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 June 30, 2005
              
              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.)
 
 
 475
                  Industrial Drive, West Chicago, Illinois
              
              60185(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 oNo x
 
 Indicate
                  by check mark whether the Registrant is an accelerated filer (as
                  defined
                  by rule 12b-6 of the Act)
              Yes
                  o
              No
                  x
 
 The
        registrant has 6,198,898 shares of common stock outstanding at June 30,
        2005.
  1
  **M-WAVE,
        INC.**
 
 **CONTENTS**
 
 PagePART
                  I.  FINANCIAL INFORMATIONItem
                  1.
              Financial
                  Statements:Consolidated
                  Balance Sheets as of June 30, 2005 and
                  December 31, 2004 (unaudited)
              3Consolidated
                  Statements of Income for the Three Months
                  Ended June 30, 2005 and 2004 (unaudited)
              4Consolidated
                  Statements of Income for the Six Months Ended
                  June 30, 2005 and 2004 (unaudited)
              5Consolidated
                  Statements of Cash Flows for the Six Months
                  Ended June 30, 2005 and 2004 (unaudited)
              6Notes
                  to Consolidated Financial Statements (unaudited)
              8Item
                  2.
              Management’s
                  Discussion and Analysis of Financial
                  Condition and Results Of Operations
              14Item
                  3
              Controls
                  and Procedures
              25PART
                  II.  OTHER INFORMATIONItem
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              26Item
                  6.
              Exhibits
              27Signatures
              28
  2
  **Part
        I- Financial Information**
 **Item
        1: Financial Statements**
 
 **M~Wave,
        Inc.**
 **CONSOLIDATED
        BALANCE SHEETS**
 **(Unaudited)**
 
 JUNE
                  30,2005
              
              DECEMBER
                  31,2004ASSETSCURRENT
                  ASSETS:Cash
              
              $
              670,481
              
              
              1,321,445Accounts
                  receivable, net of allowance for doubtful accounts 2005 $75,000;
                  2004
                  $75,000
              
              
              3,307,697
              
              
              2,040,768Inventories,
                  net
              
              
              1,680,523
              
              
              785,979Prepaid
                  product credits
              
              
              250,000
              
              
              340,000Prepaid
                  expenses and other assets
              
              
              1,009,864
              
              
              136,865Total
                  current assets
              
              
              6,918,565
              
              
              4,625,057MACHINERY
                  AND EQUIPMENT:Machinery
                  and equipment
              
              
              563,698
              
              
              346,665Less
                  accumulated depreciation
              
              
              (66,111
              )
              
              (23,736
              )Machinery
                  and equipment - net
              
              
              497,587
              
              
              322,929Land,
                  building and improvements held for sale and idle
              
              
              745,821
              
              
              745,821Intangibles
                  assets, net
              
              
              50,000
              
              
              0Investment
                  in equity securities
              
              
              225,000
              
              
              225,000Goodwill
              
              
              824,268
              
              
              0TOTAL
              
              $
              9,261,241
              
              $
              5,918,807LIABILITIES
                  AND STOCKHOLDERS’ EQUITYCURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              1,226,527
              
              $
              1,163,013Accrued
                  expenses
              
              
              511,371
              
              
              518,484Note
                  payable, bank, net
              
              
              3,061,140
              
              
              1,189,192Total
                  current liabilities
              
              
              4,799,038
              
              
              2,870,689LONG
                  TERM DEBT, NET
              
              
              1,958,267
              
              
              0STOCKHOLDERS'
                  EQUITY:Series
                  A preferred stock, $100 par value; authorized 30,000 shares; issued
                  and
                  outstanding 2005:12,500 shares 2004: 24,000 shares
              
              
              656,800
              
              
              1,261,010Common
                  stock, $.005 par value; authorized 20,000,000 shares, issued and
                  outstanding 2005: 6,198,898 shares; 2004: 5,059,028 shares
              
              
              39,674
              
              
              33,974Additional
                  paid-in capital
              
              
              12,954,342
              
              
              11,840,351Accumulated
                  deficit
              
              
              (8,861,709
              )
              
              (7,802,047
              )Treasury
                  stock, at cost 1,735,815 shares
              
              
              (2,285,170
              )
              
              (2,285,170
              )Total
                  stockholders' equity
              
              
              2,503,936
              
              
              3,048,118TOTAL
              
              $
              9,261,241
              
              $
              5,918,807
 
 See
        notes to unaudited consolidated financial statements.
  3
  **M~WAVE,
        Inc.**
 CONSOLIDATED
        STATEMENTS OF INCOME
 (Unaudited)
  Three
                  months ended June 30,2005
              
              2004NET
                  SALES
              
              $
              6,633,316
              
              $
              5,592,198COST
                  OF GOODS SOLD
              
              
              5,357,867
              
              
              4,735,650Gross
                  profit
              
              
              1,275,449
              
              
              856,548OPERATING
                  EXPENSES:General
                  and administrative
              
              
              1,353,285
              
              
              552,846Selling
                  and marketing
              
              
              430,307
              
              
              361,911Impairment
                  loss recognized on investment in AM-Wave, LLC
              
              
              0
              
              
              23,460Stock
                  compensation
              
              
              0
              
              
              66,069Total
                  operating expenses
              
              
              1,783,592
              
              
              1,004,286Operating
                  loss
              
              
              (508,143
              )
              
              (147,738
              )OTHER
                  INCOME (EXPENSE):Interest
                  income
              
              
              1,901
              
              
              10,141Interest
                  expense
              
              
              (174,225
              )
              
              (61,265
              )Trade
                  debt forgiveness
              
              
              0
              
              
              321,329Total
                  other income (expense), net
              
              
              (172,324
              )
              
              270,205(LOSS)
                  INCOME BEFORE INCOME TAXES
              
              
              (680,467
              )
              
              122,467Provision
                  for income taxes
              
              
              0
              
              
              112,678NET
                  (LOSS) INCOME
              
              $
              (680,467
              )
              $
              9,789Preferred
                  Stock Beneficial Conversion Feature
              
              
              0
              
              
              0NET
                        (LOSS) INCOME ATTRIBUTABLE TO COMMON
                        SHAREHOLDERS
              
              $
              (680,467
              )
              $
              9,789Weighted
                  average shares outstanding
              
              
              6,145,553
              
              
              4,444,444BASIC
                  (LOSS) INCOME PER SHARE
              
              $
              (0.11
              )
              $
              0.00Diluted
                  weighted average shares outstanding
              
              
              6,145,553
              
              
              4,624,629DILUTED
                  (LOSS) INCOME PER SHARE
              
              $
              (0.11
              )
              $
              0.00
 
 See
        notes to unaudited consolidated financial statements.
  4
  **M~WAVE,
        Inc.**
 CONSOLIDATED
        STATEMENTS OF INCOME
 (Unaudited)
  Six
                  months ended June 30,2005
              
              2004NET
                  SALES
              
              $
              11,589,464
              
              $
              9,508,276COST
                  OF GOODS SOLD
              
              
              9,247,024
              
              
              7,617,534Gross
                  profit
              
              
              2,342,440
              
              
              1,890,742OPERATING
                  EXPENSES:General
                  and administrative
              
              
              2,434,293
              
              
              1,103,951Selling
                  and marketing
              
              
              734,573
              
              
              641,012Impairment
                  loss recognized on investment in AM-Wave, LLC
              
              
              0
              
              
              159,460Stock
                  compensation
              
              
              0
              
              
              148,109Total
                  operating expenses
              
              
              3,168,866
              
              
              2,052,532Operating
                  loss
              
              
              (826,426
              )
              
              (161,790
              )OTHER
                  INCOME (EXPENSE):Interest
                  income
              
              
              6,202
              
              
              40,563Interest
                  expense
              
              
              (239,439
              )
              
              (61,265
              )Trade
                  debt forgiveness
              
              
              0
              
              
              439,384Total
                  other income (expense), net
              
              
              (233,237
              )
              
              418,682(LOSS)
                  INCOME BEFORE INCOME TAXES
              
              
              (1,059,663
              )
              
              256,892Provision
                  for income taxes
              
              
              0
              
              
              112,678NET
                  (LOSS) INCOME
              
              $
              (1,059,663
              )
              $
              144,214Preferred
                  Stock Beneficial Conversion Feature
              
