SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      DC 20549





FORM
      10-QSB








QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d)


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934






For
                the quarter ended September 30, 2007
            
            Commission
                File No.   0-19944






M~WAVE,
                INC.(Exact
                name of registrant as specified in its
                charter)





DELAWARE
            36-3809819(State
                or other jurisdiction of Incorporation or organization)
            (I.R.S.  Employer
                identification No.)








11533
                Franklin Ave. Franklin Park, Illinois
            60131(Address
                of principal executive offices)
            (Zip
                Code)








Registrant’s
                telephone number including area code:
            (630)
                562-5550








Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 and 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports) and (2) has been subject to such filing requirements
      for
      the past 90 days.





Yes x    
      No o





Indicate
                by check mark whether the Registrant is an
            Yes
            NoAccelerated
                filer (as defined by rule 12b-6 of the Act)
             ̈
            x




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




The
      registrant has 1,813,150 shares of common stock outstanding at November 14,
      2007.




1




**M-WAVE,
      INC.**





**CONTENTS**




PART
      I.  FINANCIAL INFORMATION




Item
                1.
            Financial
                Statements:Consolidated
                Balance Sheets as of September 30, 2007 and
                December 31, 2006 (unaudited)
            Page
                3Consolidated
                Statements of Operations for the Three Months Ended
                September 30, 2007 and 2006 (unaudited)
            Page
                4Consolidated
                Statements of Operations for the Nine Months Ended
                September 30, 2007 and 2006 (unaudited)
            Page
                5Consolidated
                Statements of Cash Flows for the Nine Months Ended
                September 30, 2007 and 2006 (unaudited)
            Pages
                6Notes
                to Consolidated Financial Statements
                (unaudited)
            Pages
                7-14Item
                2.
            Management’s
                Discussion and Analysis of Financial
                Condition and Results  of Operations
            Pages
                14-25Item
                3
            Controls
                and Procedures
            Page
                25PART
                II.  OTHER INFORMATIONItem
                1
            Legal
                Proceedings
            Page
                26Item
                2
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            Page
                26Item
                3
            Defaults
                Upon Senior Securities
            Page
                26Item
                4
            Submission
                of Matters to a Vote of Security
                Holders
            Page
                26Item
                5
            Other
                Information
            Page
                26Item
                6
            Exhibits
            Page
                26Signatures
            Page
                27




2
 *Table
            of Contents*





**Part
      I - Financial Information**


**Item
      1 - Financial Statements**





**M-Wave,
      Inc.**


**CONSOLIDATED
      BALANCE SHEETS**


**(unaudited)**





**September 30,**
            
            
            **December 31,****2007**
            
            
            **2006**ASSETSCURRENT
                ASSETS:Cash
                and cash equivalents
            
            $
            659,082
            
            
            $
            1,696,340Accounts
                receivable, net of allowance for doubtful accounts,2007-
                $80,000: 2006- $80,000
            
            
            1,099,014
            
            
            
            1,089,021Inventories,
                net
            
            
            1,611,039
            
            
            
            1,348,004Prepaid
                expenses and other assets
            
            
            172,160
            
            
            
            115,932Other
                receivable
            
            
            200,000
            
            
            
            6,836Total
                current assets
            
            
            3,741,295
            
            
            
            4,256,133EQUIPMENT:Equipment
            
            
            424,910
            
            
            
            434,156Less
                accumulated depreciation
            
            
            (208,247
            )
            
            
            (145,607
            )Equipment,
                net
            
            
            216,663
            
            
            
            288,549TOTAL
            
            $
            3,957,958
            
            
            $
            4,544,682LIABILITIES
                AND STOCKHOLDERS' EQUITYCURRENT
                LIABILITIES:Accounts
                payable
            
            $
            1,323,897
            
            
            $
            1,449,083Accrued
                expenses
            
            
            701,660
            
            
            
            277,746Note
                payable
            
            
            0
            
            
            
            58,000Total
                current liabilities
            
            
            2,025,557
            
            
            
            1,784,829COMMITTMENTS
                AND CONTINGENCIESSTOCKHOLDERS'
                EQUITY:Preferred
                  stock, $100 par value; Series A authorized, 30,000 shares;issued
                  and outstanding: 2007 and 2006: 12,500 shares
            
            
            656,800
            
            
            
            656,800Series
                  B authorized, 70,000 shares; issued and outstanding:2007
                  and 2006: 69,648 shares
            
            
            6,842,797
            
            
            
            6,842,797Common
                  stock, $.005 par value; authorized, 200,000,000 shares; issued
                  and
                  outstanding 2007: 1,813,150;  2006: 1,763,150
                  shares
            
            
            11,236
            
            
            
            10,986Additional
                paid-in capital
            
            
            14,427,683
            
            
            
            14,199,062Accumulated
                deficit
            
            
            (17,720,945
            )
            
            
            (16,664,622
            )Treasury
                stock, at cost, 2007 and 2006: 433,954 shares
            
            
            (2,285,170
            )
            
            
            (2,285,170
            )Total
                stockholders' equity
            
            
            1,932,401
            
            
            
            2,759,853TOTAL
            
            $
            3,957,958
            
            
            $
            4,544,682




See
      notes
      to consolidated financial statements





3
 *Table
            of Contents*





**M-Wave,
      Inc.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(unaudited)**





Three
                Months Ended September 302007
            
            
            2006NET
                SALES
            
            $
            2,942,854
            
            
            $
            2,597,939COST
                OF GOODS SOLD
            
            
            2,223,813
            
            
            
            2,006,869Gross
                profit
            
            
            719,041
            
            
            
            591,070OPERATING
                EXPENSES:General
                and administrative
            
            
            918,535
            
            
            
            649,691Selling
                and marketing
            
            
            209,887
            
            
            
            188,308Total
                operating expenses
            
            
            1,128,422
            
            
            
            837,999Operating
                loss from continuing operations
            
            
            (409,381
            )
            
            
            (246,929
            )Total
                interest expense
            
            
            0
            
            
            
            (10,165
            )LOSS
                FROM CONTINUING OPERATIONS
            
            
            (409,381
            )
            
            
            (257,094
            )Loss
                from discontinued operations (note 9), net of tax
            
            $
            0
            
            
            $
            (276,131
            )Net
                loss
            
            $
            (409,381
            )
            
            $
            (533,225
            )Preferred
                stock dividends
            
            $
            (266,984
            )
            
            $
            (83,504
            )Net
                loss attributable to common shareholders
            
            $
            (676,365
            )
            
            $
            (616,729
            )BASIC
                AND DILUTED LOSS PER COMMON SHAREContinuing
                operations
            
            $
            (0.37
            )
            
            $
            (0.22
            )Discontinued
                operations
            
            
            -
            
            
            
            (0.18
            )$
            (0.37
            )
            
            $
            (0.40
            )Weighted
                average shares outstanding
            
            
            1,813,150
            
            
            
            1,552,960





See
      notes
      to consolidated financial statements





4
 *Table
            of Contents*




**M-Wave,
      Inc.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(unaudited)**





Nine
                Months Ended September 302007
            
            
            2006NET
                SALES
            
            $
            7,991,758
            
            
            $
            7,176,776COST
                OF GOODS SOLD
            
            
            5,997,828
            
            
            
            5,380,916Gross
                profit
            
            
            1,993,930
            
            
            
            1,795,860OPERATING
                EXPENSES:General
                and administrative
            
            
            2,149,650
            
            
            
            3,262,220Selling
                and marketing
            
            
            633,619
            
            
            
            585,229Total
                operating expenses
            
            
            2,783,269
            
            
            
            3,847,449Operating
                loss from continuing operations
            
            
            (789,339
            )
            
            
            (2,051,589
            )Total
                interest expense
            
            
            0
            
            
            
            (419,028
            )Loss
                from continuing operations
            
            $
            (789,339
            )
            
            $
            (2,470,617
            )Loss
                from discontinued operations (note 9), net of tax
            
