<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549



                                    FORM 10-Q



                   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarter ended June 30, 1999                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                             (I.R.S.  Employer
incorporation or organization)                              identification No.)


216 Evergreen Street, Bensenville, Illinois                       60106
--------------------------------------------------------------------------------
(Address of principal executive offices)                       (Zip Code)



Registrant's telephone number including area code:           (630) 860-9542
                                                             --------------



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

Yes   X    No
    -----     -----


The registrant has 2,267,842 shares of common stock outstanding at August 5,
1999.



                                       1
<PAGE>   2
                         PART I - FINANCIAL INFORMATION
                          Item 1: Financial Statements

                                  M~WAVE, Inc.

                          CONSOLIDATED BALANCE SHEETS
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                                        DECEMBER 31,       JUNE 30
                                                                            1998            1999
                                                                        -----------     -----------
<S>                                                                     <C>             <C>
                                     ASSETS
CURRENT ASSETS:
    Cash and cash equivalents.........................................   $3,712,537      $4,504,432
    Accounts receivable, net of allowance for doubtful accounts,
     1998- $10,000: 1999 $10,000......................................    1,772,637       1,062,304
    Inventories.......................................................    1,583,421         563,697
    Refundable income taxes...........................................            0         319,707
    Deferred income taxes.............................................      395,987         210,545
    Prepaid expenses and other........................................       99,656         100,858
                                                                        -----------     -----------
        Total current assets..........................................    7,564,238       6,761,543
PROPERTY, PLANT AND EQUIPMENT:
    Land, buildings and improvements..................................    2,360,152       4,967,977
    Machinery and equipment...........................................    7,355,774       7,515,763
                                                                        -----------     -----------
        Total property, plant and equipment...........................    9,715,926      12,483,740
    Less accumulated depreciation.....................................   (4,750,872)     (5,345,524)
                                                                        -----------     -----------
        Property, plant and equipment-net.............................    4,965,054       7,138,216
NOTE RECEIVABLE.......................................................            0         988,215
ASSETS TO BE DISPOSED OF, NET.........................................    3,233,405               0
OTHER ASSETS..........................................................        5,677             970
                                                                        -----------     -----------
TOTAL.................................................................  $15,768,374     $14,888,944
                                                                        ===========     ===========
                       LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
    Accounts payable..................................................   $1,306,348      $1,010,794
    Accrued expenses..................................................      607,628         416,612
    Current portion of long-term debt.................................      307,605         307,605
                                                                        -----------     -----------
        Total current liabilities.....................................    2,221,581       1,735,011

DEFERRED INCOME TAXES.................................................      388,808         388,808
LONG-TERM DEBT........................................................    1,990,337       1,813,706
STOCKHOLDERS' EQUITY:
    Preferred stock, $.01 par value; authorized, 1,000,000
      shares; no shares issued........................................            0               0
    Common stock, $.01 par value; authorized, 10,000,000 shares
      3,069,806 shares issued and 2,267,842 shares outstanding
      at December 31, 1998, 3,069,806 shares issued and 2,267,842
      shares outstanding at June 30, 1999.............................       30,698          30,698
    Additional paid-in capital........................................    8,348,832       8,348,832
    Retained earnings ................................................    4,464,226       4,247,997
    Treasury stock:  801,964 shares, at cost..........................   (1,676,108)     (1,676,108)
                                                                        -----------     -----------
        Total stockholders' equity ...................................   11,167,648      10,951,419
                                                                        -----------     -----------
TOTAL.................................................................  $15,768,374     $14,888,944
                                                                        ===========     ===========
</TABLE>

                See notes to consolidated financial statements.


