for a fair statement of the results for
       the interim  periods.  This report should be read in conjunction with the
       Company's  1997 Annual  Report on Form 10-KSB.  The results of operations
       for the interim periods  presented are not necessarily  indicative of the
       results expected for the entire year.

(b)    Composition of certain balance sheet captions (Dollars in thousands):

                                                   June 30,    September 30,
                                                     1998          1997
                                                 ------------  ------------
                                                 (unaudited)
       Accounts receivable:
         Trade                                    $     251     $     455
         Less allowance for doubtful accounts           (50)          (50)
                                                  ----------    ----------
                                                  $     201     $     405
                                                  ----------    ----------
       Inventories:
         Raw materials                            $     405     $     531
         Work-in-process                                520           452
         Finished goods                                  19            40
                                                  ----------    ----------
                                                  $     944     $   1,023
                                                  ----------    ----------
       Property and equipment:
         Cost                                     $   5,263     $   5,311
         Accumulated depreciation                    (4,868)       (4,721)
                                                  ----------    ----------
                                                  $     395     $     590
                                                  ----------    ----------

(c)    The calculation of net income (loss) per share is based upon the weighted
       average number of common and common equivalent shares  outstanding during
       the year. As a result of the losses  incurred during the three months and
       nine  months  ended  June 30,  1998  and  1997,  the  common  and  common
       equivalent shares were antidilutive and, accordingly,  were excluded from
       the computation of loss per share for those periods.







                                       6
<PAGE>
                               EIP MICROWAVE, INC.

             PART I/ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

     The   following   discussion   contains   trend   information   and   other
forward-looking statements that involve a number of risks and uncertainties. The
Company's actual results could differ  materially from the Company's  historical
results of operations  and those  discussed in the  forward-looking  statements.
Factors that could cause actual results to differ  materially  include,  but are
not limited to, those identified under the heading "Certain  Factors" below. Due
to such  risk  factors  and  other  factors,  past  results  are not a  reliable
predictor of future results.

     In  addition,  the  following  discussion  and  analysis  should be read in
conjunction with the Financial Statements and the accompanying Notes herein, and
is qualified  entirely by the  foregoing  and by other more  detailed  financial
information appearing elsewhere.

                              RESULTS OF OPERATIONS

     Net sales for the three months ended June 30, 1998,  were  $647,000,  a 36%
decrease from sales of  $1,013,000  in the same period last year.  Net sales for
the nine months ended June 30, 1998, were $2,532,000,  a 29% decrease from sales
of  $3,560,000  in the same period last year.  The decline for both  periods was
attributable to a soft market for its products, reduced export sales as a result
of unfavorable  fluctuations in foreign currency  exchange rates and softness in
Asian markets and lower sales to the Company's  largest OEM customer  during the
third quarter.

     Gross margin decreased to 17% in the third fiscal quarter of 1998, from 43%
in the third fiscal  quarter of 1997.  Gross margin was (2)% for the nine months
ended June 30,  1998,  as compared  to 39% for the same  period  last year.  The
decrease in gross  margin for both periods was largely due to lower sales levels
without corresponding  reductions in fixed manufacturing  overhead. In addition,
the decrease in gross  margin for the nine months ended June 30, 1998,  was also
affected by a  write-down  of  inventory  by  $600,000 to reserve for  potential
obsolescence related to the discontinuance of selected products.

     Incoming  orders  for the  third  fiscal  quarter  were  $1,985,000  a 145%
increase from orders of $809,000 for the same period a year ago. Incoming orders
for the nine months ended June 30, 1998,  were  $3,787,000  an 18% increase from
orders of $3,213,000  for the same period a year ago.  Backlog at June 30, 1998,
was  $1,689,000,  a 318%  increase  from a backlog of $404,000 at the end of the
third  fiscal  quarter  last year.  The  increase in orders for both periods and
backlog  was the  result of a large  order  ($1,429,000)  from  ManTech  Systems
Engineering  Corporation  for  RF  down  converters  and RF  synthesized  signal
generators,  which are scheduled for delivery between  September and December of
1998.

     Research, development and engineering expenses increased 11% to $253,000 in
the third fiscal quarter of 1998, compared to $228,000 for the same quarter last
year.  Research,  development and engineering  expenses increased 6% to $766,000
for the nine months  ended June 30,  1998,  compared  to  $722,000  for the same
period last year. The increase in research, development and engineering expenses
for both periods was primarily attributable to increased new product development
expenditures.