            $
            0
            
            
            $
            (406,435
            )Net
                loss
            
            $
            (789,339
            )
            
            $
            (2,877,052
            )Preferred
                stock dividends
            
            $
            (266,984
            )
            
            $
            (235,943
            )Net
                loss attributable to common shareholders
            
            $
            (1,056,323
            )
            
            $
            (3,112,995
            )BASIC
                AND DILUTED LOSS PER COMMON SHAREContinuing
                operations
            
            $
            (0.59
            )
            
            $
            (1.74
            )Discontinued
                operations
            
            
            -
            
            
            
            (0.26
            )$
            (0.59
            )
            
            $
            (2.01
            )Weighted
                average shares outstanding
            
            
            1,791,099
            
            
            
            1,551,429





See
      notes
      to consolidated financial statements





5
 *Table
            of Contents*





**M-Wave,
      Inc.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(unaudited)**





Nine
                Months Ended September 302007
            
            
            2006**OPERATING
                ACTIVITIES:**Net
                loss
            
            $
            (789,339
            )
            
            $
            (2,877,052
            )Adjustments
                to reconcile net loss to net cash flows used in operating
                activities:Loss
                on disposal of property, plant, and equipment
            
            
            334
            
            
            
            31,405Depreciation
            
            
            66,338
            
            
            
            58,710Amortization
                of discount on long-term debt
            
            
            0
            
            
            
            356,787Trade
                debt forgiveness
            
            
            0
            
            
            
            (323,772
            )Provision
                for inventories
            
            
            0
            
            
            
            120,000Stock
                compensation recognized on options and warrants
            
            
            140,871
            
            
            
            755,967Fair
                value adjustment to common stock warrants
            
            
            0
            
            
            
            (4,993
            )Changes
                in assets and liabilities, net of effects of acquired
                business:Accounts
                receivable
            
            
            (9,993
            )
            
            
            (76,859
            )Inventories
            
            
            (263,035
            )
            
            
            1,034,821Prepaid
                expenses and other assets
            
            
            (256,229
            )
            
            
            119,958Accounts
                payable
            
            
            (125,186
            )
            
            
            (362,927
            )Accrued
                expenses
            
            
            156,931
            
            
            
            (40,244
            )Net
                cash flows used in operating activities
            
            
            (1,079,308
            )
            
            
            (1,208,199
            )**INVESTING
                ACTIVITIES:**Purchase
                of equipment
            
            
            0
            
            
            
            (21,448
            )Proceeds
                from sale of property, plant and equipment
            
            
            5,214
            
            
            
            154,494Repayments
                on note receivable
            
            
            6,836
            
            
            
            61,498Net
                cash flows provided by investing activities
            
            
            12,050
            
            
            
            194,544**FINANCING
                ACTIVITIES:**Proceeds
                from exercise of stock options and warrants
            
            
            88,000
            
            
            
            527,000Net
                borrowings on note payable, bank
            
            
            0
            
            
            
            545,000Payments
                on short and long term debt
            
            
            (58,000
            )
            
            
            0Proceeds
                from preferred stock issuance
            
            
            0
            
            
            
            1,777,989Payment
                of preferred dividends
            
            
            0
            
            
            
            (235,943
            )Net
                cash flows provided by financing activities
            
            
            30,000
            
            
            
            2,614,046**NET
                (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS**
            
            
            (1,037,258
            )
            
            
            1,600,391CASH
                AND CASH EQUIVALENTS:Beginning
                of period
            
            
            1,696,340
            
            
            
            247,731End
                of period
            
            $
            659,082
            
            
            $
            1,848,122SUPPLEMENTAL
                SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES:Reclassification
                of common stock warrants to stockholders' equity
            
            $
            0
            
            
            $
            290,494Conversion
                of long-term debt to stockholders' equity
            
            
            0
            
            
            
            4,564,808Accrued
                interest added to note payable balance
            
            
            0
            
            
            
            20,601Accrued
                dividends preferred stock
            
            
            266,984
            
            
            
            0




See
      notes
      to consolidated financial statements


6
 *Table
            of Contents*




**M-****WAVE,
        Inc.**


**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 (Unaudited)




**1.  Basis
      of Presentation**





The
      accompanying unaudited consolidated financial statements have been prepared
      in
      accordance with generally accepted accounting principles in the United States
      of
      America for interim financial information and with the instructions to Form
      10-QSB.  Accordingly, they do not include all of the information and
      footnotes required by generally accepted accounting principles for complete
      financial statements. In the opinion of management, all adjustments necessary
      for a fair presentation, consisting only of normal recurring adjustments, have
      been included.




Operating
      results for the three and nine months ended September 30, 2007 are not
      necessarily indicative of the results that may be expected for the year ending
      December 31, 2007.  For further information, refer to the financial
      statements and footnotes thereto included in the Company’s annual report on Form
      10-KSB for the year ended December 31, 2006.




**2.
      Business Product Lines**





Sales
      by
      product line for the three and nine months ended September 30, 2007 and 2006
      consisted of the following:





Three
                months ended September 30,
            
            
            Nine
                months ended September 30,2007
            
            
            2006
            
            
            2007
            
            
            2006Digital
            
            $
            1,707,565
            
            
            $
            2,295,876
            
            
            $
            5,364,600
            
            
            $
            6,074,544Non
                PCB
            
            
            1,166,886
            
            
            
            141,787
            
            
            
            2,394,280
            
            
            
            240,903Other
            
            
            68,403
            
            
            
            160,276
            
            
            
            232,878
            
            
            
            861,329Total
                sales
            
            $
            2,942,854
            
            
            $
            2,597,939
            
            
            $
            7,991,758
            
            
            $
            7,176,776





Sales
      within the digital product line include ten key customers, which represented
      approximately 90% of sales in the third quarter of 2007 versus approximately
      93%
      of sales in the third quarter of 2006.  Year to date sales for these
      key customers within the digital product line represented approximately 92%
      of
      sales versus approximately 90% of year to date sales in 2006.  Year to
      date sales for the Company’s top ten digital customers were down approximately
      9% compared to prior year to date sales.





Non
      printed circuit board (“Non PCB”) sales represent sales of new products, other
      than printed circuit boards, to the Company’s existing digital customer
      base.  Sales within the Non PCB product line include three primary
      customers, which represented approximately 84% of sales of Non PCB products
      in
      the third quarter of 2007 versus approximately 100% of sales in the third
      quarter of 2006.  Year to date sales for these key Non PCB customers
      represented approximately 88% of sales of non PCB products versus approximately
      88% of year to date sales in 2006.  Year to date sales for the
      Company’s top three Non PCB customers were up approximately 902% compared to
      prior year to date sales





7
 *Table
            of Contents*





Other
      sales primarily represent tooling charges billed to customers for either new
      products or existing products that have gone through a
      revision.  Prior year other sales also include commission revenues
      billed per our October 2005 agreement with American Standard Circuits (“ASC”),
      pursuant to which the Company sold its “RF” (radio frequency) product line, but
      continued to assist ASC in transitioning the RF customers throughout 2006 as
      well as sales to former RF customers of its remaining
      inventory.  Prior year sales included approximately $38,000 in
      commissions during the third quarter of 2006.  Prior year to date
      sales included approximately $195,000 in commissions and approximately $282,000
      in sales to former RF customers.





The
      loss
      of, or a substantial reduction in the orders from, the Company’s major customers
      could have a material effect on the financial statements.





**3.
      Debt**





On
      January 25, 2006, the Company entered into an Agreement with Mercator Momentum
      Fund III (“Mercator”), amending the Loan Document Purchase Agreements that
      Mercator purchased from Silicon Valley Bank on November 9,
      2005.   Provisions of this amendment include elimination of
      certain provisions and conditions of the loan originally between the Company
      and
      Silicon Valley Bank, including financial covenants that existed under the
      original agreement.  As part of this amendment, all previous defaults
      that had existed under the original agreement were waived.