                                       2
<PAGE>   3
                                  M~WAVE, Inc.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)


                                                     Three months ended June 30,
                                                     ---------------------------
                                                         1998          1999
                                                     ------------   ------------

Net sales........................................... $3,359,187     $1,896,866
Cost of goods sold..................................  2,697,651      1,896,882
                                                     ------------   ------------
  Gross profit (loss)...............................    661,536            (16)

Operating expenses:
  General and administrative........................    437,029        311,051
  Selling and marketing.............................    147,695        122,844
                                                     ------------   ------------
    Total operating expenses........................    584,724        433,895
                                                     ------------   ------------

  Operating income (loss)...........................     76,812       (433,911)

Other income (expense):
  Interest income...................................     30,428         69,314
  Interest expense..................................    (56,251)       (59,843)
  Rental income.....................................          0         51,000
  Gain (loss) on disposal of assets.................     60,206              0
                                                     ------------   ------------
    Total other income (expense)                         34,383         60,471
                                                     ------------   ------------

    Income (loss) before income  taxes..............    111,195       (373,440)

Provision (credit) for income taxes.................     42,016       (147,472)
                                                     ------------   ------------

Net income (loss)...................................    $69,179      ($225,968)
                                                     ============   ============

Net income (loss) per share basic and diluted             $0.02         ($0.10)


Weighted average shares                               3,049,806      2,267,842



                See notes to consolidated financial statements.




                                       3
<PAGE>   4
                                  M~WAVE, Inc.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)


                                                   Six months ended June 30,
                                                 ----------------------------
                                                    1998              1999
                                                 ----------        ----------
Net sales......................................  $6,075,280        $5,579,684
Cost of goods sold.............................   5,087,145         4,803,118
                                                 ----------        ----------
  Gross profit.................................     988,135           776,566

Operating expenses:
  General and administrative...................     862,568           748,210
  Selling and marketing........................     308,350           298,128
                                                 ----------        ----------
    Total operating expenses...................   1,170,918         1,046,338
                                                 ----------        ----------
  Operating (loss).............................    (182,783)         (269,772)

Other income (expense):
  Interest income..............................      71,993           101,594
  Interest expense.............................    (113,692)         (106,234)
  Rental income................................           0            59,000
  Gain (loss) on disposal of assets............      38,806          (135,084)
                                                 ----------        ----------
    Total other income (expense)                     (2,893)          (80,724)
                                                 ----------        ----------
    Loss before income  taxes..................    (185,676)         (350,496)

Credit for income taxes........................     (79,790)         (134,268)
                                                 ----------        ----------
Net loss.......................................   ($105,886)        ($216,228)
                                                 ==========        ==========
Net loss per share basic and diluted                 ($0.03)           ($0.10)


Weighted average shares                           3,049,806         2,267,842




                See notes to consolidated financial statements.


                                       4
<PAGE>   5
                                  M~WAVE, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                                                   Six months ended June 30,
                                                                                  --------------------------
                                                                                     1998            1999
                                                                                  ----------        ---------
<S>                                                                               <C>               <C>
OPERATING ACTIVITIES:
Net loss...................................................................        ($105,886)       ($216,228)
  Adjustments to reconcile net loss to net cash flows
    from operating activities:
      Gain (loss) on disposal of property, plant and equipment...............       ($38,806)        $135,084
      Depreciation and amortization..........................................       $502,633         $498,055
      Deferred income taxes..................................................       $192,278         $185,442
    Changes in assets and liabilities:
      Accounts receivable-trade..............................................      ($249,147)         $95,303
      Inventories............................................................      ($440,071)        $246,245
      Income taxes...........................................................      ($272,068)       ($319,707)
      Prepaid expenses and other assets......................................       ($35,711)        ($15,063)
      Accounts payable.......................................................       $426,484        ($306,751)
      Accrued expenses.......................................................      ($374,385)       ($150,601)
                                                                                  ----------        ---------
         Net cash flows from operating activities............................      ($394,679)        $151,779
                                                                                  ----------        ---------
INVESTING ACTIVITIES:
  Purchase of property, plant and equipment..................................      ($141,126)       ($159,480)
  Proceeds from sale of property, plant and equipment........................       $176,800           $4,619
  Proceeds from notes receivable.............................................             $0          $78,289
  Proceeds from sale of PC Dynamics property, plant and equipment ...........             $0         $581,965
  Proceeds from sale of PC Dynamics net working capital and other ...........             $0         $311,354
                                                                                  ----------        ---------
         Net cash flows from investing activities............................        $35,674         $816,747