     Selling,  general  and  administrative  expenses  decreased  9% to $413,000
during the third  fiscal  quarter of 1998,  compared  to  $453,000  for the same
quarter last year. Selling,  general and administrative expenses increased 6% to
$1,501,000  for the nine months ended June 30, 1998 compared to  $1,416,000  for
the same period last year. The increase in selling,  general and  administrative
expenses for the nine month period was due  primarily to  professional  fees and
expenses related to the Rights Offering which was completed in March 1998.




                                       7
<PAGE>
                               EIP MICROWAVE, INC.
             PART I/ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)


     Interest  and other  expense was $3,000  during the third  quarter of 1998,
compared to $35,000 for the same quarter last year.  Interest and other  expense
was $255,000 during the nine months ended June 30, 1998, compared to $45,000 for
the same period last year The decrease in the third  quarter was a result of the
completion of the Rights  Offering which reduced debt. The increase for the nine
month  period  was due to a  higher  level  of  outstanding  debt  and a  higher
effective  interest rate on such debt during the first six months of fiscal year
1998 compared to the same period in fiscal year 1997.


     The Company recorded a net loss of $558,000 for the third fiscal quarter of
1998, as compared to a net loss of $278,000  during the same period last year. A
net loss of $2,575,000  was recorded for the nine months ended June 30, 1998, as
compared to a net loss of $793,000 for the same period last year.  The increased
loss for the third fiscal quarter of 1998 is primarily due to lower sales levels
without corresponding reduction in fixed manufacturing overhead. The increase in
the loss for the nine months  ended June 30,  1998,  compared to the same period
last year, is primarily  attributable  to the inventory  write-off in the second
quarter, lower sales and increased operating expenses.

                               FINANCIAL CONDITION

     On March 20,  1998 the Company  issued  approximately  5,802,000  shares of
common  stock  pursuant to a rights  offering  (the  "Rights  Offering")  to its
stockholders.  Gross  proceeds  from  the  Rights  Offering  were  approximately
$742,000  paid in cash and  approximately  $2,159,000  paid in  cancellation  of
Company  indebtedness.  Subsequent to the Rights  Offering,  the Company  issued
stock  grants (the "Stock  Grants"),  exercisable  for an  aggregate  of 725,000
shares of Common Stock of the Company, to its directors pursuant to the terms of
the 1998 Stock Option Plan. The directors exercised the Stock Grants in full and
paid to the Company a cumulative  exercise  price of $105,250.  Upon exercise of
the Stock Grants,  the Company  issued the 725,000 shares of Common Stock to the
directors on April 8, 1998.

     At June 30, 1998,  the Company's  cash,  and cash  equivalents  balance was
$57,000,  compared to $280,000 at September 30, 1997.  Cash  generated  from the
Rights  Offering and subsequent  stock sale noted above along with an advance of
$100,000  from J.  Bradford  Bishop under a demand note were used to support the
Company's  operations and its new product research and development  efforts.  At
June  30,  1998,  the  Company  had  commitments  for  capital  expenditures  of
approximately  $200,000  for  computer  equipment  and  software  needed for its
systems  to become  year  2000  compliant.  At June 30,  1998,  working  capital
increased  $139,000  from  September 30, 1997,  and the Company's  current ratio
increased  to 1.13:1  from 1.01:1 over the same time  period,  primarily  due to
lower debt levels as a result of cash generated  from the Rights  Offering noted
above.


     In  addition  to cash on hand and  funds  generated  from  operations,  the
Company believes that borrowings under existing debt facilities  described below
will be sufficient to satisfy the Company's cash  requirements  for implementing
its business  plan during the  remainder of this fiscal year and its fiscal year
ending  September  30, 1999.  See "Certain  Factors--Future  Cash  Requirements"
below.











                                       8
<PAGE>
                               EIP MICROWAVE, INC.

             PART I/ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)

                                 CERTAIN FACTORS

     In addition to the factors discussed  elsewhere in this Quarterly Report on
Form  10-QSB,  the  following  are  important  factors  which could cause actual
results  or  events  to  differ   materially   from  those   contained   in  any
forward-looking statement made by or on behalf of the Company.

