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, 2006
            
            Commission
                File No. 0-19944








M~WAVE,
      INC.


(Exact
      name of registrant as specified in its charter)








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








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











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











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





Yes x No  o





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






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







The
      registrant has 6,202,601 shares of common stock outstanding at August 11,
      2006.










**M-WAVE,
      INC.**





**CONTENTS**




PART
                I.  FINANCIAL INFORMATIONItem
                1.
            Financial
                Statements:Consolidated
                Balance Sheets as of June 30, 2006 and December
                31, 2005 (unaudited)
            Page
                3Consolidated
                Statements of Operations for the Three Months
                Ended June 30, 2006 and 2005 (unaudited)
            Page
                4Consolidated
                Statements of Operations for the Six Months Ended
                June 30, 2006 and 2005 (unaudited)
            Page
                5Consolidated
                Statements of Cash Flows for the Six Months Ended
                June 30, 2006 and 2005 (unaudited)
            Pages
                6Notes
                to Consolidated Financial Statements (unaudited)
            Pages
                7-18Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Resultsof
                Operations
            Pages
                18-26Item
                3
            Controls
                and Procedures
            Page
                27PART
                II.  OTHER INFORMATIONItem
                1.
            Legal
                Proceedings
            Page
                28Item
                6
            Exhibits
            Page
                28Signatures
            Page
                29





2
 *Contents*




**Part
      I - Financial Information**


**Item
      1 - Financial Statements**





**M-Wave,
      Inc.**


**CONSOLIDATED
      BALANCE SHEETS**


**(unaudited)**


**June
                30,**
            
            **December
                31,****2006**
            
            **2005**ASSETSCURRENT
                ASSETS:Cash
                and cash equivalents
            
            $
            1,492,682
            
            $
            247,731Accounts
                receivable, net of allowance for doubtful accounts,2006- $150,000:
                2005-
                $168,000
            
            $
            928,692
            
            $
            1,061,443Inventories,
                net
            
            $
            828,481
            
            $
            2,191,013Prepaid
                expenses and other assets
            
            $
            143,284
            
            $
            336,386Note
                receivable, net
            
            $
            47,834
            
            $
            88,833Total
                current assets
            
            $
            3,440,973
            
            $
            3,925,406EQUIPMENT:Equipment
            
            $
            364,156
            
            $
            392,708Less
                accumulated depreciation
            
            $
            (99,781
            )
            $
            (81,317
            )Equipment,
                net
            
            $
            264,375
            
            $
            311,391Land
                held for sale
            
            $
            177,238
            
            $
            177,238TOTAL
            
            $
            3,882,586
            
            $
            4,414,035LIABILITIES
                AND STOCKHOLDERS' EQUITY (DEFICIT)CURRENT
                LIABILITIES:Accounts
                payable
            
            $
            1,087,080
            
            $
            2,430,304Accrued
                expenses
            
            $
            276,244
            
            $
            343,732Note
                payable
            
            $
            0
            
            $
            1,599,208Total
                current liabilities
            
            $
            1,363,324
            
            $
            4,373,244COMMITTMENTS
                AND CONTINGENCIESLONG-TERM
                DEBT, net of unamortized discount 2006-$0: 2005-$356,787
            
            $
            0
            
            $
            2,043,213COMMON
                STOCK WARRANTS
            
            $
            0
            
            $
            239,017STOCKHOLDERS'
                EQUITY (DEFICIT):Preferred
                stock, $100 par value; Series A authorized, 30,000 shares; issued
                and
                outstanding: 2006 and 2005: 12,500 shares
            
            $
            656,800
            
            $
            656,800Series
                B authorized, 70,000 shares; issued and outstanding:2006-64,648 shares:
                2005-0 shares
            
            $
            6,342,797
            
            $
            0Common
                stock, $.005 par value; authorized, 20,000,000 shares; issued and
                outstanding 2006 and 2005 : 6,202,601 shares
            
            $
            39,692
            
            $
            39,692Additional
                paid-in capital
            
            $
            13,472,824
            
            $
            12,558,653Accumulated
                deficit
            
            $
            (15,707,681
            )
            $
            (13,211,414
            )Treasury
                stock, at cost, 2006 and 2005: 1,735,815 shares
            
            $
            (2,285,170
            )
            $
            (2,285,170
            )Total
                stockholders' equity (deficit)
            