              
              0
              
              
              0NET
                        (LOSS) INCOME ATTRIBUTABLE TO COMMON
                        SHAREHOLDERS
              
              $
              (1,059,663
              )
              $
              144,214Weighted
                  average shares outstanding
              
              
              5,874,916
              
              
              4,443,971BASIC
                  (LOSS) INCOME PER SHARE
              
              $
              (0.18
              )
              $
              0.03Diluted
                  weighted average shares outstanding
              
              
              5,874,916
              
              
              4,638,358DILUTED
                  (LOSS) INCOME PER SHARE
              
              $
              (0.18
              )
              $
              0.03
 
 See
        notes to unaudited consolidated financial statements
  5
  **M~WAVE,
        Inc.**
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS
 (Unaudited)
  Six
                  months ended June 30,2005
              
              2004CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  (loss) income
              
              $
              (1,059,663
              )
              $
              144,214Adjustments
                    to reconcile net (loss) income to net cash flowsused
                    in operating activities:Loss
                  on disposal of property, plant, and equipment
              
              
              0
              
              
              81,596Depreciation
                  and amortization
              
              
              42,375
              
              
              18,000Amortization
                  of intangible assets
              
              
              10,000
              
              
              0Amortization
                  of discount on note payable, bank
              
              
              24,276
              
              
              0Amortization
                  of discount on long term debt
              
              
              73,747
              
              
              0Trade
                  debt forgiveness
              
              
              0
              
              
              (439,384
              )Impairment
                  loss recognized on investment in AM-Wave, LLC
              
              
              0
              
              
              159,460Stock
                  compensation recognized on options and warrants
              
              
              0
              
              
              148,109Adjustment
                  to refundable income taxes
              
              
              0
              
              
              112,678Changes
                  in assets and liabilities:Accounts
                  receivable
              
              
              (766,929
              )
              
              (793,722
              )Inventories
              
              
              (694,544
              )
              
              (421,503
              )Prepaid
                  expenses and other assets
              
              
              (782,999
              )
              
              (22,250
              )Accounts
                  payable
              
              
              63,515
              
              
              (336,344
              )Accrued
                  expenses
              
              
              (7,113
              )
              
              (498,294
              )Income
                  taxes
              
              
              0
              
              
              (45,388
              )Net
                  cash flows used in operating activities
              
              
              (3,097,335
              )
              
              (1,892,828
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchase
                  of machinery and equipment
              
              
              (117,033
              )
              
              (32,296
              )Proceeds
                  from sale of land, building and equipment,net
                  of disposal costs
              
              
              0
              
              
              2,632,807Acquisition
                  of business
              
              
              (1,684,268
              )
              
              0Net
                  cash flows (used in) provided by investing activities
              
              
              (1,801,301
              )
              
              2,600,511CASH
                  FLOWS FROM FINANCING ACTIVITIES:Proceeds
                  from exercise of stock options
              
              
              0
              
              
              920Net
                  borrowings on note payable, bank
              
              
              1,847,672
              
              
              2,690,627Repayment
                  of long term debt
              
              
              0
              
              
              (2,457,013
              )Borrowings
                  on long term debt
              
              
              2,400,000
              
              
              0Net
                  cash flows provided by (used in) financing activities
              
              
              4,247,672
              
              
              234,474NET
                  (DECREASE)/INCREASE IN CASH:
              
              
              (650,964
              )
              
              942,157Beginning
                  of period
              
              
              1,321,445
              
              
              249,343End
                  of period
              
              $
              670,481
              
              $
              1,191,500
  6
  SCHEDULE
        OF NONCASH FINANCING AND INVESTING ACTIVITIES:
 
 Contribution
                  of equipment for investment in AM-Wave, LLC
              
              $
              0
              
              $
              777,200Stock
                  options issued in connection with consulting agreement
              
              
              0
              
              
              75,995Stock
                  warrants issued in connection with SOA agreement
              
              
              0
              
              
              72,114Stock
                  warrants issued in connection with bank financing
                  agreement
              
              
              0
              
              
              97,100Stock
                  warrants issued in connection with preferred stock
                  offering
              
              
              0
              
              
              0Stock
                  warrants issued as discount on long-term debt
              
              
              515,480
              
              
              0Acquisition
                  of Business:Accounts
                  receivable
              
              $
              500,000
              
              $
              0Inventories
              
              
              200,000
              
              
              0Machinery
                  and equipment
              
              
              100,000
              
              
              0Intangible
                  assets
              
              
              60,000
              
              
              0Goodwill,
                  including acquisition costs of $342,268
              
              
              824,268
              
              
              0Total
              
              $
              1,684,268
              
              $
              0
 
 See
        notes to unaudited consolidated financial statements.
  7
  **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 six months ended June 30, 2005 are not necessarily
        indicative of the results that may be expected for the year ending December
        31,
        2005. 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, 2004.
 
 **2.**
              **Business
                  Issues**
 
 During
        the second quarter of 2005 the Company continued to focus attention on growing
        its core EMG business while developing its customer base on the recently
        acquired DBS side of the business.
 
 On
        February 25, 2005 M-Wave, Inc. through its wholly owned subsidiary, M-Wave
        DBS,
        Inc., purchased substantially all of the assets of Jayco Ventures Inc. (JVI)
        for
        approximately $1,684,000. Included in the acquisition price is approximately
        $60,000 of acquired intangible assets, which consists of patents, customer
        relationships, and customer backlogs. The weighted average estimated economic
        life of the acquired intangible assets is approximately three years. The
        acquisition also resulted in goodwill of approximately $824,000, which has
        been
        recorded on the books of the DBS business segment. All operations of JVI
        after
        February 25, 2005 are included in the consolidated results of M-Wave, Inc.
        All
        material inter-company transactions have been eliminated in consolidation.
 
 As
        of June 30, 2005, the Company has not finalized the purchase accounting for
        the
        JVI acquisition.
  8
  **3.**
              **Realization
                  of Assets**
 
 The
        Company continues its efforts to sell its prior plant and improvements located
        in Bensenville, Illinois as soon as practicable.
 
 **4.**
              **Inventories**
 
 Inventory
        is carried at the lower of cost (first-in, first-out) or market. Substantially
        all the Company’s inventories are in finished goods held for sales to customers
        supported by annual forecasts, firm purchase orders or contracts.
 
 **5.**
              **Business
                  Segments**
 
 Concurrently
        with the acquisition, M-Wave established two operating units. The Company's
        existing printed circuit board and related custom component business is now
        known as M-Wave EMG [Electro-Mechanical Group]. Concurrently, Robert Duke,
        Vice
        President of Corporate Sales, was named President-EMG division. Jason Cohen,
        former CEO of JVI, was hired as President-DBS division. These two operating
        units - Electromechanical (EMG) and Digital Broadcast Satellite (DBS) - are
        the
        two segments that the Company operates in. The Company currently does not
        allocate corporate expenses. These costs are currently incurred within the
        EMG
        results. Information about the Company by segment is presented below for
        the
        three and six months ended June 30:
 
 3
                  months ended
              
              6
                  months ended2005
              
              2004
              
              2005
              
              2004Net
                  SalesEMG
                  Group
              
              $
              5,801,975
              
              $
              5,592,199
              
              $
              10,522,844
              
              $
              9,508,276DBS
                  Group
              
              
              831,341
              
              
              -
              
              
              1,066,620
              
              
              -Consolidated
                  net sales
              
              $
              6,633,316
              
              $
              5,592,199
              
              $
              11,589,464
              
              $
              9,508,276Operating
                  lossEMG
                  Group
              
              $
              142,386
              
              $
              (147,738
              )
              $
              (89,340
              )
              $
              (161,791
              )DBS
                  Group
              
              
              (650,529
              )
              
              0
              
              
              (737,086
              )
              
              0Consolidated
                  operating loss
              
              
              ($508,143
              )
              
              ($147,738
              )
              
              ($826,426
              )
              
              ($161,791
              )Interest
                  and other (expense) income
              
              $
              (172,324
              )
              $
              270,205
              
              $
              (233,237
              )
              $
              418,682Consolidated
                  (loss) income beforeIncome
                  taxes
              