In
      connection with the loan purchase, the principal amount due was amended to
      include interest accrued between November 9 and December 31, 2005 of
      approximately $21,000.  As of March 1, 2006, the balance due on the
      bank notes purchased by Mercator Advisory Group, LLC (“M.A.G. Capital “)was
      approximately $1,620,000.  During the first quarter of 2006, M.A.G.
      Capital provided additional debt financing of approximately
      $545,000.  Mercator is affiliated with M.A.G. Capital.





On
      March
      1, 2006 the Company entered into an agreement with M.A.G. Capital to convert
      its
      debt of approximately $4,565,000 into approximately 45,648 shares of Series
      B
      Convertible Preferred Stock.





8
 *Table
            of Contents*





The
      amount of debt converted into the Series B Convertible Preferred Stock was
      comprised of the following amounts:





Promissory
                notes issued to MAG Capital
            
            $
            2,400,000Bank
                notes purchased by MAG Capital
            
            $
            1,619,808MAG
                debt financing first quarter
            
            $
            545,000Total
                debt converted to equity
            
            $
            4,564,808




Upon
      the
      conversion of debt to equity described above, the remaining unamortized debt
      discount was recognized as interest expense in the amount of approximately
      $357,000 during the first quarter of 2006.




On
      October 10, 2006, the Company financed equipment for $70,000 with a note payable
      with eleven monthly installments of $6,000 and a final payment of
      $4,000.  Amount outstanding on the note payable at September 30, 2007
      was $0.




**4.
      Equity**





During
      the first quarter of 2006 the Company issued an aggregate of 45,648 shares
      of
      Series B Convertible Preferred Stock which are convertible into shares of the
      Company’s common stock. The Series B Preferred was issued to Mercator Momentum
      Fund, LP, Mercator Momentum Fund III, LP, and Monarch Pointe Fund, Ltd. (“the
      Purchasors”)in exchange for cancellation of indebtedness owed to them by the
      Company.





The
      Company also issued an additional 19,000 shares of Series B Preferred Stock
      in
      exchange for $1,900,000 which was held in a reserve account to be released
      by a
      majority of the independent directors as appropriate to fund expenses of the
      company.  As of September 30, 2007, there was approximately $445,000
      remaining in the account to fund future expenses.





The
      Company paid fees of approximately $122,000 in connection with the combination
      of debt to equity conversion and additional equity placement.





On
      December 29, 2006 the Company issued an additional 5,000 shares of Series B
      Preferred Stock in exchange for $500,000.





The
      Series B stock is non-voting and is entitled to receive monthly dividends at
      an
      annual rate of 15%, subject to reduction to 9% after the Registration Statement
      is declared effective by the Securities and Exchange Commission. The Company
      is
      to use its best efforts to file a registration statement covering the shares
      of
      common stock underlying the Series B Convertible Preferred Stock (the
“Conversion Shares”), the shares of common stock underlying the Warrants (the
“Warrant Shares”), and the shares of common stock underlying the Series A
      Preferred Stock issued by the Company to the Purchasers on June 17,
      2004.  Mercator waived their dividend payments for the months of
      January through June 2007.  Dividends for the three months ended
      September 30, 2007 of approximately $267,000 has been accrued but
      unpaid.





9
 *Table
            of Contents*





During
      the first nine months of 2007 and 2006, Mercator did not convert any shares
      of
      their preferred stock into common shares. As of September 30, 2007 there are
      12,500 Series A preferred shares outstanding and 69,648 Series B preferred
      shares outstanding.





Potentially
      dilutive common shares consist of the incremental common shares issuable upon
      conversion of convertible preferred shares, and the exercise of common stock
      options and warrants for all periods.  For all periods ended September
      30, 2007 and 2006, the basic and diluted shares reported are equal because
      the
      common share equivalents are anti-dilutive due to the net losses for each
      period.  Below is a tabulation of the potentially dilutive
      securities:





3
                months ended September 30,
            
            
            9
                months ended September 30,2007
            
            
            2006
            
            
            2007
            
            
            2006Weighted
                average shares outstanding
            
            
            1,813,150
            
            
            
            1,552,960
            
            
            
            1,791,099
            
            
            
            1,551,429Options
                in the money, net
            
            
            290
            
            
            
            43,690
            
            
            
            25,433
            
            
            
            48,096Warrants
                in the money, net
            
            
            0
            
            
            
            96,861
            
            
            
            51,041
            
            
            
            102,759Total
                Outstanding andPotentially
                Dilutive shares
            
            
            1,813,440
            
            
            
            1,693,511
            
            
            
            1,867,572
            
            
            
            1,702,284





On
      February 28, 2006, the Company re-priced all of their warrants issued to M.A.G.
      Capital, LLC and related entities.  A total of 532,862 warrants were
      re-priced from between $4.08 and $5.08 per share to $2.48 per share, one cent
      above the closing market price on that date.  The Company recorded
      approximately $286,000 of stock compensation expense during 2006 related to
      the
      re-pricing of these warrants.  The fair value of the re-pricing was
      determined using the Black Scholes option pricing model.





On
      July
      12, 2007, the Board of Directors authorized a six month extension of M.A.G.
      Capital’s warrants that were set to expire on July 23, 2007.  This
      action extended the life of approximately 253,000 of approximately 320,000
      warrants, all priced at $2.48, to January 23, 2008.  The value of the
      warrants was determined using the Black-Scholes pricing model which calculated
      a
      value of approximately $49,000 based on a fair value price of $0.19, assuming
      an
      expected life of 6 months, a risk-free interest rate of 5.13%, volatility of
      21.3%, and no dividend yield.  M.A.G. Capital has approximately 50,000
      warrants set to expire on February 23, 2008, and approximately 17,000 warrants
      set to expire on June 16, 2008.  All warrants owned by M.A.G. Capital
      are fully vested and exercisable as of September 30, 2007.





10
 *Table
            of Contents*





**5.
      Litigation**





The
      Company is not a party to any litigation whose outcome is expected to have
      a
      material adverse effect on the financial position or results of operations
      of
      the Company.





**6.
      Share-Based Compensation**




The
      Company has a stock option plan that authorizes the granting of options to
      officers, key employees and directors to purchase the Company’s common stock at
      prices equal to or above the market value of the stock at the date of
      grant.  Under this plan, substantially all shares authorized under the
      plan have been granted as of September 30, 2007.  The exercise price
      of all employee and director options granted in 2007 and 2006 were above fair
      market value.




Compensation
      expense is recognized only for share-based payments expected to vest. We
      estimate forfeitures at the date of grant based on our historical experience
      and
      future expectations. Estimated forfeitures are expected to be minimal and not
      material to the financial statements.




The
      Company recognizes share-based compensation expense in general and
      administrative expenses in the statement of operations.  The Company
      did not issue any options during the three months ended September 30, 2007
      and
      2006 respectively.  For the nine months ended September 30, 2007 and
      2006 respectively, the Company issued 34,776 and 166,331 options,
      respectively.  These grants were priced at $3.41 and $2.72
      respectively.  There were no options exercised or forfeited during the
      three and nine months ended September 30, 2007 and 2006,
      respectively.




Information
      related to the Company’s share-based compensation plan for the three and nine
      months ended September 30, 2007 and 2006, is as follows:





Three
                months ended September 30,
            
            
            Nine
                months ended September 30,2007
            
            
            2006
            
            
            2007
            
            
            2006Total
                share-based compensation expense
            
            $
            -
            
            
            $
            121,133
            
            
            $
            92,173
            
            
            $
            452,555Weighted
                average grant date fair value
            
            $
            -
            
            
            $
            -
            
            
            $
            3.10
            
            
            $
            2.48Unrecognized
                compensation cost
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            112,600Remaining
                weighted average period cost will be recognized over
            
            
            0.00
            
            
            
            0.00
            
            
            
            0.00
            
            
            
            0.70


11
 *Table
            of Contents*




Total
      common stock warrants outstanding at September 30, 2007 were 354,113, and were
      all exercisable at September 30, 2007.  During the second quarter of
      2007, 50,000 warrants priced at $1.76 were exercised.  The Company
      received cash of approximately $88,000 and recorded an increase to common stock
      and additional paid in capital.