Recurring Material Losses and Accumulated Deficit

     The Company  made a profit of  $125,000 in the fiscal year ended  September
30, 1995,  operated at a loss of $493,000 in the fiscal year ended September 30,
1996,  operated at a loss of $1,290,000  in the fiscal year ended  September 30,
1997 and  operated at a loss of $2,575,  000 for the nine months  ended June 30,
1998. Net cash used in operations and investing activities by the Company in the
fiscal years ended  September  30, 1995,  1996 and 1997,  and in the nine months
ending  June  30,  1998,  was  $85,000,  $89,000,   $1,045,000  and  $2,152,000,
respectively.  At the end of fiscal year 1996, the Company's  retained  earnings
were $374,000,  and  stockholders'  equity was $1,227,000.  At the end of fiscal
year 1997, the Company's  accumulated  deficit was $916,000,  and  stockholders'
deficiency was $63,000. At June 30, 1998, the Company's  accumulated deficit was
$3,491,000,  and  stockholders'  equity was  $509,000.  At  September  30, 1996,
September 30, 1997, and June 30, 1998, the Company's  ratio of  interest-bearing
indebtedness to total interest-bearing indebtedness and stockholders' equity was
20%,  105%,  and 25%,  respectively.  There can be,  and is, no  assurance  that
profitable  operations  and positive  cash flow can be achieved or maintained or
that any  funds  obtained  from  equity  issuances  or debt  facilities  will be
sufficient  to carry  the  Company  to a time  when  profitable  operations  and
positive cash flow would sustain the Company.  Continued losses would negatively
impact the Company's working capital and the extension of credit by any existing
or future lenders. See "Future Cash Requirements."

     The report of Meredith, Cardozo, Lanz & Chiu LLP on the Company's financial
statements for the year ended  September 30, 1997, and issued as of November 20,
1997,  includes an explanatory  paragraph to express substantial doubt regarding
the  Company's  ability  to  continue  as a going  concern.  The report of Price
Waterhouse  LLP on  the  Company's  financial  statements  for  the  year  ended
September  30, 1996 has been  reissued  with dual dates of December 23, 1996 and
October 23,  1997.  The reissued  report  includes an  explanatory  paragraph to
express substantial doubt regarding the Company's ability to continue as a going
concern.  There can be no assurance  that the Company will not continue to incur
significant  operating  losses or that  required  additional  financing  will be
available to meet the Company's business plan in fiscal 1998 and beyond.

Future Cash Requirements

     The  Company  believes  that  borrowings  under  existing  debt  facilities
described  below will be sufficient to satisfy the Company's  cash  requirements
for  implementing its business plan during the remainder of this fiscal year and
its fiscal year ending  September 30, 1999. The actual cash  resources  required
will depend upon numerous  factors,  including  those  described  under "Certain
Factors--Dependence  on  New  OEM  Relationship,"  "--Dependence  on  Government
Contractors,"  "--Uncertainty  of Product  Development  and  Introduction,"  and
"--Uncertainty of External  Strategic  Opportunities"  and the cash requirements
could be materially greater than the amount available under such facilities.





                                       9
<PAGE>
                               EIP MICROWAVE, INC.

             PART I/ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)



     Subsequent to June 30, 1998, the Company  obtained three credit  facilities
totaling  $2,200,000.  On August 7, 1998 the  Company  entered  into a  combined
credit  facility  with a third party lender,  which  provides for a term loan of
$500,000 and a revolving  line of credit in the amount of $1,000,000  (the "Bank
Credit  Facility").  Interest on the term loan and revolving line of credit will
be the lender's  reference rate (currently  8.5%) plus 3.5%.  Maximum  borrowing
under the  revolving  line of credit will be limited to the lesser of $1,000,000
or 85% of eligible accounts receivable.  Maturity of the Bank Credit Facility is
August 7, 2001.  On July 20,  1998 the  Company  completed  the  placement  of a
$200,000 convertible subordinated note (the "Convertible Note"). Interest on the
note will be 8% and it matures on June 30, 2000. The note is subordinated to the
Bank Credit Facility and will be subordinated to any future  extension of credit
by a  financial  institution  or  any  seller  financing  in  connection  with a
strategic acquisition by the Company. The note is convertible into shares of the
Company's  common stock at $1.00 per share.  After  October 1, 1998,  either the
Company or the note  holder may  require  the note to be  converted  into common
stock of the Company.  In addition to the Bank Credit  Facility and  Convertible
Note,  the Company  entered into a credit  facility  with one of its  directors,
James N. Cutler,  Jr. (the "Cutler Loan Facility") on July 20, 1998. This credit
facility  provides  for a  revolving  line of credit in the amount of  $500,000.
Interest  on the line will be the prime  rate as  published  in the Wall  Street
Journal  (currently  8.5%) plus 2% and the line will mature on July 1, 1999. The
line is subordinated to the Bank Credit Facility and will be subordinated to any
future extension of credit by a financial institution or any seller financing in
connection with a strategic acquisition by the Company. In addition,  Mr. Cutler
was issued warrants (the  "Warrants") to purchase up to 100,000 shares of Common
Stock of the Company at $0.52 per share.  The  Warrants  will expire on July 20,
2000.