              $
              (680,467
              )
              $
              122,467
              
              $
              (1,059,663
              )
              $
              256,892Depreciation
                  and amortization expenseEMG
                  Group
              
              $
              16,722
              
              $
              9,000
              
              $
              32,952
              
              $
              18,000DBS
                  Group
              
              
              15,256
              
              
              0
              
              
              19,423
              
              
              0Consolidated
                  depreciation expense
              
              $
              31,978
              
              $
              9,000
              
              $
              52,375
              
              $
              18,000Capital
                  expendituresEMG
                  Group
              
              $
              27,944
              
              $
              3,796
              
              $
              38,694
              
              $
              32,296DBS
                  Group
              
              
              18,727
              
              
              0
              
              
              78,339
              
              
              0Consolidated
                  capital expenditures
              
              $
              46,671
              
              $
              3,796
              
              $
              117,033
              
              $
              32,296Total
                  Assets
              
              
              
              
              
              
              
              
              June
                  30, 2005
              
              
              December
                  31, 2004EMG
                  Group
              
              
              
              
              
              
              
              $
              5,909,941
              
              $
              5,918,807DBS
                  Group
              
              
              
              
              
              
              
              
              3,351,300
              
              
              0Consolidated
                  total assets
              
              
              
              
              
              
              
              $
              9,261,241
              
              $
              5,918,807
  9
  **6.**
              **Debt**
 
 We
        financed the acquisition of JVI with a portion of $1,550,000 in proceeds
        from
        the issuance on February 23, 2005 of $1,550,000 aggregate principal amount
        of
        promissory notes and warrants to purchase as aggregate of 434,783 shares
        of
        common stock. The issuances were made to Mercator Momentum Fund, L.P., Monarch
        Pointe, Ltd., and M.A.G. Capital, LLC (formerly Mercator Advisory Group,
        LLC),
        all of which are related entities. The warrants have a term of three years
        with
        an exercise price of $1.15 per share. The value of the warrants was determined
        using the Black-Scholes pricing model which calculated a value of approximately
        $490,000 based on a fair value price of $1.14, assuming an expected life
        of 3
        years, a risk-free interest rate of 3.63%, volatility of 260.7%, and no dividend
        yield. When combined with the face value of the notes, these warrants result
        in
        a debt discount with an allocated fair value of approximately $376,000. This
        debt discount will be expensed using the effective interest rate method.
        This
        debt discount, combined with the stated interest rate of 10%, results in
        an
        effective interest rate of approximately 30%.
 
 On
        June 16, 2005, we issued $2,400,000 in aggregate principal amount of promissory
        notes which amended the $1,550,000 in aggregate principal amount of promissory
        notes, dated February 23, 2005 in exchange for an additional aggregate principal
        amount of $850,000 (provided that the warrants issued in connection with
        the
        February 23, 2005 promissory notes were not cancelled and therefore remain
        outstanding). In connection with the issuance of notes, we issued 166,666
        warrants to purchase our common stock. The issuances were made to Mercator
        Momentum Fund, L.P., Mercator Momentum Fund III, L.P., Monarch Pointe, Ltd.,
        and
        M.A.G. Capital, LLC (formerly Mercator Advisory Group, LLC), all of which
        are
        related entities. The warrants have a term of three years with an exercise
        price
        of $1.02 per share. The value of the warrants was determined using the
        Black-Scholes pricing model which calculated a value of approximately $166,000
        based on a fair value price of $1.00, assuming an expected life of 3 years,
        a
        risk-free interest rate of 3.76%, volatility of 261.0%, and no dividend yield.
        When combined with the face value of the notes, these warrants result in
        a debt
        discount with an allocated fair value of approximately $139,000. This debt
        discount will be expensed using the effective interest rate method. This
        debt
        discount, combined with the stated interest rate of 10%, results in an effective
        interest rate of approximately 21%.
  10
  The
        issuance of notes and warrants were made to Mercator Momentum Fund, L.P.,
        Mercator Momentum Fund III, L.P., Monarch Pointe Fund, Ltd. and M.A.G. Capital,
        LLC, all of which are related entities. We paid fees totaling $29,000 in
        connection with the financing.
 
 The
        promissory notes accrue interest at 10% per annum and become due on August
        23,
        2007; provided that the notes are subordinate in right of payment to the
        debt
        payable to our lender Silicon Valley Bank. Upon sale of our real property
        at 215
        Park Street, Bensenville, Illinois and subject to the approval of SVB, we
        are
        required to prepay an aggregate of $325,000 under the promissory notes.
        Voluntary prepayments are subject to a 1% premium payment. We are required
        to
        pay annual extension fees equal to 1% of the outstanding principal balance
        under
        the notes on June 1, 2006 and June 1, 2007.
 
 The
        warrants have a term of three years and an exercise price of $1.02 per share.
        We
        granted registration rights to the holders of the warrants, which rights
        are
        exercisable on or after February 1, 2006.
 
 On
        April 11, 2005, the Company amended its facility with Silicon Valley Bank,
        which
        provided a total credit limit expansion from $4.5 million to $6.0 million.
        This
        new facility will finance the DBS operations through a Mini-ABL (accounts
        receivable purchase) facility for an initial period, while continuing to
        provide
        funds for the EMG division under the asset based line of credit Receivables
        under the Mini-ABL agreement will be loaned at 80% availability while we
        will
        continue to have 85% availability on receivables under the ABL. After the
        initial review period, the Bank will review the performance of the newly
        acquired division, and the Company expects to be able to transition these
        receivables from Mini-ABL to the Company’s traditional asset based line of
        credit which will minimize our borrowing costs and provide added flexibility.
        Other provisions of the ABL permit borrowing capabilities against inventories
        of
        both divisions in amounts up to 50% of their net value, with a limit of
        $1,000,000, which is $250,000 above the previous borrowing capacity on
        inventories. Another added benefit of the new facility is the ability to
        issue
        up to $1,000,000 in letters of credit to Asian suppliers. The Company expects
        this feature will provide additional flexibility in finding Asian vendors
        for
        new products as well as developing tertiary suppliers of existing products.
        The
        combined borrowing from letters of credit, inventory, factoring, and receivables
        under the ABL cannot exceed $6.0 million. The effective rate of interest
        under
        this agreement, including fees, is approximately 8%.
  11
  **7.**
              **Equity**
 
 During
        the second quarter of 2005, the entities related to M.A.G. Capital LLC converted
        2,500 shares of preferred stock into 242,718 common shares. As of June 30,
        2005
        there are 12,500 preferred shares outstanding. Below is a tabulation of the
        potentially dilutive securities:
 
 3
                  months ended
              
              6
                  months ended2005
              
              2004
              
              2005
              
              2004Weighted
                  average shares outstanding
              
              
              6,145,553
              
              
              4,444,444
              
              
              5,874,916
              
              
              4,443,971Options
                  in the money, net
              
              
              132,163
              
              
              180,185
              
              
              157,327
              
              
              193,276Warrants
                  in the money, net
              
              
              -
              
              
              -
              
              
              17,544
              
              
              1,111Preferred
                  shares convertible to Common
              
              
              1,275,510
              
              
              -
              
              
              1,275,510
              
              
              -Total
                  Outstanding and PotentiallyDilutive
                  shares
              
              
              7,553,226
              
              
              4,624,629
              
              
              7,325,297
              
              
              4,638,358
 
 With
        respect to the preferred shares convertible to common shares, the numbers
        of
        Conversion Shares and Warrant Shares that any Purchaser may acquire at any
        time
        are subject to limitation in the Certificate of Designations and in the
        Warrants, respectively, so that the aggregate number of shares of Common
        Stock
        of which such Purchaser and all persons affiliated with such Purchaser have
        beneficial ownership (calculated pursuant to Rule 13d-3 of the Securities
        Exchange Act of 1934, as amended) does not at any time exceed 9.99% of the
        Company's then outstanding Common Stock.
 