**7.
      Taxes**




In
      July
      2006, the FASB issued FASB Interpretation No. 48 (FIN 48) "Accounting for
      Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,
      Accounting for Income Taxes". FIN 48 clarifies the accounting for income taxes
      by prescribing the minimum recognition threshold a tax position is required
      to
      meet before being recognized in the financial statements. FIN 48 also provides
      guidance on derecognition, measurement, classification, interest and penalties,
      accounting in interim periods, disclosure and transition. The interpretation
      applies to all tax positions related to income taxes subject to FASB Statement
      No. 109.




FIN
      48 is
      effective for fiscal years beginning after December 15, 2006. Differences
      between amounts recognized in the statements of financial position prior to
      the
      adoption of FIN 48 and the amounts reported after adoption should be accounted
      for as cumulative-effect adjustment recorded to the beginning balance of
      retained earnings. The adoption of FIN 48 did not have a material impact on
      our
      loss from continuing operation, net loss, or earnings per share.




The
      Company adopted FIN 48 as of January 1, 2007.  The Company has no
      unrecognized tax benefits, accrued interest, or penalties as of the date of
      adoption.  The Company has no tax positions at the date of adoption in
      which it is reasonably possible that the total amounts of unrecognized tax
      benefits will significantly increase within one year of the adoption of FIN
      48.  Tax years 2004 through 2006 remain subject to examination by
      major tax jurisdictions upon the adoption of FIN 48.




**8.
      Reclassifications**





Certain
      items in the 2006 consolidated financial statements have been reclassified
      to
      conform to the 2007 presentation.





**9.
      Discontinued Operations**





The
      Company follows the provisions of SFAS 144 to identify and account for
      discontinued operations.  The Company carried assets and liabilities
      related to its discontinued operations on its balance sheet.  These
      assets were carried at their net book value which approximated its estimated
      net
      realizable value less estimated costs to sell the assets, and were included
      with
      assets from continuing operations in the accompanying consolidated balance
      sheet.  These liabilities are carried at their net book value which
      approximated the full amount of consideration necessary to settle these
      obligations.  The approximate carrying value of these assets and
      liabilities at September 30, 2007 and December 31, 2006 is below:





12
 *Table
            of Contents*





2007
            
            
            2006Accounts
                Receivable
            
            $
            0
            
            
            $
            65,000Total
                assets
            
            $
            0
            
            
            $
            65,000





On
      January 9, 2006, the Company announced it had taken steps to liquidate its
      M-Wave DBS, Inc (DBS) assets it previously acquired in February
      2005.  In connection with that activity, the Company announced that it
      had terminated all but its logistics and warehousing DBS personnel and
      discontinued current operations.





The
      Company entered into an agreement in October 2006 to complete the liquidation
      of
      all remaining inventory by the end of the year at a selling price which
      approximated the carrying value of approximately $169,000 at September 30,
      2006.
      The Company also settled all of its remaining obligations to DBS inventory
      suppliers for nominal value.  Based on these vendor settlements, the
      Company recorded approximately $324,000 in vendor debt forgiveness during the
      second quarter of 2006, which are included in the results from discontinued
      operations.





The
      net
      loss from discontinued operations for the three and nine months ended September,
      2007 and 2006 are as follows:





Three
                Months Ended September 30,
            
            
            Nine
                Months Ended September 30,2007
            
            
            2006
            
            
            2007
            
            
            2006Net
                sales
            
            $
            -
            
            
            $
            68,000
            
            
            $
            -
            
            
            $
            899,000Cost
                of goods sold
            
            
            -
            
            
            
            269,000
            
            
            
            -
            
            
            
            1,359,000Gross
                (loss)/profit
            
            
            -
            
            
            
            (201,000
            )
            
            
            -
            
            
            
            (460,000
            )Operating
                income/(expenses)
            
            
            -
            
            
            
            (75,000
            )
            
            
            -
            
            
            
            49,000Income/(loss)
                from Discontinued operations
            
            $
            -
            
            
            $
            (276,000
            )
            
            $
            -
            
            
            $
            (411,000
            )





The
      loss
      from discontinued operations resulted in an increase to the basic and diluted
      loss per common share of approximately $0.00 and $0.18 for the three months
      ended September 30, 2007 and 2006 respectively.   The loss from
      discontinued operations resulted in an increase to the basic and diluted loss
      per common share of approximately $0.00 and $0.26 for the nine months ended
      September 30, 2007 and 2006 respectively.





**10.  New
      Accounting Pronouncements**





In
      September 2006, the FASB issued SFAS 157, Fair Value
      Measurements.  SFAS 157 defines fair value, establishes a framework
      for measuring fair value and expands disclosures about fair value
      measurements.  The requirements of SFAS 157 are effective for the
      Company's fiscal year ending December 31, 2008.  The Company does not
      believe the adoption of SFAS 157 will have a material effect on its financial
      statements.





13
 *Table
            of Contents*





In
      February 2007, the FASB issued SFAS 159, *The Fair Value Option for Financial
      Assets and Financial Liabilities*.  SFAS 159 permits entities to choose
      to measure many financial instruments and certain other items at fair value
      at
      specified election dates. Under SFAS 159, a business entity shall report
      unrealized gains and losses on items for which the fair value option has been
      elected in earnings (or another performance indicator if the business entity
      does not report earnings) at each subsequent reporting date.  SFAS 159 also
      establishes presentation and disclosure requirements designed to facilitate
      comparisons between entities that choose different measurement attributes for
      similar types of assets and liabilities.  This Statement is effective for
      fiscal years beginning after November 15, 2007.   The Company does not
      believe that adoption of SFAS 159 will have a material effect on its financial
      statements.




**Item
      2:**





**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**




We
      are a
      value added service provider of high performance printed circuit boards used
      in
      a variety of digital and high frequency communications applications for a
      variety of telecommunications and industrial electronics applications. We
      satisfy our customers’ requirements for telecommunications and industrial
      electronics printed circuit boards, either rigid, flexible or bonded, by
      directly booking orders, supervising and inspecting outsourced manufacture
      of
      such boards through our global base of production partners located in China
      and
      Southeast Asia, and domestically, through pre-screened production
      partners.




Our
      business model is referred to as Virtual Manufacturing. Through Virtual
      Manufacturing we contractually supply a wide range of printed circuit board
      needs of our customers, creating a “pipeline” between those customers and
      production that covers early prototypes and pilot production, directly into
      mass
      production, offering one seamless source. We deliver products when our customers
      need them through consignment inventory control, demand pull, just in time,
      in
      plant storehouses, supplier or vendor managed inventory and other supply-chain
      programs.




We
      began
      Virtual Manufacturing during 2000 by developing subcontracting relationships
      with predominately Asian global manufacturers, from our base in Singapore.
      In
      virtual manufacturing, we assume many of the pre and post-production services
      of
      a manufacturer, while outsourcing the physical processes either adjunct to
      our
      personnel or in relatively close proximity to assure the highest quality
      fulfillment.





14
 *Table
            of Contents*




Our
      manufacturing partners maintain most certificates for quality, environmental
      and
      safety, including ISO, QS, UL, CE and others. We believe our manufacturing
      partners have a reputation for timely fulfillment of orders that are
      competitively priced, shipped from modern plants operating with the highest
      standards of worker and environmental safety both within and outside of the
      United States.




We
      market
      our products through regional sales managers supported by independent sales
      organizations.  Our base of approximately 50 customers represents a
      highly sophisticated group of purchasers.