FINANCING ACTIVITIES:
  Payments on long term debt.................................................      ($151,526)       ($176,631)
                                                                                  ----------        ---------
         Net cash flows from financing activities............................      ($151,526)       ($176,631)
                                                                                  ----------        ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.........................      ($510,531)        $791,895

CASH AND CASH EQUIVALENTS - Beginning of period..............................     $3,534,315       $3,712,537
                                                                                  ----------        ---------
CASH AND CASH EQUIVALENTS - End of period....................................     $3,023,784       $4,504,432
                                                                                  ==========       ==========

Supplemental Disclosures of Cash Flow Information:

    Cash paid during the period for interest.................................       $113,692         $106,234
</TABLE>

                See notes to consolidated financial statements.

                                       5
<PAGE>   6


                                  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 for interim financial information and with the
             instructions to Form 10-Q. 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 have been included. For further information, refer to
             the consolidated financial statements contained in the Annual
             Report on Form 10-K for the year ended December 31, 1998 filed
             March 30, 1999.

         2.       BUSINESS

                  M~Wave, through its wholly-owned subsidiaries, Poly Circuits
             Inc. and P C Dynamics Corporation (collectively, the "Company"),
             manufactures printed circuit boards using Teflon-based laminates to
             customers' specifications. In addition, the Company produces
             customer specified bonded assemblies consisting of a printed
             circuit board bonded in some manner to a metal carrier or pallet.
             One bonding technique used by the Company is Flexlink(TM), a
             patented process granted to the Company in 1993. The Company
             developed an enhanced version of Flexlink(TM) in 1996.

             On March 25, 1999, PC Dynamics Corporation, sold substantially all
             of its machinery and equipment, inventory and accounts receivable
             and assigned all of its outstanding contracts and orders to
             Performance Interconnect Corporation, a Texas Corporation. (PIC)
             The purchase price paid by PIC consisted of:

                  (i)          $893,319 in cash;

                  (ii)         a promissory note in the principal amount of
                               $773,479, which is payable in nine (9) equal
                               monthly installments commencing on July 1, 1999;
                               and

                  (iii)        a promissory note in the principal amount of
                               $293,025, which is payable in monthly
                               installments of $50,000 commencing on May 1,1999
                               until paid. The Company has collected $100,000
                               through June 30, 1999.

             PC Dynamics and PIC also entered into a royalty agreement which
             provides for PIC to pay PC Dynamics a royalty equal to 8.5% of the
             net invoice value of certain microwave frequency components and
             circuit boards sold by PIC for eighteen months following the
             closing. PIC shall not be required to pay PC Dynamics in





                                       6
<PAGE>   7



             excess of $500,000 in aggregate royalty payments. The Company has
             collected $20,000 through June 30,1999.

             In addition, PC Dynamics has leased its facility in Texas to PIC
             for $17,000 per month for three years. PIC has the right under the
             lease to purchase the facility from PC Dynamics for $2,000,000 at
             anytime during the term of the lease. If PIC exercises its right to
             purchase the facility, the remaining balance due on the royalty
             agreement is payable in monthly installments of $25,000 until a
             minimum of $500,000 is paid.

         3.  INVENTORIES

             Substantially all the Company's inventories are in work in process.

         4.  DEBT

             The Company has a mortgage loan of $2,121,000 for the facility at P
             C Dynamics Corporation in Frisco, Texas. Interest on this mortgage
             loan is at 1/2 % over the prime rate. The loan is payable in
             monthly installments of principal and interest and is due in
             October 2001.

             The Company has a $2,000,000 line of credit available based on 80%
             of the eligible accounts receivable to fund the working capital
             needs of the Company. Interest is at the prime rate (8.00% at June
             30, 1999) plus 1/2%. The agreement expires May 31, 2000 and is
             renewable annually at the mutual consent of the Company and the
             lender. No balance was outstanding under the line at June 30, 1999.

         5.   LITIGATION

             The Company is a party to various actions and proceedings related
             to its normal business operations. The Company believes that the
             outcome of this litigation will not have a material adverse effect
             on the financial position or results of operations of the Company.