 **8.**
              **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.
 
 **9.**
              **Impairment
                  of Long-Lived Assets to be Held and
                  Used**
 
 The
        Company did not record an impairment loss in the first six months of 2005.
        It
        recorded an impairment loss of $159,460 in the first six months of 2004 due
        to
        the investment in Am-Wave, LLC.
  12
  **10.**
              **Stock-Based
                  Compensation**
 
 Stock-based
        employee compensation, including stock options, for the three and six months
        ended June 30, 2005 and 2004 was accounted for under the intrinsic value-based
        method as prescribed by APB Opinion No. 25, “Accounting for Stock Issued to
        Employees.” No compensation expense was recognized for stock options granted to
        employees in the first six months of 2005 because the options that were granted
        had no intrinsic value on the date of grant.
 
 The
        Company did not record any stock option expense in the three and six months
        of
        2005. In the three and six months of 2004 it recorded $57,115 and $148,109
        respectively relating to options issued in connection with the consulting
        agreements between the Company and Credit Support International LLC and Gordhan
        Patel.
  If
        the Company were to recognize compensation expense over the relevant service
        period under the fair-value method of SFAS No. 123 net (loss)
        income
        would have increased or decreased, resulting in pro forma net (loss) income
        and
        EPS as presented below:
  **Period****Ended June 30,****3
                  Months**
              
              **6
                  Months****2005**
              
              **2004**
              
              **2005**
              
              **2004**Net
                  (loss) income, as reported
              
              
              ($680,467
              )
              $
              9,789
              
              
              ($1,059,663
              )
              $
              144,214Deduct:
                  Stock-based compensation expense, net of related tax effects determined
                  under fair-value method for all awards
              
              
              ($9,293
              )
              $
              (57,115
              )
              
              ($70,763
              )
              
              ($148,109
              )Pro
                  forma net (loss) income
              
              
              ($689,760
              )
              
              ($47,326
              )
              
              ($1,130,426
              )
              
              ($3,895
              )EPS,
                  as reportedBasic
              
              
              ($0.11
              )
              $
              0.00
              
              
              ($0.18
              )
              $
              0.03Diluted
              
              $
              (0.11
              )
              $
              0.00
              
              $
              (0.18
              )
              $
              0.03Pro
                  forma EPSBasic
              
              
              ($0.11
              )
              
              ($0.01
              )
              
              ($0.19
              )
              $
              0.00Diluted
              
              $
              (0.11
              )
              $
              (0.01
              )
              $
              (0.19
              )
              $
              0.00Weighted
                  Average Assumptions:Fair
                  value
              
              $
              0.93
              
              $
              1.23
              
              $
              1.18
              
              $
              0.82Expected
                  life
              
              
              5.0
              
              
              5.0
              
              
              5.0
              
              
              5.0Risk-free
                  rate
              
              
              3.70
              %
              
              4.00
              %
              
              3.71
              %
              
              4.13
              %Volatility
              
              
              298.79
              %
              
              170.05
              %
              
              307.74
              %
              
              140.49
              %Dividend
                  yield
              
              
              0.00
              %
              
              0.00
              %
              
              0.00
              %
              
              0.00
              %
  13
  **11.**
              **Trade
                  Debt Forgiveness**
 
 In
        2003, the Company entered into settlement agreements with several suppliers
        to
        pay portions of the trade balances owed and for the suppliers to forgive
        the
        remainder. There was no trade debt forgiveness recorded during the first
        six
        months of 2005, and $439,384 was recorded in the first six months of 2004.
 
 **12.**
              **Taxes**
 
 Management
        believes that the Company has adequate net operating loss carry forwards
        available that, if utilized, would offset any taxable income generated by
        the
        Company throughout the remainder of 2005.
 
 **13.**
              **Reclassifications**
 
 Certain
        items in the 2004 financial statements have been reclassified to conform
        to the
        2005 presentation with no effect on net income for the period then
        ended.
 
 
 **Item
        2:**
 
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS**
 
 We
        provide supply chain services and source printed circuit boards, custom
        electronic components and direct broadcasting satellite parts domestically
        and
        from Asia through two divisions. Our Electro-Mechanical Group division (EMG)
        sources high-performance printed circuit boards and custom and engineered
        electronic components from original equipment manufacturers and contract
        manufacturers in Asia and the US. The products are used in a wide range of
        telecommunications and industrial electronics products. EMG also offers domestic
        and international supply chain services for its middle market
        customers.
 
 Our M-Wave
        Digital Broadcast Satellite division (DBS) is a virtual manufacturer and international supplier of
        parts to customers
        in the
        Digital Broadcasting Satellite industry,
        including DIRECTV®, DISH NETWORK®, SKY®, STAR CHOICE®, and other global
        satellite providers. M-Wave DBS products include a
        growing number of proprietary product lines including the TrunkLine Millenium®
        commercial SMATV head end gear, JVI L-Band passive splitters and multi-switches,
        Treadcli p
        plastic fasteners, Signaloc® meters used in DBS installations , and the Kompressor® universal RF connector line. We entered into this business in early 2005 when we acquired Jayco Ventures
        Inc.
  14
  **RESULTS
        FOR THE THREE MONTHS ENDED JUNE 30, 2005 COMPARED TO THE THREE MONTHS ENDED
        JUNE
        30, 2004**
 
 **Net
        Sales**
 
 Net
        sales were approximately $6,633,000 for the quarter ended June 30, 2005,
        an
        increase of approximately $1,041,000 or 18.6% above the quarter ended June
        30,
        2004. M-Wave EMG net sales were approximately $5,801,000, an increase of
        approximately $210,000 or 3.8% versus the second quarter of 2004. M-Wave
        DBS net
        sales were approximately $831,000 in the second quarter of 2005 which is
        the
        first full quarter of sales for our new DBS division that was formed upon
        our
        acquisition of JVI on February 25, 2005.
 
 Within
        our EMG segment, the radio frequency “RF” product line sales were approximately
        $3,806,000 during the second quarter of 2005 versus $3,158,000 for the second
        quarter of 2004, an increase of approximately $648,000, or 20.5%. Sales within
        our digital product line were approximately $1,996,000 during the second
        quarter
        of 2005 versus approximately $2,433,000 for the second quarter of 2004, a
        decrease of $437,000 or 18%.
 
 As
        indicated above, 2005 sales in our RF product line continued to outpace 2004
        sales, supported by the overall domestic growth for this product group and
        increased demand at virtually all of our major customers. The decrease in
        digital sales is primarily due to smaller customer accounts reducing their
        inventory below expectations.
 
 Currently,
        the DBS segment does not have multiple product lines.
 
 **Gross
        Profit and Cost of Goods Sold**
 
 The
        Company’s gross profit for the second quarter of 2005 was approximately
        $1,275,000, or 19.2% of Net Sales, compared to a gross profit of approximately
        $857,000, or 15.3% of Net Sales, for the second quarter of 2004. Increase
        in
        gross profit for the second quarter was attributable to several factors.
        Higher
        sales within the EMG segment that have focused on higher margin accounts
        in both
        the Digital and RF product lines helped improved margins in the 2005 second
        quarter compared to last year.
  15
  Gross
        profit at our EMG and DBS divisions were approximately $1,193,000, or 20.6%
        and
        $82,000, or 9.9% respectively, for the second quarter of 2005 compared to
        approximately $857,000, or 15.3% and $0 for the second quarter of 2004. DBS
        margins for the second quarter were lower due to sales of inventory at lower
        than usual prices. In addition, higher freight costs related to incoming
        inventory also impacted DBS margins in the second quarter. As we build the
        DBS
        business we anticipate improved revenue and margins in amounts that are
        anticipated to be comparable to the EMG division. We also expect improved
        freight costs as we begin to negotiate rates and consolidate incoming shipments
        on a corporate-wide basis.
 
 **Operating
        Expenses**
 
 General
        and administrative expenses were approximately $1,353,000 or 20.4% of net
        sales
        in the second quarter of 2005 compared to approximately $553,000 or 9.9%
        of net
        sales in the second quarter of 2004, an increase of approximately $800,000.
        General and administrative expenses for the EMG group was approximately $807,000
        for the second quarter of 2005 compared to expenses of approximately $553,000
        for the second quarter of 2004. General and administrative expenses for the
        DBS
        group were approximately $546,000 for the second quarter of 2005 compared
        to $0
        in the second quarter of 2004.
 