In
      2005,
      we started to solicit new orders and extend our product lines to include custom
      or engineered electronic products sourced from Asia on behalf of existing
      accounts. These products are sourced and imported on a pan-Asian basis and
      cover
      a broad range of components that include LED’s, wire bonding services,
      harnesses, extruded housing products, and other customer specific
      products.  This effort has been geared toward diversifying and
      increasing our overall margins. Initially, we solicited existing customers,
      but
      we also intend to solicit new accounts.  Our niche focuses in a higher
      mix of products at lower volumes that larger scale distributors or brokers
      fail
      to address.  Our customers tend to be smaller middle market companies
      through midsize firms with little presence or capability in Asia that elect
      us
      as their procurement partners.





**Significant
      Events**




On
      January 26, 2007, the Company entered into a Merger Agreement with SunFuels,
      Inc. and Blue Sun Biodiesel, LLC (“SunFuels”).




SunFuel’s
      primary business is the acquisition and distribution of canola oils refined
      into
      a biodiesel blend that can operate in both commercial and passenger vehicles.
      The primary marketing of SunFuel’s products focuses on the branded Blue Sun
      FusionTM that is a blend of premium Blue Sun Biodiesel (20%) with petroleum
      diesel fuel (80%), along with Blue Sun's proprietary additive package
      specifically tailored for regional climates and seasons.  Blue Sun indicates that it
      will also refine biodiesel productsfromtheplant
      it intends to break ground on in
      2007 located inLas
      Cruces,New
      Mexico.




The
      transaction is expected to close in the fourth quarter of 2007, pending
      satisfaction of conditions to closing. When the transaction closes, certain
      directors and the officers of SunFuels will assume control of the Company,
      which
      will change its name to Blue Sun Holdings, Inc.  The Company’s
      operating subsidiary will be renamed Blue Sun Biodiesel, Inc. The Company is expected
      to
      remain a publicly traded and reporting company following the closing of the
      transaction.





As
      consideration for the merger transaction, the outstanding equity securities
      of
      SunFuels will be exchanged for equity securities of
      M-Wave.  Specifically, outstanding SunFuels Common Stock, Series A
      Convertible Preferred Stock, options and warrants will be exchanged for Company
      Common Stock, Series C Convertible Preferred Stock, options and warrants,
      respectively.  As a result, the holders of such SunFuels equity
      securities will own approximately 87.2% of the Common Stock of the Company,
      on a
      fully-diluted basis, assuming (i) the completion of the SunFuels Series A
      Convertible Preferred Stock financing described below and (ii) conversion or
      exercise of all convertible or exercisable securities of the Company that will
      be outstanding after the completion of the merger.  Similarly, all of
      the outstanding Blue Sun membership interests not already owned by SunFuels
      will
      be exchanged for shares of Company Common Stock.  As a result, the
      holders of such Blue Sun membership interests will own approximately 3.8% of
      the
      Common Stock of the Company, as so calculated on a fully-diluted
      basis.  The currently
      outstanding shares of M-Wave Common Stock will remain outstanding and, following
      the exchange of SunFuels and Blue Sun equity securities for M-Wave equity
      securities, the currently outstanding shares, warrants and options of M-Wave
      will represent approximately8.0%
      of the outstanding shares, warrants,
      and options of the Company, as so calculated on a fully-diluted
      basis.





15
 *Table
            of Contents*





The
      merger transaction is subject to the
      approval by the stockholders of M-Wave and SunFuels and the members of Blue
      Sun,
      receipt of all required consents, receipt of all regulatory approvals, and
      other
      customary closing conditions.  Holders of a majority of the
      outstanding shares of each class of stock of SunFuels and holders of
      approximately 48% of the outstanding shares of Common Stock of M-Wave and 100%
      of the outstanding shares of each class of preferred stock of M-Wave have agreed
      to votetheir Common Stockin
      favor of the
      mergers.  SunFuels, which holds 94.4% of the outstanding Blue Sun
      membership interests, has agreed to the Blue Sun merger.  In addition,
      the merger transaction is subject to the receipt of the remaining $10.125
      million in SunFuels Series A Convertible Preferred Stock. There can be no
      assurances that SunFuels will receive the remaining $10.125 million or that
      the
      merger transaction will be completed as contemplated.





On
      July 24, 2007, the Company filed Form
      S-4 with the Securities and Exchange Commission (“SEC”).  This filing
      included Amendment 1 to the Merger Agreement between the Company and Blue Sun,
      dated June 27, 2007,  which extended the date to complete the merger
      from June 30, 2007 to December 31, 2007.





OnSeptember
      21, 2007, the Company filed Amendment
      1 to Form
      S-4 that responded to SEC comments in connection with Form S-4.  In
      connection with this filing, the Company filed Amendment 2 to the Merger
      Agreement between the Company and Blue Sun, datedSeptember 20, 2007,
      in which the exchange ratio of
      conversion shares was fixed.  In addition, the amendment also provided
      that a portion of the Company’s costs associated with the merger will be
      reimbursed by Blue Sun at closing, up to $200,000.  As ofSeptember 30, 2007,
      the Company has recorded merger costs
      of approximately $609,000, of which approximately $409,000 has been expensed
      during the nine months endedSeptember 30, 2007.





OnOctober
      29, 2007, the Company filed Amendment
      2 to Form
      S-4 that responded to additional comments from the SEC.  In connection
      with this filing, the Company filed Amendment 3 to the Merger Agreement between
      the Company and Blue Sun, datedOctober 26, 2007,
      which allows the transaction to be
      classified as described under Section 351 of the Internal Revenue Code of
      1986.  As ofNovember 14, 2007,
      the Company’s Form S-4 had not yet
      been deemed effective by the SEC.





16
 *Table
            of Contents*





Because
      the holders of the equity securities of SunFuels will acquire a majority of
      M-Wave’s shares of capital stock as a result of the merger transaction, the
      merger transaction will be treated as a reverse merger for accounting purposes,
      and SunFuels will be deemed to be the acquirer in the reverse merger.
      Consequently, the historical financial statements of the Company will be the
      historical financial statements of SunFuels rather than the historical financial
      statements of M-Wave, and the assets and liabilities of SunFuels will be
      recorded at their historical cost basis to SunFuels, and the assets and
      liabilities of M-Wave will be recorded as if they were purchased on the closing
      date at their book value on that date.





On
      July
      20, 2007, the Company entered into an Asset Purchase Agreement for the sale
      of
      the Company’s current business operations, by and among the Company, M-Wave
      International, LLC, an Illinois limited liability company (the “Purchaser”),
      Joseph Turek, and Robert Duke.  The Purchaser is a company formed by
      Joseph Turek, the Company’s Chairman and Chief Operating Officer and Robert
      Duke, the President of the Company’s Electro-Mechanical Group
      division.





In
      accordance with the terms of the Asset Purchase Agreement, the Purchaser will
      acquire substantially all of the assets and will assume substantially all of
      the
      liabilities of the Company related to its current business
      operations.  As consideration for the acquisition, the Purchaser will
      deliver to the Company 300,000 shares of the Company’s common stock that are
      currently owned by Mr. Turek.  In addition, if the net working capital
      of the sold business exceeds $770,000 at the closing of the acquisition, the
      Purchaser will be required to deliver to the Company additional shares of the
      Company’s common stock, which shares will be valued at $3.00 per share for such
      purpose**.**




**RESULTS
      FOR THE THREE MONTHS ENDED September 30, 2007 COMPARED TO THE THREE MONTHS
      ENDED
      September 30, 2006**





**Net
      Sales**





Net
      sales
      were approximately $2,943,000 for the three months ended September 30, 2007
      versus approximately $2,598,000 during the three months ended September 30,
      2006, an increase of approximately $345,000 or 13.3%.  Sales within
      our digital product line decreased approximately $588,000 during the third
      quarter of 2007, a decrease of approximately 26% of prior year third quarter
      sales.  Sales to our top ten digital customers were approximately
      $1,535,000 during the three months ended September 30, 2007, a decrease of
      approximately $599,000 compared to the three months ended September 30,
      2006.  Primary factors in the decrease were the loss of one customer
      and general softness in orders among two other customers.  Sales
      amongst our top ten digital customers represented approximately 90% of sales
      within this product line for the three months ended September 30, 2007 compared
      to approximately 93% of sales within this product line for the three months
      ended September 30, 2006.