            $
            2,519,262
            
            $
            (2,241,439
            )TOTAL
            
            $
            3,882,586
            
            $
            4,414,035





See
      notes
      to consolidated financial statements


3
 *Contents*




**M-Wave,
      Inc.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(unaudited)**





Three
                Months Ended June 302006
            
            2005NET
                SALES
            
            $
            2,286,994
            
            $
            5,801,975COST
                OF GOODS SOLD
            
            
            1,684,207
            
            
            4,608,073Gross
                profit
            
            
            602,787
            
            
            1,193,902OPERATING
                EXPENSES:General
                and administrative
            
            
            1,035,413
            
            
            1,056,945Selling
                and marketing
            
            
            191,111
            
            
            244,571Total
                operating expenses
            
            
            1,226,524
            
            
            1,301,516Operating
                loss from continuing operations
            
            
            (623,737
            )
            
            (107,614
            )OTHER
                INCOME (EXPENSE):Interest
                income
            
            
            0
            
            
            1,901Interest
                expense
            
            
            0
            
            
            (171,221
            )Total
                other income (expense)
            
            
            0
            
            
            (169,320
            )LOSS
                FROM CONTINUING OPERATIONS
            
            
            (623,737
            )
            
            (276,934
            )DISCONTINUED
                OPERATIONS (Note 11)Income/(loss)
                from discontinued operations, net of tax
            
            $
            119,086
            
            $
            (403,532
            )Net
                loss
            
            $
            (504,651
            )
            $
            (680,466
            )Preferred
                stock dividends
            
            $
            (80,810
            )
            $
            0Net
                loss attributable to common shareholders
            
            $
            (585,461
            )
            $
            (680,466
            )BASIC
                AND DILUTED LOSS PER COMMON SHAREContinuing
                operations
            
            $
            (0.11
            )
            $
            (0.04
            )Discontinued
                operations
            
            
            0.02
            
            
            (0.07
            )$
            (0.09
            )
            $
            (0.11
            )Weighted
                average shares outstanding
            
            
            6,202,601
            
            
            6,145,553




See
      notes
      to consolidated financial statements


4
 *Contents*





**M-Wave,
      Inc.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(unaudited)**


Six
                Months Ended June 302006
            
            2005NET
                SALES
            
            $
            4,578,837
            
            $
            10,522,844COST
                OF GOODS SOLD
            
            
            3,374,048
            
            
            8,321,110Gross
                profit
            
            
            1,204,789
            
            
            2,201,734OPERATING
                EXPENSES:General
                and administrative
            
            
            2,612,529
            
            
            2,011,565Selling
                and marketing
            
            
            396,922
            
            
            529,509Total
                operating expenses
            
            
            3,009,451
            
            
            2,541,074Operating
                loss from continuing operations
            
            
            (1,804,662
            )
            
            (339,340
            )OTHER
                INCOME (EXPENSE):Interest
                income
            
            
            0
            
            
            6,202Interest
                expense
            
            
            (403,847
            )
            
            (236,435
            )Total
                other income (expense)
            
            
            (403,847
            )
            
            (230,233
            )LOSS
                FROM CONTINUING OPERATIONS
            
            
            (2,208,509
            )
            
            (569,573
            )DISCONTINUED
                OPERATIONS (Note 11)Loss
                from discontinued operations, net of tax
            
            $
            (135,319
            )
            $
            (490,090
            )Net
                loss
            
            $
            (2,343,828
            )
            $
            (1,059,663
            )Preferred
                stock dividends
            
            $
            (152,439
            )
            $
            0Net
                loss attributable to common shareholders
            
            $
            (2,496,267
            )
            $
            (1,059,663
            )BASIC
                AND DILUTED LOSS PER COMMON SHAREContinuing
                operations
            
            $
            (0.38
            )
            $
            (0.10
            )Discontinued
                operations
            
            
            (0.02
            )
            
            (0.08
            )$
            (0.40
            )
            $
            (0.18
            )Weighted
                average shares outstanding
            
            
            6,202,601
            
            
            5,874,916




See
      notes
      to consolidated financial statements


5
 *Contents*




**M-Wave,
      Inc.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(unaudited)**


Six
                Months Ended June 302006
            
            2005**OPERATING
                ACTIVITIES:**Net
                loss
            
            $
            (2,343,828
            )
            $
            (1,059,663
            )Adjustments
                to reconcile net loss to net cash flows used in operating
                activities:Loss
                on disposal of property, plant, and equipment
            
            
            24,167
            
            
            0Depreciation
            
            
            39,297
            
            
            40,708Amortization
                of intangible assets
            
            
            0
            
            
            10,000Amortization
                of discount on note payable, bank
            
            
            0
            
            
            24,276Amortization
                of discount on long-term debt
            
            
            356,787
            
            
            73,747Trade
                debt forgiveness
            
            
            (323,772
            )
            