     The Bank  Credit  Facility  and the Cutler  Loan  Facility  are  secured by
substantially  all assets of the Company,  and  preclude or limit the  Company's
ability to take certain actions, such as paying dividends,  making loans, making
acquisitions or incurring indebtedness,  without each of the respective lender's
prior written consent.

     Although the Company  believes the above credit  facilities  combined  with
cash expected to be generated from  operations  should enable it to successfully
implement  its  business  plan,  to date the Company has not  achieved  business
volume  sufficient  to restore  profitability  and a positive  cash flow. In the
event  the  Company's  business  plan  is not  successful  and  its  results  of
operations  fail to  demonstrate  improvement  (due to  unanticipated  expenses,
delays,   problems,   difficulties  or  otherwise)  available  cash  and  credit
facilities may not prove to be sufficient to fund operations.  The Company would
then be required to seek  additional  debt or equity  financing or obtain relief
from its  creditors.  There can be no  assurance  that  additional  financing or
accommodations from creditors,  if required, will be available to the Company on
commercially  reasonable terms, or at all. Even if the Company is able to obtain
additional debt  facilities,  there can be no assurance as to the terms thereof.
If the Company is unable to obtain  additional debt facilities,  the Company and
its business will likely be materially adversely affected.

If the Company is unable to obtain such capital on a timely  basis,  the Company
will be required to consider,  among other actions,  a substantial  reduction in
its research and development  expenses which will impact the introduction of new
products,  a substantial  reduction in other operating  expenses and the sale of
one or more product lines of the Company.  Such actions to significantly curtail
its  planned  operations  will likely have a  materially  adverse  affect on the
Company's business, financial condition and results of operations.







                                       10
<PAGE>
                               EIP MICROWAVE, INC.

             PART I/ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
     RESULTS OF OPERATIONS AND FINANCIAL CONDITION  (continued)


Inventory Reserve

     The Company  recorded a  write-down  of  inventory by $600,000 in the first
fiscal  quarter  of  1998 to  reserve  for  potential  obsolescence  related  to
discontinuance of selected products. While management believes the amount of the
inventory  reserve is appropriate under current  circumstances,  there can be no
assurance  that the amount of the reserves will be sufficient to account for the
discontinuance of such products. See "Results of Operations."

Dependence on New OEM Relationship

     The Company recently introduced a new line of microwave frequency counters,
which it began  distributing in October 1997, on a private label basis worldwide
through an OEM relationship with  Hewlett-Packard  Company  ("Hewlett-Packard").
The Company expects that this OEM  relationship  will account for  approximately
25% of its  revenues  in  fiscal  year  1998.  However,  Hewlett-Packard  is not
obligated  to  purchase  a minimum  quantity  of  products,  and the  failure of
Hewlett-Packard  to purchase the product quantity  expected by the Company would
have a material,  negative impact upon the Company's  business.  There can be no
assurance  that the Company will be able to maintain a  successful  relationship
with Hewlett-Packard and generate revenues or profits from the relationship.

Dependence on Government Contractors

     Approximately  37% of the  Company's  revenues in the last two fiscal years
have been  derived  from the sale of products  to  government  contractors.  The
Company recently received a five-year  indefinite  quantity,  fixed price supply
subcontract  from  ManTech  Systems   Engineering   Corporation,   a  government
contractor  ("ManTech"),  for the supply of RF synthesized signal generators and
RF down converters,  with total sales value to the Company that could range from
approximately $3.5 to $20 million.  In June 1998, the Company received the first
regular  production  order under the  subcontract  in the amount of  $1,429,000.
ManTech has advised the company further production purchase order releases under
the subcontract are expected in the Company's fiscal year 1999. The Company will
incur  substantial  expenses in preparing to satisfy its obligations  under this
subcontract.  However,  despite the incurrence of such expenses,  this and other
subcontracts with government contractors are subject to cancellation  provisions
in favor of the government  contractor.  The subcontract with ManTech is subject
to  termination  by  ManTech  in the event that the  government  terminates  its
contract  with  ManTech.  Further,  this  subcontract  can be  terminated if the
Company's  components  do not  satisfy  ManTech's  requirements  or the  Company
otherwise  defaults  under the  subcontract.  There can be no assurance that the
Company will receive  additional  subcontracts  from ManTech or other government
contractors.

Dependence on Key Suppliers

     A number of the Company's products require specialized components currently
available  only  through  single  sources  of  supply.  The loss of any of these
sources,  or the inability of any such source to meet the  Company's  production
and quality  control  requirements,  could be  detrimental  to the Company  with
respect

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<PAGE>
                               EIP MICROWAVE, INC.