 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 second quarter of 2004, payroll
        related expenses increased approximately $319,000 due to increased headcount
        at
        our DBS division and payments of incentive compensation of approximately
        $147,000. Professional services, which include legal, auditing, and consulting
        fees, decreased approximately $33,000 in 2005 compared to prior year primarily
        due to the elimination of consulting fees paid to Credit Support International
        (CSI) in 2004. Costs related to being a public company, such as investor
        relations, corporate development, and Sarbanes-Oxley expenses, increased
        approximately $102,000 in the second quarter of 2005 compared to the second
        quarter of 2004. Costs related to the Strategic Operating Alliance (SOA)
        with
        American Standard Circuits (ASC) were approximately $218,000 in the second
        quarter of 2005, an increase of approximately $66,000 over the second quarter
        of
        2004. Increases in bank fees, engineering product development, and travel
        expenses of approximately $24,000, $30,000, and $30,000, respectively, during
        the second quarter of 2005 versus those recorded during 2004 are a reflection
        of
        the inclusion of DBS expenses for 2005.
 
 Selling
        and marketing expenses were approximately $430,000 or 6.5% of net sales in
        the
        second quarter of 2005, that is comparable to approximately $362,000 or 6.5%
        of
        net sales in the second quarter of 2004. Selling and marketing expenses for
        the
        EMG group was approximately $245,000 for the second quarter of 2005 compared
        to
        expenses of approximately $362,000 for the second quarter of 2004. Selling
        and
        marketing expenses for the DBS group were approximately $186,000 for the
        second
        quarter of 2005 compared to $0 in the second quarter of 2004. 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 second quarter of 2004, commissions paid to independent
        sales organizations decreased approximately $124,000, and payroll-related
        expenses increased approximately $155,000 due to the inclusion of DBS
        headcount.
  16
  The
        Company did not record an impairment loss in the second quarter of 2005.
        It
        recorded a loss of approximately $23,000 in the second quarter of 2004, to
        adjust the carrying value of its investment in AM-Wave, LLC to its estimated
        net
        realizable value.
 
 The
        Company recorded no stock compensation expense in the second quarter of 2005.
        The Company recorded approximately $66,000 in stock compensation expense
        in the
        second quarter of 2004 related to consulting agreements with CSI and Gordhan
        Patel.
 
 **Operating
        Loss**
 
 Operating
        loss was approximately $508,000 in the second quarter of 2005 compared to
        an
        operating loss of approximately $148,000 in the second quarter of 2004,
        primarily due to the increased general and administrative expenses discussed
        above, partially offset by increases in gross profit and decreases in impairment
        charges and stock compensation.
 
 **Interest
        Income**
 
 Interest
        income from short-term investments was approximately $2,000 in the second
        quarter of 2005 compared to approximately $10,000 in the second quarter of
        2004.
        Prior year quarter benefited from payment on a promissory note which was
        subsequently converted to an investment in equity securities at the end of
        2004.
 
 **Interest
        Expense**
 
 Interest
        expense was approximately $174,000 in the second quarter of 2005 versus $61,000
        interest expense the second quarter of 2004, with the increase primarily
        due to
        increased borrowings and discounts issued on new long-term debt. The Company
        recorded non-cash interest expense of approximately $86,000 in the second
        quarter of 2005 compared to $0 in the second quarter of 2004. These non-cash
        expenses are related to the amortization of approximately $12,000 on warrants
        to
        Silicon Valley Bank related to the financing agreement, and approximately
        $74,000 related to the issuance of long-term debt to entities related to
        M.A.G.
        Capital LLC.
  17
  **Other
        Income**
 
 The
        Company did not record any other income in the second quarter of 2005. The
        Company recorded approximately $321,000 in income related to trade debt
        forgiveness in the second quarter of 2004.
 
 **Income
        Taxes**
 
 During
        the second quarter of 2005 the Company recorded no income tax expense. During
        the second quarter of 2004 the Company recorded income tax expense of
        approximately $113,000 due to an adjustment related to the Alternative Minimum
        Tax calculation.
 
 **RESULTS
        FOR THE SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO THE SIX MONTHS ENDED JUNE
        30,
        2004**
 
 **Net
        Sales**
 
 Net
        sales were approximately $11,589,000 for the six months ended June 30, 2005,
        an
        increase of approximately $2,081,000 or 21.9% above the first six months
        of
        2004. M-Wave EMG net sales were approximately $10,523,000, an increase of
        approximately $1,015,000 or 10.7% versus the first six months of 2004. M-Wave
        DBS net sales were approximately $1,067,000 in the first six months of 2005
        which reflect sales for our new DBS division that was formed upon our
        acquisition of JVI on February 25, 2005. To date, DBS sales have fallen short
        of
        expectations since the acquisition due to lack of inventory availability.
 
 Within
        our EMG segment, the radio frequency “RF” product line sales were approximately
        $6,190,000 during the first six months of 2005 versus $5,125,000 for the
        first
        six months of 2004, an increase of approximately $1,065,000, or 20.8%. Sales
        within our digital product line were approximately $4,333,000 during the
        first
        six months of 2005 versus approximately $4,382,000 for the first six months
        of
        2004, a decrease of $49,000 or 1.1%.
 
 As
        indicated above, 2005 sales of our RF product line continued to outpace 2004
        sales, supported by the overall domestic growth for this product group and
        increased demand at virtually all of our major customers. The decreased in
        digital sales is primarily due to smaller customer accounts reducing their
        inventory below expectations.
 
 Currently,
        the DBS segment does not have multiple product lines.
  18
  **Gross
        Profit and Cost of Goods Sold**
 
 The
        Company’s gross profit for the first six months of 2005 was approximately
        $2,342,000, or 20.2% of Net Sales, compared to a gross profit of approximately
        $1,891,000, or 19.9% of Net Sales, for the first six months of 2004. Increase
        in
        gross profit for the six months was attributable to several factors. Higher
        sales within the EMG segment that have focused on higher margin accounts
        in both
        the Digital and RF product lines helped improved margins in the 2005 period
        compared to last year.
  Gross
        profit at our EMG and DBS divisions were approximately $2,201,000, or 20.9%
        and
        $141,000, or 13.9% respectively for the first six months of 2005 compared
        to
        approximately $1,891,000, or 19.9% and $0 for the first six months of 2004.
        DBS
        margins for the 2005 period were lower due to sales of inventory at lower
        than
        usual prices. In addition, higher freight costs related to incoming inventory
        also impacted DBS margins in the first six months of 2005. As we build the
        DBS
        business we anticipate improved revenue and margins in amounts that are
        anticipated to be comparable to the EMG division. We also expect improved
        freight costs as we begin to negotiate rates and consolidate incoming shipments
        on a corporate-wide basis
 
 **Operating
        Expenses**
 
 General
        and administrative expenses were approximately $2,434,000 or 21.0% of net
        sales
        in the first six months of 2005 compared to approximately $1,104,000 or 11.6%
        of
        net sales in the first six months of 2004, an increase of approximately
        $1,330,000. General and administrative expenses for the EMG group were
        approximately $1,761,000 for the first six months of 2005 compared to expenses
        of approximately $1,104,000 for the first six months of 2004. General and
        administrative expenses for the DBS group were approximately $673,000 for
        the
        first six months of 2005 compared to $0 in the first six months of
        2004.
 
 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 six months of 2004, payroll
        related expenses increased $556,000 primarily related to payment of incentive
        compensation of approximately $147,000 and expenses related to increased
        staffing of approximately $225,000. Professional services, which include
        legal,
        auditing, and consulting fees, decreased approximately $72,000 in 2005 compared
        to prior year expenses. Costs related to being a public company, such as
        investor relations, corporate development, and Sarbanes-Oxley expenses,
        increased approximately $231,000 in the first six months of 2005 compared
        to the
        first six months of 2004. Costs related to the SOA were approximately $393,000
        in the first six months of 2005, an increase of approximately $163,000 over
        the
        first six months of 2004. Other expenses increased approximately $346,000
        during
        the first six months of 2005 primarily due to changes in estimates recorded
        in
        the prior year, engineering development, business insurance, depreciation
        and
        supplies expense.
  19
  Selling
        and marketing expenses were approximately $735,000 or 6.3% of net sales in
        the
        first six months of 2005 compared to approximately $641,000 or 6.7% of net
        sales
        in the first six months of 2004. Selling and marketing expenses for the EMG
        group was approximately $530,000 for the first six months of 2005 compared
        to
        expenses of approximately $641,000 for the first six months of 2004. Selling
        and
        marketing expenses for the DBS group were approximately $205,000 for the
        first
        six months of 2005 compared to $0 in the first six months of 2004. 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 six months of 2004, commissions paid to independent
        sales organizations decreased approximately $195,000; payroll-related expenses
        increased approximately $241,000 due to increased headcount at our DBS division
        and approximately $33,000 in incentive compensation. Travel related expenses
        increased approximately $33,000 in the first six months of 2005 versus
        2004.
 