            0Stock
                compensation recognized on options and warrants
            
            
            690,312
            
            
            0Fair
                value adjustment to common stock warrants
            
            
            (15,158
            )
            
            0Changes
                in assets and liabilities, net of effects of acquired
                business:Accounts
                receivable
            
            
            132,751
            
            
            (766,929
            )Inventories
            
            
            1,362,532
            
            
            (694,544
            )Prepaid
                expenses and other assets
            
            
            193,102
            
            
            (782,999
            )Accounts
                payable
            
            
            (1,019,452
            )
            
            63,515Accrued
                expenses
            
            
            (46,888
            )
            
            (7,113
            )Net
                cash flows used in operating activities
            
            
            (950,150
            )
            
            (3,099,002
            )**INVESTING
                ACTIVITIES:**Purchase
                of equipment
            
            
            (21,448
            )
            
            (115,366
            )Proceeds
                from sale of property, plant and equipment
            
            
            5,000
            
            
            -Repayments
                on note receivable
            
            
            40,999
            
            
            -Acquisition
                of business
            
            
            -
            
            
            (1,684,268
            )Net
                cash flows provided by (used in) investing activities
            
            
            24,551
            
            
            (1,799,634
            )**FINANCING
                ACTIVITIES:**Net
                borrowings on note payable, bank
            
            
            -
            
            
            1,847,672Proceeds
                from preferred stock issuance
            
            
            1,777,989
            
            
            0Payment
                of preferred dividends
            
            
            (152,439
            )
            
            0Borrowings
                on long-term debt from shareholders
            
            
            545,000
            
            
            2,400,000Net
                cash flows provided by financing activities
            
            
            2,170,550
            
            
            4,247,672**NET
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS**
            
            
            1,244,951
            
            
            (650,964
            )CASH
                AND CASH EQUIVALENTS:Beginning
                of period
            
            
            247,731
            
            
            1,321,445End
                of period
            
            $
            1,492,682
            
            $
            670,481SUPPLEMENTAL
                SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES:Reclassification
                of common stock warrants to stockholders' equity
            
            $
            270,163
            
            $
            0Conversion
                of long-term debt to stockholders' equity
            
            
            4,564,808
            
            
            0Accrued
                interest added to note payable balance
            
            
            20,601
            
            
            0Stock
                warrants issued as discount on long-term debt and note
                payable
            
            
            0
            
            
            515,480Acquisition
                of Jayco Ventures, Inc:Purchase
                price:Cash
                purchase price
            
            $
            0
            
            $
            1,360,000Acquisition
                costs paid
            
            
            0
            
            
            324,268$
            0
            
            $
            1,684,268Assets
                acquired and liabilities assumed:Working
                Capital
            
            $
            0
            
            $
            700,000Property
                and equipment
            
            
            0
            
            
            100,000Goodwill
            
            
            0
            
            
            824,268Intangible
                assets
            
            
            0
            
            
            60,000$
            0
            
            $
            1,684,268




See
      notes
      to consolidated financial statements


6
 *Contents*




**M-WAVE,
      Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





**1.
      Basis of Presentation**





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




Operating
      results for the three and six months ended June 30, 2006 are not necessarily
      indicative of the results that may be expected for the year ending December
      31,
      2006. 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, 2005.




**2.** **Realization
      of Assets**





The
      Company continues its efforts to sell its vacant land located in Bensenville,
      Illinois as soon as practicable.





**3.** **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.





**4.
      Business Product Lines**





Sales
      by
      product line for the three and six months ended June 30, 2006 and 2005 consisted
      of the following:





Three
                months ended June 30,
            
            Six
                months ended June 30,2006
            
            2005
            
            2006
            
            2005Digital
            
            $
            1,802,426
            
            $
            1,976,251
            
            $
            3,784,185
            
            $
            4,280,743RF
            
            
            152,409
            
            
            3,726,252
            
            
            275,932
            
            
            6,073,171Non
                PCB
            
            
            95,023
            
            
            -
            
            
            99,235
            
            
            -Other
            
            
            237,136
            
            
            99,472
            
            
            419,485
            
            
            168,930Total
                sales
            
            $
            2,286,994
            
            $
            5,801,975
            
            $
            4,578,837
            
            $
            10,522,844


7
 *Contents*




Sales
      within the digital product line include ten key customers, which represented
      approximately 89% of sales in the second quarter of 2006 versus approximately
      62% of sales in the second quarter of 2005. Sales levels for the second quarter
      of 2005 included sales to two former customers that represented 20% of sales
      for
      the second quarter of 2005. These customers were in the process of winding
      down
      programs during 2005 which contributed to their increased sales levels. Sales
      within the Company’s top ten digital customers for the second quarter of 2006
      were up 30% above their sales levels during the second quarter of 2005. Year
      to
      date sales for these key customers represented approximately 87% of sales versus
      approximately 54% of year to date sales in 2005. Prior year sales included
      sales
      to two former customers that represented approximately 31% of prior year to
      date
      sales. Year to date sales for the Company’s top ten digital customers were up
      43% compared to prior year to date sales.