17
 *Table
            of Contents*





Sales
      within our non-PCB product line were approximately $1,167,000 for the three
      months ended September 30, 2007, approximately $1,015,000 above sales for the
      three months ended September 30, 2006. As this line grows, we expect to achieve
      long-term revenues to approach those currently experienced within our digital
      product line.  The non-PCB sales recorded in the third quarter were
      the result of our ongoing efforts to effectively grow our core business into
      other products that we initiated during the latter half of 2005.  We
      continue to focus our efforts on growing our core business and customer base,
      primarily by concentrating efforts on expanding our customer base within our
      digital product line.  In addition, we are expanding our global
      sourcing efforts beyond printed circuit boards into other product lines such
      as
      extrusions, wire harnesses, castings, spinning’s, etc. Sourcing of these
      additional product lines, initially to our existing customer base, we believe
      will improve our operating results by providing increased profits on these
      products than we experienced with our former radio frequency (“RF”) product
      line.





Other
      revenues for the three months ended September 30, 2007 were approximately
      $68,000, approximately $92,000 below other revenues recorded in the three months
      ended September 30, 2006.  Other revenues primarily consist of tooling
      charges for new and redesigned products, freight charges billed, and cash
      discounts taken by customers for early payments, which are recorded as a
      reduction of sales.  Other sales for the prior year also included
      sales of our remaining RF inventory during the first half of the year and
      commissions received on providing sales assistance after the sales of our RF
      product line in late 2005.   Commissions for the three months
      ended September 30, 2007 were approximately $7,000, a decrease of approximately
      $31,000 versus commissions recorded in the three months ended September 30,
      2006.  Tooling revenues were approximately $82,000 for the three
      months ended September 30, 2007, a decrease of approximately $40,000 versus
      tooling revenues recorded in the three months ended September 30,
      2006.





**Gross
      Profit and Cost of Goods Sold**





The
      Company’s gross profit for the three months ended September 30, 2007 was
      approximately $719,000, or 24.4% of net sales, compared to a gross profit of
      approximately $591,000, or 22.8% of net sales, for the three months ended
      September 30, 2006.  Increased sales levels was the primary driver of
      increased margin dollars, while lower sales commissions recorded in prior year
      results attributed to the slight decrease in margin
      percentage.  Margins within our digital product line increased by
      approximately 0.4% over the prior year as we continue to focus sales efforts
      on
      our higher margin customers.





18
 *Table
            of Contents*





**Operating
      Expenses**





General
      and administrative expenses were approximately $918,000 or 31.2% of net sales
      in
      the third quarter of 2007 compared to approximately $650,000 or 25.0% of net
      sales in the third quarter of 2006, an increase of approximately
      $268,000.





General
      and administrative expenses consist primarily of salaries and benefits,
      professional services, depreciation of office, equipment and computer systems
      and occupancy expenses. In comparison to the third quarter of 2006, payroll
      related expenses decreased approximately $6,000.   Professional
      services, which include legal, auditing, and consulting fees, decreased
      approximately $27,000 in 2007 compared to prior year expenses.  Public
      company related costs such as investor relations, Sarbanes-Oxley expenses,
      and
      board and committee fees were approximately $425,000 in the third quarter of
      2007 compared to approximately $92,000 during the third quarter of 2006, an
      increase of approximately $333,000.  Approximately $409,000 of
      expenses recorded during the third quarter of 2007 related to merger costs
      associated with the Blue Sun transaction.  We recorded stock
      compensation expenses during the third quarter of 2007 of approximately $49,000
      compared to approximately $66,000 for the third quarter of
      2006.  Stock compensation expense for the third quarter of 2007
      related to extending the life of warrants held by M.A.G. Capital, LLC while
      prior year expenses related to the vested portion of prior options granted.
      Other operating expenses decreased approximately $15,000 during the third
      quarter of 2007 compared to the third quarter of 2006.  These expenses
      include travel, telephone, insurance, depreciation, and rent.





Selling
      and marketing expenses were approximately $210,000 or 7.1% of net sales in
      the
      third quarter of 2007 compared to approximately $188,000 or 7.2% of net sales
      in
      the third quarter of 2006.  Selling and marketing expenses include the
      cost of salaries, advertising and promotion of the Company’s products, and
      commissions paid to independent sales organizations. In comparison to the third
      quarter of 2006, commission paid to independent sales organizations increased
      by
      approximately $1,000 due to higher sales levels; payroll-related expenses
      increased by approximately $10,000. Costs related to our Singapore office
      increased by approximately $9,000; other sales expenses, including travel
      related expenses increased by approximately $2,000 in the third quarter of
      2007
      compared to the third quarter of 2006.





**Operating
      Loss**





Operating
      loss from continuing operations was approximately $409,000 in the third quarter
      of 2007 compared to an operating loss of approximately $249,000 in the third
      quarter of 2006. The increase in operating loss of approximately $160,000 was
      primarily related to merger related expenses of approximately $409,000 described
      above offset by increased gross profit dollars attributable to higher sales
      levels.





**Interest
      Income**





We
      recorded no interest income during the third quarter of 2007 or
      2006.




19
 *Table
          of Contents*




**Interest
      Expense**




We
      recorded no interest expense during the third quarter of 2007 compared to
      approximately $10,000 recorded during the third quarter of 2006.




**Preferred
      Stock Dividends**





We
      recorded preferred stock dividends in the third quarter of 2007 of approximately
      $267,000.  The Company recorded approximately $84,000 in preferred
      stock dividends during the third quarter of 2006.  In the prior
      year,  we received a waiver of dividends for two months during the
      third quarter of 2006, only recording one month of preferred stock
      dividends.  Dividends relate to the issuance of Series B preferred
      stock to M.A.G. Capital, LLC, and its affiliates, in March 2006.





**RESULTS
      FOR THE NINE MONTHS ENDED September 30, 2007 COMPARED TO THE NINE MONTHS ENDED
      September 30, 2006**





**Net
      Sales**





Net
      sales
      were approximately $7,992,000 for the nine months ended September 30, 2007
      versus approximately $7,177,000 during the nine months ended September 30,
      2006,
      an increase of approximately $815,000 or 11.4%.  Sales within our
      digital product line decreased approximately $710,000 during the first nine
      months of 2007, a decrease of approximately 11.7%.  Sales to our top
      ten digital customers were approximately $4,962,000 during the nine months
      ended
      September 30, 2007, a decrease of approximately $490,000 compared to the nine
      months ended September 30, 2006.  Sales amongst our top ten digital
      customers represented approximately 93% of sales within this product line for
      the nine months ended September 30, 2007 compared to approximately 90% of sales
      within this product line for the nine months ended September 30,
      2006.   Primary factor in sales decrease within our digital line
      was loss of one customer which represented approximately $461,000 of prior
      year
      sales.





Sales
      within our non-PCB product line were approximately $2,394,000 for the nine
      months ended September 30, 2007, approximately $2,153,000 above sales for the
      nine months ended September 30, 2006. As this line grows, we expect to achieve
      long-term revenues to approach those currently experienced within our digital
      product line.  The non-PCB sales recorded in the first nine months of
      2007 were the result of our ongoing efforts to effectively grow our core
      business into other products that we initiated during the latter half of
      2005.  We continue to focus our efforts on growing our core business
      and customer base, primarily by concentrating efforts on expanding our customer
      base within our digital product line.  In addition, we are expanding
      our global sourcing efforts beyond printed circuit boards into other product
      lines such as extrusions, wire harnesses, castings, spinning’s, etc. Sourcing of
      these additional product lines, initially to our existing customer base, we
      believe will improve our operating results by providing increased profits on
      these products than we experienced with our former radio frequency (“RF”)
      product line.