 The
        Company did not record an impairment loss in the first six months of 2005.
        It
        recorded a loss of approximately $159,000 in the first six months of 2004,
        to
        adjust the carrying value of its investment in AM-Wave, LLC to its estimated
        net
        realizable value.
 
 The
        Company recorded no stock compensation expense in the first six months of
        2005.
        The Company recorded approximately $148,000 in stock compensation expense
        in the
        first six months of 2004 related to consulting agreements with CSI and Gordhan
        Patel.
 
 **Operating
        Loss**
 
 Operating
        loss was approximately $826,000 in the first six months of 2005 compared
        to an
        operating loss of approximately $162,000 in the first six months of 2004,
        primarily due to the increased general and administrative expenses discussed
        above, partially offset by increases in gross profit and decreases in impairment
        charges and stock compensation.
 
 **Interest
        Income**
 
 Interest
        income from short-term investments was approximately $6,000 in the first
        six
        months of 2005 compared to approximately $41,000 in the first six months
        of
        2004. Prior year benefited from payment on a promissory note which was
        subsequently converted to an investment in equity securities at the end of
        2004.
  20
  **Interest
        Expense**
 
 Interest
        expense was approximately $239,000 in the first six months of 2005, compared
        to
        $61,000 of interest expense recorded in the first six months of 2004, with
        the
        increase primarily due to increased borrowings and discounts issued on new
        long-term debt. The Company recorded non-cash interest expense of approximately
        $98,000 in the first six months of 2005 compared to $0 in the first six months
        of 2004. These expenses are related to the amortization of approximately
        $24,000
        on warrants to Silicon Valley Bank related to the financing agreement, and
        approximately $74,000 related to the issuance of long-term debt to entities
        related to M.A.G. Capital LLC.
 
 **Other
        Income**
 
 The
        Company did not record any other income in the first six months of 2005.
        The
        Company recorded approximately $439,000 in income related to trade debt
        forgiveness in the first six months of 2004.
 
 **Income
        Taxes**
 
 During
        the first six months of 2005 the Company recorded no income tax expense.
        During
        the first six months of 2004 the Company recorded income tax expense of
        approximately $113,000 due to an adjustment related to the Alternative Minimum
        Tax calculation.
 
 **Liquidity
        and Capital Resources**
 
 Net
        cash used by operations was approximately $3,097,000 for the first six months
        of
        2005 compared to approximately $1,893,000 used by operations for the first
        six
        months of 2004.
 
 Accounts
        receivable increased approximately $767,000 due to increased sales subsequent
        to
        the JVI acquisition with the remaining increase related to receivables acquired
        in the JVI transaction. Inventories increased approximately $695,000 related
        to
        increased activity in both the EMG and DBS business groups. The remaining
        increase in inventories is attributable to the purchase accounting treatment
        of
        JVI. Prepaid expenses increased by approximately $783,000 primarily due to
        advanced payments to the DBS vendors. Consequently, the increase in accounts
        payable of approximately $64,000 is related to the corresponding increase
        in
        prepaid expenses.
  21
  Capital
        expenditures were approximately $117,000 in the first six months of 2005
        compared to approximately $32,000 in the first six months of 2004. The current
        year expenses consisted primarily of purchases of computer equipment for
        the DBS
        division as well as purchases related to integrating the DBS division into
        the
        Company’s current ERP system.
 
 Net
        cash used in investing activities was approximately $1,801,000 for the first
        six
        months of 2005 compared to cash provided of approximately $2,600,000 during
        the
        first six months of 2004. The prior year activity included approximately
        $2,633,000 in proceeds received from the sale of assets to ASC. Current year
        activity was primarily related to the acquisition of the JVI business in
        February 2005.
 
 Net
        cash provided by financing activities increased by approximately $4,248,000
        related to the issuance of long-term debt of $2,400,000 and increases in
        our
        credit facility of approximately $1,848,000 during the first six months of
        2005.
        Net cash provided by financing activities was approximately $234,000 during
        the
        first six months of 2004 primarily related to repayments of debt with proceeds
        from sales of assets and the establishment of the credit facility with Silicon
        Valley Bank during the first six months of 2004.
 
 Our
        ability to fund working capital and anticipated capital expenditures will
        depend
        on our future performance, which is subjec t
        to general economic conditions, financial conditions, our customers, actions
        of
        our domestic and international competitors, and other factors that are beyond
        our control. Our ability to fund operating activities is also dependent upon
        our
        ability to effectively manage our expenses in relation to revenues, and our
        ability to access external sources of financing.
 
 On
        June 16, 2005, we issued $2,400,000 in aggregate principal amount of promissory
        notes, which restructured the $1,550,000 in aggregate principal amount of
        promissory notes dated February 23, 2005, in exchange for an investment of
        $850,000 (provided that the 434,783 warrants issued in connection with the
        February 23, 2005 promissory notes were not canceled and therefore remain
        outstanding). In connection with the issuance of notes, we issued 166,666
        warrants to purchase our common stock. The issuances of notes and warrants
        were
        made to Mercator Momentum Fund, L.P., Mercator Momentum Fund III, L.P., Monarch
        Pointe Fund, Ltd. and M.A.G. Capital, LLC, all of which are related entities.
        We
        paid fees totaling $29,000 in connection with the financing.
  22
  In
        the second quarter of 2005 we learned more about the liquidity requirements
        of
        the DBS division which was acquired in February 2005. Current terms with
        DBS
        suppliers require us to effectively prepay for all inventory purchases by
        the
        time product is received. At the time of acquisition, the DBS division had
        little saleable inventory, requiring us to purchase a substantial amount
        of
        inventory on a prepaid basis, amounts which are in excess of our current
        capital
        resources.
 
 Based
        upon the current level of operations and anticipated growth, our
        current cash ,
        the $6.0 million secured, asset-based credit line with Silicon Valley Bank, and proceeds from a potential sale of the Bensenville facility ,
        we believe that we will require additional equity or debt financing to meet our anticipated liquidity requirements over the next 12 months. Based
        on
        current projections, we believe we would need to obtain an additional $1
        million
        - $2 million to meet these liquidity requirements. As of June 30, 2005, total
        availability under the line of credit was approximately $3.1 million, of
        which
        we had borrowed nearly all $3.1 million, leaving us with virtually no
        remaini ng
        availability at this time. As
        of June 30, 2005, we are in compliance with all bank covenants. We are pursuing
        all available alternatives to secure the necessary financing. There can be
        no
        assurances that additional equity or debt financing will be available to
        us, or
        if available, that such financing will be available on acceptable
        terms. There can be no assurances that we will remain in compliance with all bank
        covenants. If we are unable to obtain such financing, we would be required
        to
        modify our strategic growth plans and scale back operations, beginning in
        the
        latter part of the 2005 third quarter, to reduce labor, travel and sales
        expenses, and to reduce inventory purchases, which actions would likely result
        in reduced revenue, particularly in our M-Wave DBS business.
 
 **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 that
        average approximately 3-5% may have a material effect on the Company’s
        operations and financial position in the remainder of 2005, 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.
  23
  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 SmallCap Market, we
        must
        maintain compliance with their continuing listing requirements, including
        a
        minimum tangible net worth of $2.5 million. Our current forecasts estimate
        that
        we will not be able to maintain this minimum tangible net worth through the
        2005
        third quarter without obtaining additional equity financing.
 