On
      October 21, 2005, the Company sold its radio frequency (“RF”) customer list to
      American Standard Circuits (“ASC”). The
      Company follows the provisions of SFAS 144 to identify and account for
      discontinued operations. In
      accordance with SFAS 144, these activities do not constitute a discontinued
      operation, primarily because discreet financial information is not available
      or
      reasonably determinable for this division of the business. Upon the sale of
      the
      RF customer list, the Company’s continuing operations will consist primarily of
      the digital product line.





Non
      printed circuit board (“Non PCB”) sales represent sales of new products other
      than printed circuit boards, to the Company’s existing digital customer base.
      Other sales primarily represent tooling charges billed to customers for either
      new products or existing products that have gone through a revision, and
      commission revenues billed per our October 2005 agreement with ASC, where the
      Company sold its RF product line but continues to assist the purchaser in
      transitioning the RF customers throughout 2006, receiving a commission on sales
      made by the purchaser until December 31, 2006.





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





**5.
      Debt**





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




On
      February 23, 2005 the Company issued $1,550,000 in aggregate principal amount
      of
      promissory notes and warrants to purchase an 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 affiliated 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
      $497,000 based on a fair value price of the Company’s common stock 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 resulted in a debt discount with an allocated
      fair
      value of approximately $376,000. This debt discount was expensed using the
      effective interest rate method. This debt discount, combined with the stated
      interest rate of 10%, resulted in an effective interest rate of approximately
      30%.




8
 *Contents*




On
      June
      16, 2005, the Company 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, the
      Company issued 166,666 additional 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, all of which are affiliated
      entities. The warrants have a term of three years with an exercise price of
      $1.02 per share. The Company granted
      registration rights to the holders of the warrants, which rights are exercisable
      as of February 1, 2006. 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
      the
      Company’s common stock 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. The total
      debt
      discount of approximately $515,000 was 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%. At December 31,
      2005, the remaining unamortized debt discount was $356,787. The remaining
      unamortized debt discount was expensed during the first quarter of
      2006.




On
      November 9, 2005, the Company announced that Mercator Momentum Fund III had
      purchased the revolving financing note from Silicon Valley Bank.




At
      December 31, 2005, the total amount outstanding on the promissory notes was
      $2,400,000. The promissory notes accrued interest at 10% per annum and were
      originally due in total on August 23, 2007, prior to the conversion to equity
      described above.




9
 *Contents*




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





In
      connection with the loan purchase, the principal amount due was amended to
      include interest accrued between November 9 and December 31, 2005 of
      approximately $21,000. As of March 1, 2006, the balance due on the bank notes
      purchased by MAG Capital was approximately $1,620,000. During the first quarter
      of 2006, MAG Capital provided additional debt financing of approximately
      $545,000.




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




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




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




**6.
      Equity**





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





The
      Company also issued an additional 19,000 shares of Series B Preferred Stock
      in
      exchange for $1,900,000 which will be held in a reserve account to be released
      by a majority of the independent directors as appropriate to fund expenses
      of
      the company.





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


10
 *Contents*




The
      Series B stock is non-voting and is entitled to receive monthly dividends at
      an
      annual rate of 15%, subject to reduction to 9% after the Registration Statement
      is declared effective by the Securities and Exchange Commission. The Company
      is
      to use its best efforts to file a registration statement covering the Series
      B
      shares of common stock underlying the Convertible Preferred Stock (the
“Conversion Shares”), the shares of common stock underlying the Warrants (the
“Warrant Shares”), and the shares of common stock underlying the Series A
      Preferred Stock issued by the Company to the Purchasers on June 17, 2004.
      Mercator waived their dividend payments for the months of May and June only.
      For
      the period ended June 30, 2006, the Company paid dividends on the Series B
      shares in the amount of approximately $152,000.





During
      the first six months of 2006, Mercator did not convert any shares of their
      preferred stock into common shares. As of June 30, 2006 there are 12,500 Series
      A preferred shares outstanding and 64,648 Series B preferred shares outstanding.