             PART I/ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)

to the  specific  products  involved.  If any of  the  Company's  single  source
suppliers is not able to deliver these specialized components, the Company would
be required to implement  alternative supply strategies (such as changing to one
or more other  suppliers,  which could require  product design or  specification
changes and would likely cause delays in shipment of the Company's  products) or
discontinue sales of the affected products.

Uncertainty of Product Development and Introduction

     The Company's  success  depends to a large degree on its ability to develop
and introduce in a timely manner new or updated  products which are  affordable,
functional  in purpose,  distinctive  in quality and design and  tailored to the
purchasing patterns of the Company's customers and potential customers.

     Misjudgments as to customer  interest in new or updated products could lead
to excess  inventories and markdowns and could have a material adverse effect on
the Company's  financial  condition and results of  operations.  There can be no
assurance that new products under development will be successfully developed and
introduced.  Further,  due  to  the  uncertainty  associated  with  any  product
development and  introduction  (such as delays in development and lack of market
acceptance  of a new  product)  there can be no  assurances  that the  Company's
development  and  introduction  efforts will be  successful.  If products  under
development are not successfully introduced,  the Company's business,  financial
condition and results of operations would be materially adversely effected.

Uncertainty of External Strategic Opportunities

     The Company is pursuing strategic  opportunities to acquire other companies
or their  technology or products.  The Company believes that  opportunities  are
available that will have strategic benefit to the Company; however, there can be
no assurance that the Company will be able to successfully  identify,  negotiate
and consummate such acquisition  opportunities.  Such acquisitions  could enable
the Company to generate  additional revenues and to increase its gross profit by
an amount that exceeds any increase in operating expenses; however, there can be
no assurance that the Company would be able to obtain such  financial  benefits.
Further,  the Company's current  financial  condition does not enable it to make
such  acquisitions  without  incurring  debt or issuing  equity to finance  such
acquisitions.

Competition

       The  markets  in  which  the  Company's  products  are sold  have  become
increasingly  competitive.  Most of the  Company's  principal  competitors  have
substantially  greater financial resources.  The Company's results of operations
can be significantly  affected by pricing pressures arising from customer demand
and pricing strategies by the Company's  competitors,  and the timing and market
acceptance of new product introductions by competitors of the Company. There can
be no assurance that pricing  pressures will not have a material  adverse effect
on the Company, or that the Company's competitors will not succeed in developing
products that would render the Company's  technology  and products  obsolete and
noncompetitive.

     Due to the  foregoing  and other  factors,  past  results are not  reliable
predictors of future results. In addition, the securities of many technology and
developmental companies,  such as the Company, have historically been subject to
extensive  price and volume  fluctuations  that may adversely  affect the market
price of their common stock.



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<PAGE>
                               EIP MICROWAVE, INC.

                          PART II -- OTHER INFORMATION

Item 2.    Changes in Securities

     Subsequent  to June 30,  1998,  the  Company  entered  into the Bank Credit
Facility and the Cutler Loan  Facility  which contain  restrictions  on dividend
payments  and other  restrictive  covenants.  The Bank Credit  Facility  and the
Cutler Loan  Facility are more fully  described in Part I/Item  2--"Future  Cash
Requirements."

Item 6.    Exhibits and Reports on Form 8-K

     (a)     Exhibits.

               27     Financial Data Schedule.

     (b)     Reports on Form 8-K.

             During the  quarter  ended June 30,  1998,  the  Company  filed one
             report on Form 8-K. On April 3, 1998, the Company filed a report on
             Form  8-K  reporting  the  completion  and  results  of its  Rights
             Offering.





























                                       13
<PAGE>
                               EIP MICROWAVE, INC.

                                   SIGNATURES


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


DATE:     August 12, 1998       BY:   /s/  J. BRADFORD BISHOP
                                    -------------------------
                                      J. Bradford Bishop
                                      Chairman of the Board,
                                      Chief Executive Officer and Director
                                      (Principal Executive Officer)



DATE:     August 12, 1998       BY:   /s/  WILLIAM J. STANNERS, JR.
                                    -------------------------------
                                      William J. Stanners, Jr.
                                      Chief Financial Officer, Treasurer, and
                                      Assistant Secretary
                                      (Principal Financial Officer)























                                       14
<PAGE>
                               EIP MICROWAVE, INC.

                                INDEX TO EXHIBITS

                                                                 Sequentially
Exhibit No.              Description                             Numbered Page
-----------              -----------                             -------------

   27               Financial Data Schedule



































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