 This
        continuing listing requirements also require that, on and after July 31,
        2005,
        we must have a minimum of three members on the audit committee of our board
        of
        directors, all of which must meet the definition of independence contained
        within NASDAQ’s rules. On the date of this report, our audit committee consists
        of two members, who qualify as independent, and none of our other directors
        meet
        such definition of independence. The shortage is a result of the resignation
        of
        Thomas K. Cox on June 29, 2005, and NASDAQ has allowed us until the earlier
        to
        occur of June 29, 2006 or our next annual meeting of stockholders to replace
        Mr.
        Cox.
 
 The
        continuing listing requirements also require that our common stock must not
        fall
        below a minimum bid price of $1.00 per share for any period of 30 consecutive
        business days. On August 10, 2005, the closing bid price of our common stock
        closed was $0.74 per share.
 
 We
        may not be able to maintain a minimum tangible net worth of $2.5 million,
        add a
        third independent director to our audit committee, maintain the minimum bid
        price of our common stock, or meet one or more of the other continuing listing
        requirements of the NASDAQ SmallCap Market, any of which would make our common
        stock subject to delisting. Upon a delisting of our common stock from the
        Nasdaq
        SmallCap Market, 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. In addition, if our common stock is delisted from the Nasdaq
        SmallCap Market and the trading price of our common stock is less than $5.00
        per
        share, our common stock will come within the definition of a “penny stock.” As a
        result, it is possible that our common stock may become subject to the penny
        stock rules and regulations that require additional disclosure by broker-dealers
        in connection with any trades involving a penny stock. The additional burdens
        imposed on broker-dealers may restrict the ability of broker-dealers to sell
        our
        common stock and may affect the ability of our stockholders to resell our
        common
        stock.
 24
 **Item
                  3.**
              **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 Principal Executive Officer and the
        Company's Principal Financial Officer, of the effectiveness of the design
        and
        operation of the Company's disclosure controls and procedures and internal
        control over financial reporting (as defined in Rules 13a-15(e) 15d-15(e),
        13a-15(f), and 15d-15(f) under the Securities and Exchange Act of 1934, as
        amended). Based on this evaluation, the Company's Principal Executive Officer
        and Principal Financial Officer concluded that the Company's 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 Principal Executive Officer and Principal
        Financial Officer concluded that the Company's disclosure controls and
        procedures were effective at reaching that level of reasonable assurance.
  **(b)** ***Changes
        in internal controls*** **.** There was no change in the Company's internal control over financial reporting
        during the six months ended June 30, 2005 that has materially affected, or
        is
        reasonably likely to materially affect, its internal control over financial
        reporting.
  25
  **Part
        II - Other Information**
 
 **Item
                  4:**
              **Submission
                  of Matters to a Vote of Security
                  Holders**
 
 (a)     The
        Company’s Annual Meeting of Stockholders was held on June 7, 2005.
 
 (b)     At
        the Company’s Annual Meeting of Stockholders, the Stockholders reelected to the
        Company’s Board of Directors Mr. Gregory E. Meyer. Mr. Meyer is a Class I
        Director and will serve a term ending upon the election of Class I Directors
        at
        the 2008 Annual Meeting of Stockholders. The aggregate number of votes cast
        for,
        against, or withheld, for the election of Mr. Meyer was as follows: 5,263,547
        for, 0 against, and 106,969 withheld.
 
 (c)     At
        the Company’s Annual Meeting of Stockholders, the Stockholders elected to the
        Company’s Board of Directors Mr. James A. Skelton. Mr. Skelton is a Class I
        Director and will serve a term ending upon the election of Class I Directors
        at
        the 2008 Annual Meeting of Stockholders. The aggregate number of votes cast
        for,
        against, or withheld, for the election of Mr. Skelton was as follows: 5,251,493
        for, 0 against, and 119,013 withheld.
 
 (d)     At
        the Company’s Annual Meeting of Stockholders, the Stockholders elected to the
        Company’s Board of Directors Mr. Thomas K. Cox. Mr. Cox is a Class I Director
        and will serve a term ending upon the election of Class I Directors at the
        2008
        Annual Meeting of Stockholders. The aggregate number of votes cast for, against,
        or withheld, for the election of Mr. Cox was as follows: 5,271,516 for, 0
        against, and 98,990 withheld.
 
 (e)     At
        the Company’s Annual Meeting of Stockholders, the Stockholders ratified the
        appointment of McGladrey & Pullen, LLP as auditors of the Company for the
        2005 calendar year. The aggregate number of votes cast for, against, or
        withheld, for the ratification of McGladrey & Pullen LLP as auditors were as
        follows: 5,319,816 for, 50,290 against, and 400 withheld.
 
 (f)     At
        the Company’s Annual Meeting of Stockholders, the Stockholders also approved the
        amendment to the Company’s 2003 Stock Incentive Plan to increase the Company’s
        authorized shares from 650,000 shares to 2,000,000 shares. The aggregate
        number
        of votes cast for, against, or withheld, for the amendment of the Company’s 2003
        Stock Incentive Plan was as follows: 4,974,099 for, 396,407 against, and
        0
        withheld.
  26
  **Item
                  6:**
              **Exhibits**
 
 (a)
              Exhibits
 
 10.38
              Amendment
                  to Subscription Agreement, dated June 6, 2005, among Mercator Momentum
                  Fund, LP, Mercator Momentum Fund III, LP, Monarch Pointe Fund,
                  Ltd.,
                  M.A.G. Capital, LLC and M-Wave,
                  Inc.
 
 10.39
              Promissory
                  Note, dated June 16, 2005, issued by M-Wave, Inc. to Monarch Pointe
                  Fund,
                  Ltd.
 
 10.40
              Promissory
                  Note, dated June 16, 2005, issued by M-Wave, Inc. to Mercator Momentum
                  Fund, LP
 
 10.41
              Promissory
                  Note, dated June 16, 2005, issued by M-Wave, Inc. to Mercator Momentum
                  Fund III, LP
 
 10.42
              Warrant,
                  dated June 16, 2005, issued by M-Wave, Inc. to Mercator Momentum
                  Fund III,
                  LP
 
 10.43
              Warrant,
                  dated June 16, 2005, issued by M-Wave, Inc. to Monarch Pointe Fund,
                  Ltd.
 
 10.44
              Warrant,
                  dated June 16, 2005, issued by M-Wave, Inc. to M.A.G. Capital,
                  LLC
 
 10.45
              Warrant,
                  dated June 16, 2005, issued by M-Wave, Inc. to Mercator Momentum
                  Fund,
                  LP
 
 10.46
              Registration
                  Rights Agreement dated June 16, 2005, between M-Wave, Inc.
                  and
                  Mercator Momentum Fund, LP, Mercator Momentum Fund III, LP, Monarch
                  Ponte
                  Fund Ltd., and Mercator Advisory Group,
                  LLC
 
 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
              Certification
                  pursuant to 18 U.S.C. Section 135O, as adopted pursuant to section
                  906 of
                  the Sarbanes-Oxley Act of 2002.
  27
  **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: August
                15, 2005
              
              /s/ Jeff
                FiglewiczJeff
                  Figlewicz
                Corporate Controller and Principal Accounting
                  Officer
  28
  **Exhibit
        Index**
 