Potentially
      dilutive common shares consist of the incremental common shares issuable upon
      conversion of convertible preferred shares or convertible debt, and the exercise
      of common stock options and warrants for all periods. For all periods ended
      June
      30, 2006 and 2005, the basic and diluted shares reported are equal because
      the
      common share equivalents are anti-dilutive due to the net losses for each
      period. Below is a tabulation of the potentially dilutive
      securities:





3
                months ended June 30,
            
            6
                months ended June 30,2006
            
            2005
            
            2006
            
            2005Weighted
                average shares outstanding
            
            
            6,202,601
            
            
            6,145,553
            
            
            6,202,601
            
            
            5,874,916Options
                in the money, net
            
            
            334,263
            
            
            132,163
            
            
            200,911
            
            
            157,327Warrants
                in the money, net
            
            
            241,304
            
            
            -
            
            
            125,675
            
            
            17,544Preferred
                shares convertible to Common shares
            
            
            9,458,801
            
            
            1,275,510
            
            
            8,183,291
            
            
            1,275,510Total
                Outstanding and Potentially Dilutive shares
            
            
            16,236,969
            
            
            7,553,226
            
            
            14,712,478
            
            
            7,325,297




With
      respect to the preferred shares convertible to common shares, the numbers of
      Conversion Shares and Warrant Shares that each of Mercator Momentum Fund, L.P.,
      Mercator Momentum Fund III, L.P., Monarch Pointe Fund, Ltd., and Mercator
      Advisory Group, LLC (each a “Purchaser” and collectively the “Purchasers”) 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.


11
 *Contents*


The
        warrants to purchase a combined 601,449 shares had been previously recorded
        as a
        liability at the fair value of the warrants issued to M.A.G. Capital, LLC
        in
        conjunction with the promissory notes. At December 31, 2005, the fair value
        of
        these warrants was determined to be approximately $239,000. In accordance
        with
        SFAS 133 guidance, the Company is required to adjust the fair value of the
        warrants at each reporting period. For the six months ended June 30, 2006,
        the
        Company reduced interest expense by approximately $15,000 for the reduction
        in
        the warrants fair value.
 
 On
        March
        31, 2006, the Company received a waiver from M.A.G. Capital, LLC on all
        penalties and fees associated with these warrants. As a result, the Company
        reclassified the value of these warrants from liabilities to equity.
 
 On
        March
        1, 2006, the Company re-priced all of their warrants issued to M.A.G. Capital,
        LLC and related entities. A total of 2,131,449 warrants were re-priced to
        $0.69
        per share, one cent above the closing market price on that date. The Company
        recorded approximately $237,000 of stock compensation expense during the
        first
        quarter of 2006 related to the re-pricing of these warrants. The fair value
        of
        the re-pricing was determined using the Black Scholes option pricing model.
 
 **7.
        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.
 
 **8.
        Adoption of Accounting Standard and Share-Based
        Compensation**
  Under
        M-Wave’s share-based long-term incentive compensation plans (“incentive plans”)
        M-Wave grants non-qualified stock options to certain employees.
  Shares
        available for future issuance to M-Wave’s employees under existing plans were
        137,277 shares at June 30, 2006.
  Effective
        January 1, 2006, we adopted Financial Accounting Standards Board (“FASB”)
        Statement No. 123 (revised), “Share-Based Payment” (“SFAS 123R”). Among its
        provisions, SFAS 123R requires us to recognize compensation expense for equity
        awards over the vesting period based on their grant-date fair value. Prior
        to
        the adoption of SFAS 123R, we utilized the intrinsic-value based method of
        accounting under APB Opinion No. 25, “Accounting for Stock Issued to Employees”
and related interpretations, and adopted the disclosure requirements of SFAS
        No.
        123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Under the
        intrinsic-value based method of accounting, compensation expense for stock
        options granted to our employees was measured as the excess of the quoted
        market
        price of M-Wave’s common stock at the grant date over the amount the employee
        must pay for the stock.


12
 *Contents*




We
      adopted SFAS 123R in the first quarter of 2006 using the modified prospective
      approach. Under this transition method, the measurement and our method of
      amortization of costs for share-based payments granted prior to, but not vested
      as of January 1, 2006, would be based on the same estimate of the grant-date
      fair value and the same amortization method that was previously used in our
      SFAS
      123 pro forma disclosure. Results for prior periods have not been restated
      as
      provided for under the modified prospective approach. For equity awards granted
      after the date of adoption, we will amortize share-based compensation expense
      on
      a straight-line basis over the vesting term.




Compensation
      expense is recognized only for share-based payments expected to vest. We
      estimate forfeitures at the date of grant based on our historical experience
      and
      future expectations. Prior to the adoption of SFAS 123R, the effect of
      forfeitures on the pro forma expense amounts was recognized based on estimated
      forfeitures.