                                       7
<PAGE>   8


         ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

         RESULTS FOR THE QUARTER ENDED JUNE 30, 1999 COMPARED TO THE QUARTER
         ENDED JUNE 30, 1998

         NET SALES

                  Net sales were $1,897,000 for the second quarter ended June
         30, 1999, a decrease of $1,462,000 or 44% below the second quarter of
         1998. Part of the decline ($1,139,000) was the result of the Company
         selling off substantially all of the assets of P C Dynamics
         Corporation. The Company also experienced excessive scrap with recent
         Lucent start-up orders, which negatively impacted net sales by
         approximately $220,000. Net sales to Lucent increased by $495,000 from
         the second quarter of 1998. Net sales to Spectrian decreased by
         $1,116,000.

                  The Company's three largest customers accounted for 72% of the
         Company's net sales for the second quarter ended June 30, 1999 compared
         to 65% in the second quarter of 1998.

         GROSS PROFIT AND COST OF GOODS SOLD

                  The Company was approximately breakeven at the Gross Profit
         level for the second quarter of 1999. This was a decrease of $662,000
         from the second quarter of 1998. A portion of the decline ($227,000)
         was the result of the Company selling off substantially all of the
         assets of P C Dynamics Corporation. Additional decline in gross profit
         of $65,000 relates to lower sales volume as result of manufacturing
         inefficiencies relating to the Lucent start-up orders. The Company also
         experienced excessive scrap costs of $130,000 and rework costs of
         approximately $100,000 relating to the Lucent start-up production.

                  During the fourth quarter of 1997, the Company decided to
         reposition the PC Dynamics subsidiary located in Frisco, Texas.
         Management decided the P C Dynamics subsidiary did not have a future
         place in the Company's strategic plans. On March 25, 1999, PC Dynamics
         sold substantially all of its machinery and equipment, inventory and
         accounts receivable and assigned all of its outstanding contracts and
         orders to Performance Interconnect Corporation, a Texas Corporation.
         The Company also leased its Texas facility to Performance Interconnect
         Corporation.

                   The building and equipment of PC Dynamics Corporation are
         recorded in the December 31, 1998 balance sheet as building and
         equipment to be disposed of at market value less an estimate of selling
         costs. The market value was determined based on appraisals. The
         building value of PC Dynamics Corporation is recorded in the June 30,
         1999 balance sheet as land, buildings and improvements.





                                       8
<PAGE>   9



         OPERATING EXPENSES

                  General and administrative expenses were $311,000 or 16.4% of
         net sales in the second quarter of 1999 compared to $437,000 or 13.3%
         of net sales in the second quarter of 1998. General and administrative
         expenses consist primarily of salaries and benefits, professional
         services, depreciation of office equipment, computer systems and
         occupancy expenses. Most of the decline was the result of the Company
         selling off substantially all of the assets of P C Dynamics
         Corporation.

                  Selling and marketing expenses were $123,000 or 6.5% of net
         sales in the second quarter of 1999 compared to $148,000 or 4.4% of net
         sales in the second quarter of 1998. Selling and marketing expenses
         include the cost of salaries, advertising and promoting the Company's
         products, and commissions paid to independent sales organizations.
         Selling and marketing expenses declined as a result of the Company
         selling off substantially all of the assets of P C Dynamics
         Corporation.

         OPERATING LOSS

                  Operating loss was $434,000 or 22.9% in the second quarter of
         1999 compared to a operating income of $77,000 or 2.3% of net sales in
         the second quarter of 1998, an decrease of $511,000. The changes in
         operating income reflect primarily the changes in net sales, gross
         profit and cost of goods sold and operating expenses as discussed
         above. The change in operating income can be summarized as follows:

         Decrease in net sales                      $  (288,000)
         Decrease in gross margin                      (373,000)
         Decrease in operating expenses                 150,000
                                                    -----------

         Decrease in operating income               $  (511,000)

         INTEREST INCOME

                  Interest income from short-term investments was $43,000 in the
         second quarter of 1999 compared to $30,000 in the second quarter of
         1998. Interest income in the second quarter of 1999 includes $26,000
         from notes receivable, generated in the sale of the assets of P C
         Dynamics. Rental income from the P C Dynamics facility was $51,000 in
         the second quarter of 1999.