20
 *Table
            of Contents*





Other
      revenues for the nine months ended September 30, 2007 were approximately
      $233,000, approximately $628,000 below other revenues recorded in the nine
      months ended September 30, 2006.  Other revenues primarily consist of
      tooling charges for new and redesigned products, freight charges billed, and
      cash discounts taken by customers for early payments, which are recorded as
      a
      reduction of sales.  Other sales for the prior year also included
      sales of our remaining RF inventory during the first half of the year and
      commissions received on providing sales assistance after the sales of our RF
      product line in late 2005.    Primary drivers in the
      decrease were prior year sales of our remaining RF product of approximately
      $282,000.  Commissions for the nine months ended September 30, 2007
      were approximately $39,000, a decrease of approximately $156,000 versus
      commissions recorded in the nine months ended September 30,
      2006.  Tooling revenues were approximately $248,000 for the nine
      months ended September 30, 2007, a decrease of approximately $111,000 versus
      tooling revenues recorded in the nine months ended September 30,
      2006.





**Gross
      Profit and Cost of Goods Sold**





The
      Company’s gross profit for the nine months ended September 30, 2007 was
      approximately $1,994,000, or 24.9% of net sales, compared to a gross profit
      of
      approximately $1,796,000, or 25.0% of net sales, for the nine months ended
      September 30, 2006.  Increased sales levels was the primary driver of
      increased margin dollars, while lower sales commissions recorded in prior year
      results attributed to the slight decrease in margin
      percentage.  Margins within our digital product line increased by
      approximately 0.2% over the prior year as we continue to focus sales efforts
      on
      our higher margin customers.





**Operating
      Expenses**





General
      and administrative expenses were approximately $2,150,000 or 26.9% of net sales
      in the first nine months of 2007 compared to approximately $3,262,000 or 45.5%
      of net sales in the first nine months of 2006, a decrease of approximately
      $1,112,000.





General
      and administrative expenses consist primarily of salaries and benefits,
      professional services, depreciation of office, equipment and computer systems
      and occupancy expenses. In comparison to the first nine months of 2006, payroll
      related expenses decreased approximately $62,000.   Professional
      services, which include legal, auditing, and consulting fees, decreased
      approximately $10,000 in the first nine months of 2007 compared to prior year
      expenses.  Public company related costs such as merger costs, investor
      relations, Sarbanes-Oxley expenses, and board and committee fees were
      approximately $603,000 in the first nine months of 2007 compared to
      approximately $928,000 during the first nine months of 2006, a decrease of
      approximately $325,000.  Approximately $409,000 of current year public
      costs is related to the Blue Sun transaction.  We recorded stock
      compensation expenses of approximately $141,000 during the first nine months
      of
      2007 compared to approximately $756,000 for the first nine months of
      2006.  Stock compensation expense is primarily related to Board of
      Director and employee stock option grants issued during the first quarter of
      2007 and 2006, respectively, though approximately $49,000 of current year
      expense relates to extending approximately 253,000 warrants issued to M.A.G.
      Capital, LLC and its affiliates by six months, extending the life of these
      warrants until January 28, 2008.  Prior year stock compensation
      expense also includes expenses of approximately $238,000 recorded when we
      re-priced warrants in connection with our debt to equity conversion in the
      first
      quarter of 2006.  Other operating expenses decreased approximately
      $99,000 during the first nine months of 2007 compared to the first nine months
      of 2006.  These expenses include travel, telephone, insurance,
      depreciation, and rent.





21
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            of Contents*





Selling
      and marketing expenses were approximately $633,000 or 7.9% of net sales in
      the
      first nine months of 2007 compared to approximately $585,000 or 8.2% of net
      sales in the first nine months of 2006, an increase of approximately
      $48,000.  Selling and marketing expenses include the cost of salaries,
      advertising and promotion of the Company’s products, and commissions paid to
      independent sales organizations. In comparison to the first nine months of
      2006,
      commission paid to independent sales organizations increased by approximately
      $1,000 due to higher sales levels; payroll-related expenses increased by
      approximately $36,000. Costs related to our Singapore office increased by
      approximately $21,000; other sales expenses, including travel related expenses
      decreased by approximately $10,000 in the first nine months of 2007 compared
      to
      the first nine months of 2006.





**Operating
      Loss**





Operating
      loss from continuing operations was approximately $789,000 in the first nine
      months of 2007 compared to an operating loss of approximately $2,052,000 in
      the
      first nine months of 2006. The decrease in operating loss of approximately
      $1,263,000 was primarily related to lower administrative expenses of
      approximately $1,112,000 described above combined with increased gross profit
      attributable to higher sales levels.





**Interest
      Income**





We
      recorded no interest income during the first nine months of 2007 or
      2006.





**Interest
      Expense**




We
      recorded no interest expense during the first nine months of 2007, compared
      to
      approximately $419,000 during the first nine months of
      2006.   Primary factor in the decrease in interest expense
      related to our conversion of our debt to equity in March 2006, whereby we
      expensed the remaining unamortized debt discount as interest expense in the
      amount of approximately $357,000 for the period ended March 31,
      2006.  We paid approximately $67,000 in interest expenses related to
      interest on our promissory notes during the first quarter of 2006. We recorded
      a
      reduction of interest expense of approximately $5,000 related to the
      re-valuation of warrants during the first quarter of 2006.







22
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            of Contents*




**Preferred
      Stock Dividends**





We
      recorded preferred stock dividends of approximately $267,000 in the first nine
      months of 2007 compared to approximately $236,000 during the first nine months
      of 2006.  During 2007, we received waivers on dividends for the first
      six months of the year.  During 2006, we recorded dividends for the
      months of March, April, and August.  Dividends were waived for the
      months of May, June, July, and September.Preferred stock dividends are related
      to the issuance of Series B preferred stock to M.A.G. Capital, LLC, and its
      affiliates, in March 2006.





**Liquidity
      and Capital Resources**





Net
      cash
      used by operations was approximately $1,079,000 for the first nine months of
      2007 compared to approximately $1,208,000 used by operations for the first
      nine
      months of 2006.





Accounts
      Receivable increased approximately $10,000 due to increased sales levels.
      Inventories increased approximately $263,000 related to higher inventory levels
      to support increased sales levels. Accounts Payable decreased approximately
      $125,000 primarily due to the payments to suppliers in the normal course of
      business.





Net
      cash
      provided by investing activities was approximately $12,000 for the first nine
      months of 2007 compared to approximately $195,000 in the first nine months
      of
      2006. Capital expenditures were $0 in the first nine months of 2007 compared
      to
      approximately $21,000 in the first nine months of 2006.





Net
      cash
      provided by financing activities was approximately $30,000 during the first
      nine
      months of 2007, primarily due to a second quarter warrant exercise, offset
      by
      payments on our note payable for equipment acquired in the prior year. Net
      cash
      provided by financing activities in the first nine months of 2006 was
      approximately $2,614,000 related to borrowings of approximately $545,000,
      warrant exercise of approximately $527,000, and issuance of preferred stock
      of
      approximately $1,778,000.





Currently
      the Company is committed to growing its core business, as it relates to the
      continuing operations of its digital product line and other non-PCB components
      and assemblies. The Company also announced a merger agreement with SunFuels,
      Inc. and Blue Sun Biodiesel LLC on January 26th that expects
      to
      close during 2007.  However, if the Company is unable to secure
      adequate financing to grow its core business, or if the merger agreement is
      not
      consummated, the Company may be forced to modify its business and strategic
      plan.





23
 *Table
            of Contents*




Based
      upon the current level of operations and anticipated growth, restructuring
      of
      its business focusing on higher margin product lines, placement of follow on
      equity financing during the past year, we believe that future cash flows from
      operations will be adequate to meet our anticipated liquidity requirements
      through this fiscal year.





**Off-Balance
      Sheet Arrangements**





The
      Company has not created, nor is a party to, any special-purpose or off-balance
      sheet entities for the purposes of raising capital, incurring debt, or operating
      our business.  The Company does not have any off-balance sheet
      arrangements or relationships with entities that are not consolidated into
      our
      financial statements that are reasonably likely to materially affect our
      liquidity or the availability of capital resources.