The
      Company recognized share-based compensation expense of approximately $121,000
      and $453,000 in general and administrative expenses in the statement of
      operations for the three and six months ended June 30, 2006 respectively. Basic
      and diluted earnings per share for the three and six months ended June 30,
      2006
      would have been a loss of $0.07 per share and $0.33 per share, if the Company
      had not adopted SFAS 123R, compared to reported basic and diluted earnings
      per
      share of a loss of $0.09 per share and $0.40 per share,
      respectively.




The
      following table shows the effect on net income for the three and six months
      ended June 30, 2005 had compensation expense been recognized based upon the
      estimated fair value on the grant date of awards, in accordance with SFAS 123,
      as amended by SFAS No. 148 “Accounting for Stock-Based Compensation - Transition
      and Disclosure”:




**Period****Ended
                June 30, 2005****3
                Months**
            
            **6
                Months**Net
                loss, as reported
            
            $
            (680,467
            )
            $
            (1,059,663
            )Add:
                Total share-based employee compensation included in reported net
                income,
                net of taxes
            
            
            0
            
            
            0Less:  Total
                share-based employee compensation determined under fair-value based
                method
                for all awards, net of taxes
            
            
            (9,293
            )
            
            (70,763
            )Pro
                forma net loss
            
            $
            (689,760
            )
            $
            (1,130,426
            )





13
 *Contents*




Earnings
      per share as reported for basic and diluted was a loss of $0.11 per share for
      the three months ended June 30, 2005 and $0.18 per share for the six months
      ended June 30, 2005. Pro forma Earnings per share for basic and diluted was
      a
      loss of $0.11 per share for the three months ended June 30, 2005 and $0.19
      per
      share for the six months ended June 30, 2005.




As
      of
      June 30, 2006, there was approximately $113,000 of total unrecognized
      compensation cost related to non-vested share-based compensation arrangements
      granted under the incentive plans. That cost is expected to be recognized over
      a
      weighted-average period of 0.70 years.




The
      fair
      value of M-Wave stock options was estimated at the date of grant using the
      Black-Scholes-Merton option-valuation model. The Company did not grant any
      options during the second quarter of 2006. The table below outlines the weighted
      average assumptions for options granted during the three and six months ended
      June 30, 2006 and 2005:




3
                months ended June 30,
            
            6
                months ended June 30,2006
            
            2005
            
            2006
            
            2005Weighted
                Average Assumptions:Risk-free
                interest rate
            
            
            0.00
            %
            
            3.70
            %
            
            4.50
            %
            
            3.71
            %Expected
                term (in years)
            
            
            0.0
            
            
            5.0
            
            
            5.0
            
            
            5.0Expected
                volatility
            
            
            0.0
            %
            
            298.8
            %
            
            275.5
            %
            
            307.7
            %Expected
                dividend yield
            
            
            0
            %
            
            0
            %
            
            0
            %
            
            0
            %Fair
                value
            
            $
            0.00
            
            $
            0.93
            
            $
            0.62
            
            $
            1.18




The
      expected term of the options represents the estimated period of time until
      exercise and is based on historical experience of similar awards, giving
      consideration to the contractual terms, vesting schedules and expectations
      of
      future employee behavior. Expected stock price volatility is based on a
      combination of historical volatility of M-Wave’s stock. The risk-free interest
      rate is based on the implied yield available on U.S. Treasury zero-coupon issues
      with an equivalent remaining term.




M-Wave
      stock options expire in 5 years and prior to the 2006 grant year were generally
      exercisable 50 percent in first year, and 25 percent in each of the next two
      years, with full vesting after three years. Beginning in 2006, new stock option
      grants generally vested immediately at grant date.




14
 *Contents*




The
      following table summarizes M-Wave option activity for employees during the
      six
      months ended June 30, 2006:




Options
              
              Shares
              
              Weighted
                  Average Exercise Price per Share
              
              Weighted
                  Average Remaining Contractural Term (years)
              
              Aggregate
                  Intrinsic ValueOutstanding
                  at January 1, 2006
              
              
              1,199,517
              
              $
              1.14Granted
              
              
              665,323
              
              
              0.68Exercised
              
              
              -
              
              
              0Forfeited
                  or expired
              
              
              (27,650
              )
              
              7.61Outstanding
                  at June, 2006
              
              
              1,837,190
              
              $
              0.88
              
              
              3.32
              
              $
              263,322Exercisable
                  at June 30, 2006
              
              
              1,763,613
              
              $
              0.87
              
              
              3.32
              
              $
              258,165




The
      aggregate intrinsic value in the table above is before income taxes, based
      on
      M-Wave’s closing stock price of $0.93 as of the last business day of the period
      ended June 30, 2006.