         INTEREST EXPENSE

                  Interest expense, primarily related to the Company's mortgage
         obligation on its P C Dynamics facility, was $60,000 in the second
         quarter of 1999 compared to $30,000 in the second quarter of 1998.



                                       9
<PAGE>   10


         GAIN (LOSS) ON DISPOSAL OF FIXED ASSETS

                  The Company recorded a gain of $60,000 on the disposal of
         fixed assets in the second quarter of 1998.

         INCOME TAXES

                  In the second quarter of 1999 the Company had an effective tax
         credit rate of 39.4%. In the second quarter of 1998 the Company had an
         effective tax rate of 37.8%.














                                       10
<PAGE>   11

         RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX
         MONTHS ENDED JUNE 30, 1998

         NET SALES

                  Net sales were $5,580,000 for the six months ended June 30,
         1999, a decrease of $496,000 or 8% below the first six months of 1998.
         Part of the difference ($1,379,000) was the result of the Company
         selling off substantially all the assets of P C Dynamics Corporation.
         This was offset by a final shipment to Motorola of a matured product
         line of $1,300,000 in the first quarter of 1999. Net sales to Lucent
         increased $558,000. Net sales to Spectrian decreased by $1,546,000. Net
         sales to Spectrian have been declining from last year's volume since
         the beginning of the fiscal year. However, net sales to Spectrian have
         increased by approximately $100,000 from the first quarter of 1999.

                  The Company's three largest customers accounted for 58% of the
         Company's net sales for the six months ended June 30, 1999 compared to
         59% for the six months ended June 30, 1998.

         GROSS PROFIT (LOSS) AND COST OF GOODS SOLD

                  Gross profit decreased $212,000 in the first six months of
         1999 from $988,000 in the first six months of 1998. Part of the
         difference ($295,000) was the result of the Company selling off
         substantially all of the assets of P C Dynamics Corporation. Gross
         margin for the remainder of the Company increased approximately $80,000
         due to increased sales. The Company did experience excessive scrap and
         rework costs of $230,000 in the second quarter of 1999 relating to the
         Lucent start-up orders.

                  During the fourth quarter of 1997, the Company decided to
         reposition the PC Dynamics subsidiary located in Frisco, Texas.
         Management decided the P C Dynamics subsidiary did not have a future
         place in the Company's strategic plans. On March 25, 1999, PC Dynamics
         sold substantially all of its machinery and equipment, inventory and
         accounts receivable and assigned all of its outstanding contracts and
         orders to Performance Interconnect Corporation, a Texas Corporation.
         The Company also leased its Texas facility to Performance Interconnect
         Corporation.

                   The building and equipment of PC Dynamics Corporation are
         recorded in the December 31, 1998 balance sheet as building and
         equipment to be disposed of at market value less an estimate of selling
         costs. The market value was determined based on appraisals. The
         building value of PC Dynamics Corporation is recorded in the June 30,
         1999 balance sheet as land, buildings and improvements.

         OPERATING EXPENSES

                  General and administrative expenses were $748,000 or 13.4% of
         net sales for the first six months of 1999 compared to $863,000 or







                                       11
<PAGE>   12

         14.2% of net sales for the first six months of 1998. General and
         administrative expenses consist primarily of salaries and benefits,
         professional services, depreciation of office equipment, computer
         systems and occupancy expenses. Most of the decline was the result of
         the Company selling off substantially all of the assets of P C Dynamics
         Corporation.

                  Selling and marketing expenses were $298,000 or 5.3% of net
         sales for the first six months of 1999 compared to $308,000 or 5.1% of
         net sales for the first six months of 1998. Selling and marketing
         expenses include the cost of salaries, advertising and promoting the
         Company's products, and commissions paid to independent sales
         organizations. Selling and marketing expenses declined as a result of
         the Company selling off substantially all of the assets of P C Dynamics
         Corporation.