**Inflation**





Management
      believes inflation has not had a material effect on the Company’s operations or
      on its financial position.  However, expected supplier price increases
      averaging approximately 4% may have a material effect on the Company’s
      operations and financial position in the remainder of 2007, if the Company
      is
      unable to pass through those increases under its present contracts.





**Foreign
      Currency Transactions**





All
      of
      the Company’s foreign transactions are negotiated, invoiced and paid in United
      States dollars.





**Risk
      Factors Affecting Business and Results of Operations**





This
      report, as well as our other reports filed with the SEC, our press releases,
      and
      other communications contain forward-looking statements made pursuant to the
      safe harbor provisions of the Securities Litigation Reform Act of 1995.
      Forward-looking statements include all statements regarding our expected
      financial position, results of operations, cash flows, dividends, financing
      plans, strategy, budgets, capital and other expenditures, competitive positions,
      growth opportunities, benefits from new technology, plans and objectives of
      management, and markets for stock. These forward-looking statements are based
      largely on our expectations and, like any other business, are subject to a
      number of risks and uncertainties, many of which are beyond our control. The
      risks include those stated in the section entitled "Risk Factors Affecting
      Business and Results of Operations" at the end of Item 6 of our Annual Report
      on
      Form 10-KSB and economic, competitive and other factors affecting our
      operations, markets, products and services, expansion strategies and other
      factors discussed elsewhere in this report, our Annual Report on Form 10-KSB
      and
      the other documents we have filed with the Securities and Exchange Commission,
      as well as the following paragraphs below.





24
 *Table
            of Contents*





In
      light
      of these risks and uncertainties, there can be no assurance that the
      forward-looking information contained in this report will in fact prove
      accurate, and our actual results may differ materially from the forward-looking
      statements.





To
      maintain the listing of our common stock on the NASDAQ Capital Markets, we
      must
      maintain compliance with their continuing listing requirements, including a
      minimum tangible net worth of $2.5 million.  As of September 30, 2007,
      we are not in compliance with this requirement.  We anticipate closing
      our merger with Blue Sun before the end of the year, though there can be no
      assurances that will happen.  Upon completion of the merger, it is
      anticipated that the new entity will satisfy the initial listing requirements
      for listing on the Nasdaq Capital Markets.





We
      may
      not be able to maintain a minimum tangible net worth of $2.5
      million,  or meet one or more of the other continuing listing
      requirements of the NASDAQ Capital Markets, any of which would make our common
      stock subject to delisting.  Upon a delisting of our common stock from
      the NASDAQ Capital Markets, our common stock would trade on the over-the-counter
      bulletin board, which may have an adverse impact on the market price and
      liquidity of our common stock.





**Item
      3: Controls and Procedures**




***a)
      Disclosure controls and procedures***.  As of the end of
      the period covered by this report, the Company carried out an evaluation, under
      the supervision and with the participation of the Company's management,
      including the Company's Chief Executive Officer and the Company's Chief
      Financial Officer, of the effectiveness of the design and operation of the
      Company's disclosure controls and procedures (as defined in Rules 13a-15(e)
      and
      15d-15(e) under the Securities and Exchange Act of 1934, as amended). Based
      on
      this evaluation, our Chief Executive Officer and Chief Financial Officer
      concluded that our disclosure controls and procedures were
      effective.   It should be noted that in designing and evaluating
      the disclosure controls and procedures, management recognized that any controls
      and procedures, no matter how well designed and operated, can provide only
      reasonable assurance of achieving the desired control objectives, and management
      necessarily was required to apply its judgment in evaluating the cost-benefit
      relationship of possible controls and procedures. The Company has designed
      its
      disclosure controls and procedures to reach a level of reasonable assurance
      of
      achieving desired control objectives and, based on the evaluation described
      above, the Company’s Chief Executive Officer and Chief Financial Officer
      concluded that the Company’s disclosure controls and procedures were effective
      at reaching that level of reasonable assurance.





During
      the evaluation of the Company's disclosure controls and procedures as of the
      end
      of the period covered by this report, the Company's management determined that
      a
      material weakness within its internal control framework, which had been
      identified earlier, was still present.





25
 *Table
            of Contents*




The
      weakness relates to segregation of duties.  Current business
      conditions have led to limited financial resources, making it difficult to
      segregate duties within the financial area. To address this weakness, the
      Company has implemented levels of financial reviews performed by the Chief
      Financial Officer and/or Chief Executive Officer.  In completing the
      evaluation of disclosure controls and procedures as of the end of the period
      covered by this report, the Company's management concluded that the Company's
      disclosure controls and procedures were effective despite the material weakness
      because of the implementation of financial controls by management.





**(b)*****Changes in internal
      controls*****.** There was no change in the Company's
      internal control over financial reporting during the three and nine months
      ended
      September 30, 2007 that has materially affected, or is reasonably likely to
      materially affect, its internal control over financial reporting.








**Part
      II - Other Information**





**Item
      1:  LegalProceedings**





None





**Item
      2: Unregistered Sales of Equity Securities and
      Use of Proceeds**





None





**Item
      3: Defaults Upon Senior
      Securities**





None





**Item
      4: Submission of Matters to a Vote of Security
      Holders**





None





**Item
      5: Other Information**





None





**Item
      6:Exhibits**





(a)
            Exhibits





31.1
            Certification
                of the CEO pursuant to Section 302 of the Sarbanes-Oxley
                Act.


31.2
              Certification
                  of the CFO pursuant to Section 302 of the Sarbanes-Oxley
                  Act.
 
 32.1
              Certification
                  pursuant to 18 U.S.C. Section 135O, as adopted pursuant to section
                  906 of
                  the Sarbanes-Oxley Act of 2002.
 
 32.2
              Certification
                  pursuant to 18 U.S.C. Section 135O, as adopted pursuant to section
                  906 of
                  the Sarbanes-Oxley Act of 2002.


26
 *Table
            of Contents*




**SIGNATURE**




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





**M~WAVE,
                Inc.**Date:
                November 14, 2007
            /s/Jeff
                FiglewiczJeff
                FiglewiczChief
                Financial Officer








**Exhibit
                Index****Exhibit****No.**
            **Description**
            **Location**2.1
            First
                Amendment to the Agreement and Plan of Merger, dated June 27, 2007,
                by and
                between M-Wave, Inc., Ocean Merger Sub Inc., Sunfuels Inc., and Blue
                Sun
                Biodiesel LLC
            22.2
            Second
                Amendment to the Agreement and Plan of Merger, dated September 20,
                2007,
                by and between M-Wave, Inc., Ocean Merger Sub Inc., Sunfuels Inc.,
                and
                Blue Sun Biodiesel LLC
            32.3
            Third
                Amendment to the Agreement and Plan of Merger, dated October 26,
                2007, by
                and between M-Wave, Inc., Ocean Merger Sub Inc., Sunfuels Inc., and
                Blue
                Sun Biodiesel LLC
            410.1
            Asset
                Purchase Agreement, dated July 20, 2007, by and among M-Wave, Inc.,
                M-Wave
                International, LLC, Joseph Turek, and Robert Duke
            131.1
            Certification
                of the CEO Pursuant to Sections 302 of the Sarbanes-Oxley
                Act
            Filed
                Herewith31.2
            Certification
                of the CFO Pursuant to Sections 302 of the Sarbanes-Oxley
                Act
            Filed
                Herewith32.1
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act
            Filed
                Herewith32.2
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act
            Filed
                Herewith(1)
            Incorporated
                herein by reference to the applicable exhibit to the Registrant's
                form 8-K
                filed July 20, 2007(2)
            Incorporated
                herein by reference to the applicable exhibit to the Registrant's
                form S-4
                filed July 24, 2007(3)
            Incorporated
                herein by reference to the applicable exhibit to the Registrant's
                form
                S-4/A filed September 21, 2007(4)
            Incorporated
                herein by reference to the applicable exhibit to the Registrant's
                form
                S-4/A filed October 29, 2007






27