**9.
      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 2006.





**10.
      Reclassifications**





Certain
      items in the 2005 financials have been reclassified to conform to the 2006 Presentation
      which treats the DBS division as discontinued operations.





**11.
      Discontinued Operations**





On
      February 25, 2005 M-Wave, Inc. through its wholly owned subsidiary, M-Wave
      DBS,
      Inc., an Illinois corporation purchased substantially all of the assets of
      Jayco
      Ventures Inc. (JVI), for cash of approximately $1,360,000.





M-Wave
      DBS, Inc. was initially reconstituted a distributor, virtual manufacturer and
      global supplier to the Digital Broadcasting Satellite (DBS) industry that
      includes a growing number of proprietary product lines including the TrunkLine
      Millenium(R) commercial SMATV head end gear, JVI L-Band passive splitters and
      multi-switches, Treadclip plastic fasteners, Signaloc(R) meters used in DBS
      installations and the Kompressor(R) universal RF connector line.


15
 *Contents*





The
      purchase price was allocated to the assets acquired and liabilities assumed
      as
      of June 30, 2005, was as follows:





Working
                Capital
            
            $
            700,000Property
                and Equipment
            
            
            100,000Intangible
                assets
            
            
            60,000Goodwill
            
            
            824,268$
            1,684,268





Accounts
      receivable and inventories were recorded at the net realizable value. Equipment
      was recorded at an appraised value and was to be depreciated over an economic
      useful life of five years. Intangible assets consisted primarily of patents
      and
      customer lists which were recorded based on an appraised value and were to
      be
      amortized over an economic useful life of two years. Goodwill represents the
      excess of purchase price over the assets acquired of approximately $500,000,
      plus additional acquisition costs incurred by the Company for professional
      fees
      and the assumption of liabilities specific to key suppliers of approximately
      $324,000. During the balance of 2005, the Company recorded additional
      acquisition costs of approximately $34,000, which were recorded as increases
      to
      goodwill. The total purchase price as previously reported as of December 31,
      2005 was approximately $1,718,000.





After
      attempts to finance and establish the business through July 2005, the Company
      determined the assets and business could not be re-established, and in December
      2005 determined to discontinue M-Wave DBS, Inc., formerly reported as the DBS
      segment. In connection with that change, substantially all employees of DBS
      were
      terminated in December 2005,  and
      the
      remaining assets located in warehouses in California and Florida is being
      liquidated in the ordinary course of business.





M-Wave
      DBS, Inc. operated as a wholly owned Illinois subsidiary. The Company's
      remaining core business continues to be printed circuit board and related custom
      component business is known informally as M-Wave EMG [Electro-Mechanical Group].
      Concurrently, Robert Duke serves as President-EMG division.





The
      Company follows the provisions of SFAS 144 to identify and account for
      discontinued operations. The Company carries assets and liabilities related
      to
      its discontinued DBS operations on its balance sheet as they continue efforts
      to
      liquidate these assets and satisfy these liabilities in an orderly manner.
      These
      assets are carried at their net book value which approximates its estimated
      net
      realizable value less estimated costs to sell these assets, and are included
      with assets from continuing operations in the accompany consolidated balance
      sheet. These liabilities are carried at their net book value which approximates
      the full amount of consideration necessary to settle these obligations. The
      approximate carrying value of these assets and liabilities at June 30, 2006
      and
      December 31, 2005 is below:


16
 *Contents*




2006
            
            2005Accounts
                Receivable
            
            $
            228,000
            
            $
            308,000Inventory
            
            
            229,000
            
            
            1,832,000Prepaid
                Expenses
            
            
            4,000
            
            
            230,000Total
                assets
            
            $
            461,000
            
            $
            2,370,000Accounts
                Payable
            
            $
            1,000
            
            $
            1,232,000Accrued
                Expenses
            
            
            4,000
            
            
            6,000Total
                Liabilities
            
            $
            5,000
            
            $
            1,238,000




On
      January 9, 2006, the Company announced it had taken steps to liquidate its
      M-Wave DBS, Inc (DBS) assets it previously acquired in February 2005. In
      connection with that activity, the Company announced that it had terminated
      all
      but its logistics and warehousing DBS personnel and discontinued current
      operations. Moreover, it stated that Jason Cohen, its former divisional
      president, terminated, by mutual agreement with the Company, his employment
      contract.