         OPERATING (LOSS)

                  Operating loss was ($270,000) for the first six months of 1999
         compared to ($183,000) for the first six months of 1998, a increase of
         $87,000. The changes in operating loss reflect primarily the changes in
         net sales, gross profit and cost of goods sold and operating expenses
         as discussed above. The change in operating loss can be summarized as
         follows:

         Decrease in net sales                       $   (81,000)
         Decrease in gross margin                       (131,000)
         Decrease in operating expenses                  125,000
                                                     -----------

         Increase in operating loss                  $   (87,000)

         INTEREST INCOME

                  Interest income from short-term investments was $76,000 for
         the six months ended June 30, 1999 compared to $72,000 for the six
         months ended June 30, 1998. Interest income for the six months ended
         June 30, 1999 includes $26,000 from notes receivable, generated in the
         sale of substantially all of the assets of P C Dynamics Corporation.
         Rental income from the P C Dynamics facility was $59,000 for the six
         months ended June 30, 1999.

         INTEREST EXPENSE

                  Interest expense, primarily related to the Company's mortgage
         obligation on its P C Dynamics facility, was $106,000 for the first six
         months of 1999 compared to $114,000 for the first six months of 1998.

         GAIN ON DISPOSAL OF ASSETS

                  The Company recorded a loss of $135,000 on the disposal of
         fixed assets in the first six months of 1999 compared to a gain of
         $39,000 for the first six months of 1998. The loss in the first six
         months of 1999 was primarily related to the sale of




                                       12
<PAGE>   13


         substantially all the machinery and equipment of P C Dynamics to
         Performance Interconnect Corporation.

         INCOME TAXES

                  For the first six months of 1999 the Company had an effective
         tax credit rate of 38.3%. For the first six months of 1998 the Company
         had an effective tax credit rate of 43.0% due to the effects of state
         income taxes.

         LIQUIDITY AND CAPITAL RESOURCES

                  Net cash provided/(used) from operations was $152,000 for the
         first six months of 1999 compared to ($537,000) for the first six
         months of 1998. Inventories decreased $246,000. Accounts receivable
         decreased $95,000. Accounts payable decreased $307,000.

                  Capital expenditures to improve manufacturing processes were
         $159,000 in the first six months of 1999. Capital expenditures to
         improve manufacturing processes were $95,000 in the first six months of
         1998.

                  The Company collected $972,000 relating to the sale of
         substantially all the machinery and equipment, inventory and accounts
         receivable of P C Dynamics to Performance Interconnect Corporation.

                  The Company has a mortgage loan of $2,121,000 for the facility
         at P C Dynamics Corporation in Frisco, Texas. Interest on this mortgage
         loan is at 1/2 % over the prime rate. The loan is payable in monthly
         installments of principal and interest and is due in October 2001.

                  The Company has a $2,000,000 line of credit available based on
         80% of the eligible accounts receivable to fund the working capital
         needs of the Company. Interest is at the prime rate (8.00% at June 30,
         1999) plus 1/2%. The agreement expires May 31, 2000 and is renewable
         annually at the mutual consent of the Company and the lender. No
         balance was outstanding under the line at June 30, 1999.

                  As of June 30, 1999, the company has $2,121,000 of debt and
         $4,504,000 of cash and cash equivalents. Management believes that funds
         generated from operations, coupled with the Company's cash and
         investment balances and its capacity for debt will be sufficient to
         fund current business operations.

         INFLATION

                  Management believes inflation has not had a material effect on
         the Company's operation or on its financial position.





                                       13
<PAGE>   14


         YEAR 2000 COMPLIANCE

                  Many computer and other software and hardware systems
         currently are not, or will or may not be, able to read, calculate or
         output correctly using dates after 1999 and such systems will require
         significant modifications in order to be Year 2000 compliant. This
         issue may have a material adverse affect on the Company's business,
         financial condition and results of operations because its computer and
         other systems are integral parts of the Company's distribution
         activities as well as its accounting and other information systems and
         because the Company will have to divert financial resources and
         personnel to address this issue.

                  The Company has reviewed its computer and other hardware and
         software systems and has recently begun upgrading those systems that it
         has identified as not being year 2000 compliant. The existing systems
         will be upgraded either through modification or replacement. The
         Company currently anticipates that it will complete testing of these
         upgrades by the end of the third quarter of 1999.