 **Exhibit
                    No.**
                **Description**
                **Location**3.1
                Certificate
                    of Incorporation of the Company
                13.2
                Bylaws
                    of the Company
                13.3
                Certificate
                    of Designations for Series A Preferred Stock
                54.1
                Specimen
                    Common Stock Certificate
                410.1
                Credit
                    Agreement dated October 1, 2003 between Bank One, NA, the Company,
                    and
                    Poly Circuits, Inc.
                210.2
                Consulting
                    Agreement dated September 1, 2003 by and between the Company
                    and Credit
                    Support International, LLC
                210.3
                2003
                    Stock Incentive Plan
                210.4
                Asset
                    Purchase and Sale Agreement dated February 3, 2004 by and between
                    the
                    Company, Poly Circuits and M-Wave, L.L.C.
                210.5
                Agreement
                    for Strategic Operating Alliance dated February 3, 2004 by and
                    between the
                    Company and American Standard Circuits, Inc.
                210.6
                Bill
                    of Sale dated February 3, 2004 by and between Poly Circuits and
                    AM-Wave,
                    L.L.C.
                210.7
                Real
                    Estate Sales Contract dated February 3, 2004 by and between the
                    Company
                    and AMI Partners, L.L.C.
                210.8
                Limited
                    Liability Company Operating Agreement of AM-Wave, L.L.C. dated
                    February 3,
                    2004 by and between Poly Circuits and American Standard Circuits,
                    Inc.
                210.9
                Warranty
                    Deed dated February 3, 2004 by and between the Company and AMI
                    Partners,
                    L.L.C.
                210.10
                Industrial
                    Lease Agreement dated February 3, 2004 by and between the Company
                    and
                    AMI-Partners, LLC
                210.11
                Warrant
                    to Purchase Stock dated March 31, 2004 by and between the Company
                    and
                    Silicon Valley Bank
                2
  29
  10.12
                  Accounts
                      Receivable Financing Agreement dated March 31, 2004 by and
                      between the
                      Company and Silicon Valley Bank
                  210.13
                  Intellectual
                      Property Security Agreement dated March 31, 2004 by and between
                      the
                      Company and Silicon Valley Bank
                  210.14
                  Amendment
                      to Consulting Agreement, dated May 1, 2004, between the Company
                      and Credit
                      Support International, LLC
                  310.15
                  Letter
                      Agreement with Paul Schmitt dated May 1, 2004
                  310.16
                  Employment
                      Agreement dated July 28, 2004 between Company and Jim
                      Mayer
                  410.17
                  Employment
                      Agreement dated July 28, 2004 between Company and Joe
                      Turek
                  410.18
                  Employment
                      Agreement dated May 1, 2004 between Company and Robert
                      Duke
                  410.19
                  Subscription
                      Agreement dated June 28, 2004 between Company and Mercator
                      Advisory
                      Group
                  410.20
                  Stock
                      Registration Rights Agreement dated June 28, 2004 between Company
                      and
                      Mercator Advisory Group
                  410.21
                  Nonstatutory
                      Stock Option Agreement dated July 28, 2004 between Company
                      and Jim
                      Mayer
                  410.22
                  Amendment
                      to Loan Documents, dated December 17, 2004 between M-Wave,
                      Inc. and
                      Silicon Valley Bank
                  610.23
                  Loan
                      and Security Agreement, dated June 28, 2004,Between M-Wave,
                      Inc. and
                      Silicon Valley Bank
                  610.24
                  Asset
                      Purchase Agreement, dated February 25, 2005 by and between
                      Jayco Ventures,
                      Inc. and M-Wave DBS, Inc.
                  710.25
                  Employment
                      Agreement, dated February 25, 2005 between M-Wave DBS, Inc.
                      and Jason
                      Cohen
                  710.26
                  Employment
                      Agreement, dated February 25, 2005 between M-Wave DBS, Inc.
                      and Joshua
                      Blake
                  7
  30
  10.27
                    Promissory
                        Note, dated February 23, 2005, issued by M-Wave, Inc. to
                        Mercator Momentum
                        Fund, L.P.
                    710.28
                    Promissory
                        Note, dated February 23, 2005, issued by M-Wave, Inc. to
                        Monarch Pointe
                        Fund, Ltd.
                    710.29
                    Warrant,
                        dated February 23, 2005, issued by M-Wave, Inc. to Mercator
                        Momentum Fund,
                        L.P.
                    710.30
                    Warrant,
                        dated February 23, 2005, issued by M-Wave, Inc. to Monarch
                        Pointe Fund,
                        Ltd.
                    710.31
                    Warrant,
                        dated February 23, 2005, issued by M-Wave, Inc. to M.A.G.
                        Capital,
                        LLC
                    710.32
                    SOA
                        Amendment dated December 31, 2004
                    810.33
                    Purchase
                        Agreement between M-Wave and American Standard Circuits dated
                        December 31,
                        2004
                    810.34
                    Nonstatutory
                        Stock Option Agreement dated December 31, 2004 between Company
                        and Gordhan
                        Patel
                    810.35
                    Loan
                        and Security Agreement, dated April 11, 2005, between M-Wave,
                        Inc. and
                        Silicon Valley Bank
                    810.36
                    Assumption
                        Agreement and Amendment to Loan Documents, dated April 11,
                        2005, between
                        M-Wave, Inc. and Silicon Valley Bank
                    810.37
                    Amendment
                        to 2003 Stock Incentive Plan
                    910.38
                    Amendment
                        to Subscription Agreement, dated June 6, 2005 among Mercator
                        Momentum
                        Fund, LP, Mercator Momentum Fund III, LP, Monarch Ponte Fund,
                        Ltd., M.A.G.
                        Capital, LLC and M-Wave, Inc.
                    Filed
                        Herewith10.39
                    Promissory
                        Note, dated June 16, 2005, issued by M-Wave, Inc. to Monarch
                        Pointe Fund,
                        Ltd.
                    Filed
                        Herewith10.40
                    Promissory
                        Note, dated June 16, 2005, issued by M-Wave, Inc. to Mercator
                        Momentum
                        Fund, LP
                    Filed
                        Herewith
  31
  10.41
                    Promissory
                        Note, dated June 16, 2005, issued by M-Wave, Inc. to Mercator
                        Momentum
                        Fund III, LP
                    Filed
                        Herewith10.42
                    Warrant,
                        dated June 16, 2005, issued by M-Wave, Inc. to Mercator Momentum
                        Fund III,
                        LP
                    Filed
                        Herewith10.43
                    Warrant,
                        dated June 16, 2005, issued by M-Wave, Inc. to Monarch Pointe
                        Fund,
                        Ltd.
                    Filed
                        Herewith10.44
                    Warrant,
                        dated June 16, 2005, issued by M-Wave, Inc. to M.A.G. Capital,
                        LLC
                    Filed
                        Herewith10.45
                    Warrant,
                        dated June 16, 2005, issued by M-Wave, Inc. to Mercator Momentum
                        Fund,
                        LP
                    Filed
                        Herewith10.46
                    Registration Rights Agreement,
                        dated June 16, 2005, between M-Wave, Inc. and Mercator Momentum
                        Fund, LP,
                        Mercator Momentum Fund III, LP, Monarch Pointe Fund, Ltd.,
                        and Mercator
                        Advisory Group, LLC
                    Filed
                        Herewith31.1
                    Certification
                        of the CEO Pursuant to Section 302 of the Sarbanes-Oxley
                        Act.
                    Filed
                        Herewith31.2
                    Certification
                        of the CFO Pursuant to Section 302 of the Sarbanes-Oxley
                        Act.
                    Filed
                        Herewith32
                    Certification
                        pursuant to 18 U.S.C. Section 135O, as adopted pursuant to
                        Section 906 of
                        the Sarbanes-Oxley Act of 2002.
                    Filed
                        Herewith
 (1)
                Incorporated
                    herein by reference to the applicable exhibit to Registrants
                    Registration
                    Statement on Form S-1 (Registration No.
                    33-45499)
 
 (2)
                Incorporated
                    herein by reference to the applicable exhibit to the Registrant’s Annual
                    Report on Form 10-K for year ended December 31,
                    2003
 
 (3)
                Incorporated
                    herein by reference to the applicable exhibit to the Registrant’s
                    quarterly report on form 10-QSB for the quarter ended March 31,
                    2004
 
 (4)
                Incorporated
                    herein by reference to the applicable exhibit to the Registrant’s
                    Quarterly Report on Form 10-QSB for the quarter ended June 30,
                    2004
 
 (5)
                Incorporated
                    herein by reference to Appendix B to the Registrant’s Definitive Proxy
                    Statement filed July 6, 2004
 32
  (6)
              Incorporated
                  herein by reference to the applicable exhibit to the Registrant’s form 8-K
                  filed December 31, 2005
 
 (7)
              Incorporated
                  herein by reference to the applicable exhibit to the Registrant’s form 8-K
                  filed March 2, 2005
 
 (8)
              Incorporated
                  herein by reference to the applicable exhibit to the Registrant’s Annual
                  Report on Form 10-KSB for the year ended December 31,
                  2004
  (9)
                Incorporated
                    herein by reference to Appendix A to the Registrant’s Definitive Proxy
                    Statement filed April 29,
                    2005
  33