                  Although the Company is not aware of any material operational
         impediments associated with upgrading its computer and other hardware
         and software systems to be year 2000 compliant, the Company cannot make
         any assurances that the upgrade or the Company's computer systems will
         be completed on schedule, or that the upgraded systems will be free of
         defects. If any such risks materialize, the Company could experience
         material adverse consequences to its business, financial condition and
         results of operations.

                  Year 2000 compliance may also adversely affect the Company's
         business financial conditions and results of operations indirectly by
         causing complications to, or otherwise affecting, the operations of any
         one or more of its suppliers and customers. The Company is contacting
         its significant suppliers and customers in an attempt to identify any
         potential year 2000 compliance issues with them. The Company is
         currently unable to anticipate the magnitude of the operational or
         financial impact of year 2000 compliance issues with its suppliers or
         customers.

                  The Company incurred approximately $62,000 to date and expects
         to incur approximately $35,000 in the third quarter of 1999 to resolve
         and test the Company's year 2000 compliance issues. All expenses
         incurred in connection with year 2000 compliance will be expensed as
         incurred, other than acquisitions of new software or hardware, which
         will be capitalized.

         FOREIGN CURRENCY TRANSACTIONS

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




                                       14
<PAGE>   15


         ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS

                  As a supplier to microwave manufacturers, the Company is
         dependent upon the success of its customers in developing and
         successfully marketing end-user microwave systems. The Company is
         currently working on several development programs for its customers.
         The development of commercial applications for microwave systems and
         the timing and size of production schedules for these programs is
         uncertain and beyond the control of the Company. There can be no
         assurance that these development programs will have a favorable impact
         on the Company's operating results. Although management believes some
         of these products and programs may ultimately develop into successful
         commercial applications, such developments could result in periodic
         fluctuations in the Company's operating results. As a result of these
         considerations, the Company has historically found it difficult to
         project operating results.

                  The Company expects that a small number of customers will
         continue to account for a substantial majority of its sales and that
         the relative dollar amount and mix of products sold to any of these
         customers can change significantly from year to year. There can be no
         assurance that the Company's major customers will continue to purchase
         products from the Company at current levels, or that the mix of
         products purchased will be in the same ratio. The loss of one or more
         of the Company's major customers or a change in the mix of product
         sales could have a material adverse effect on the Company.

                  In addition, future results may be impacted by a number of
         other factors, including the Company's dependence on suppliers and
         subcontractors for components; the Company's ability to respond to
         technical advances; successful award of contracts under bid; design and
         production delays; cancellation or reduction of contract orders; the
         Company's effective utilization of existing and new manufacturing
         resources; and pricing pressures by key customers.

                  The Company's future success is highly dependent upon its
         ability to manufacture products that incorporate new technology and are
         priced competitively. The market for the Company's products is
         characterized by rapid technology advances and industry-wide
         competition. This competitive environment has resulted in downward
         pressure on gross margins. In addition, the Company's business has
         evolved towards the production of relatively smaller quantities of more
         complex products, the Company expects that it will at times encounter
         difficulty in maintaining its past yield standards. There can be no
         assurance that the Company will be able to develop technologically
         advanced products or that future pricing actions by the Company and its
         competitors will not have a material adverse effect on the Company's
         results of operations.




                                       15
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                           PART II - OTHER INFORMATION

         ITEM 1:  LEGAL PROCEEDINGS

                  None


         ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits

                  27    Financial Data

                  The Company filed a report on Form 8-K dated March 25, 1999
         announcing that PC Dynamics Corporation, a wholly owned subsidiary of
         the Company, sold substantially all of its machinery and equipment,
         inventory and accounts receivable and assigned all of its outstanding
         contracts and orders to Performance Interconnect Corporation, a Texas
         Corporation.















                                       16
<PAGE>   17


                                    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 6, 1999              /s/    PAUL H. SCHMITT
                                           ------------------------------
                                                  Paul H. Schmitt

                                           Chief Financial Officer





















                                       17
<PAGE>   18

                                     EXHIBIT INDEX
          Exhibit
             No                       Description
          -------       --------------------------------------------

          27            Financial Data
















                                       18