The
      Company is actively pursuing collections on outstanding accounts receivable
      from
      its former DBS customers and is in the process of executing its strategic plans
      to liquidate the DBS inventory. The inventory liquidation strategy includes
      the
      aforementioned consulting agreement and a process whereby management believes
      the Company can successfully return certain product to the vendors. The carrying
      value of DBS inventory had been reduced by approximately $700,000 as of December
      31, 2005 to adjust to estimated net realizable value as described above. During
      the second quarter of 2006, the Company estimated that its net realizable value
      had increased, and booked a $225,000 reduction to the inventory reserve. The
      Company also settled all of its remaining obligations to DBS inventory suppliers
      for nominal value. Based on these vendor settlements, the Company recorded
      approximately $324,000 in vendor debt forgiveness during the second quarter
      of
      2006, which are included in the results from discontinued
      operations.





The
      net
      loss from discontinued operations for the three and six months ended June 30,
      2006 and 2005 are as follows:





3
                Months Ended June 30,
            
            6
                Months Ended June 30,2006
            
            2005
            
            2006
            
            2005Net
                sales
            
            $
            256,000
            
            $
            1,004,000
            
            $
            831,000
            
            $
            1,067,000Cost
                of goods sold
            
            
            322,000
            
            
            922,000
            
            
            1,090,000
            
            
            926,000Gross
                (loss) profit
            
            
            (66,000
            )
            
            82,000
            
            
            (259,000
            )
            
            141,000Other
                income (expenses)
            
            
            185,000
            
            
            (485,000
            )
            
            124,000
            
            
            (631,000
            )Income
                (loss) from discontinued operations
            
            $
            119,000
            
            $
            (403,000
            )
            $
            (135,000
            )
            $
            (490,000
            )


17
 *Contents*




The
      income/loss from discontinued operations resulted in a decrease to the basic
      and
      diluted loss per common share of approximately $0.02 for the three months ended
      June 30, 2006 and an increase to the basic and diluted loss per share of $0.07
      for the three months ended June 30, 2005. The loss from discontinued operations
      resulted in an increase to the basic and diluted loss per common share of
      approximately $0.02 and $0.08 for the six months ended June 30, 2006 and 2005
      respectively.








**Item
      2:**





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




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




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




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




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


18
 *Contents*




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




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





**RESULTS
      FOR THE THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO THE THREE MONTHS ENDED
      JUNE
      30, 2005**





**Net
      Sales**





Net
      sales
      were approximately $2,287,000 for the quarter ended June 30, 2006, a decrease
      of
      approximately $3,515,000 or 60.6% from the second quarter of 2005. The sales
      within our RF business was the primary factor in the sales decline, with RF
      sales down approximately $3,574,000 during the second quarter of 2006 compared
      to the second quarter of 2005 due to the sale of the RF business in October
      2005. The decrease in sales of the digital products of approximately $174,000
      was the result of prior year sales to two former customers that were winding
      down programs. Prior year revenues for these two former customers were
      approximately $396,000 in the second quarter of 2005. Sales to our remaining
      customer base increased by approximately $222,000 during the second quarter
      of
      2006, or approximately 14% above prior year sales levels in the second quarter,
      with stronger sales reported across the board of our digital product line.
      Other
      revenues for the second quarter of 2006 were approximately $233,000 above other
      revenues recorded in the second quarter of 2005. Primary drivers in the increase
      were VAP commissions of approximately $83,000 and non-PCB revenues of
      approximately $95,000 that were recorded in the second quarter of 2006. Pursuant
      to our sale of the RF product line in October 2005, we receive commissions
      on
      shipments made to these customers in 2006 as we continue to assist in the
      transition of these customers.


19
 *Contents*





The
      non-PCB sales recorded in the second quarter were the result of our ongoing
      efforts to effectively grow our core business into other products that we
      initiated during the latter half of 2005. We continue to focus our efforts
      on
      growing our core business and customer base, primarily by concentrating efforts
      on expanding our customer base within our digital product line. In addition,
      we
      are expanding our global sourcing efforts beyond printed circuit boards into
      other product lines such as extrusions, wire harnesses, castings, spinning’s,
      etc. Sourcing of these additional product lines, initially to our existing
      customer base, we believe will improve our operating results by providing
      increased profits on these products than we experienced with our former RF
      product line.





**Gross
      Profit and Cost of Goods Sold**





The
      Company’s gross profit for the second quarter of 2006 was approximately
      $603,000, or 26.4% of net sales, compared to a gross profit of approximately
      $1,194,000, or 20.5% of net sales, for the second quarter of 2005. The sale
      of
      our RF business in October 2005 was the primary factor in the decline in gross
      profit dollars, and increase in our gross profit margins, as the RF business
      typically represented higher volume, lower margin mix when compared to the
      digital product line. Margins within our digital product line decreased by
      approximately 2% over the prior year due to digital sales in the prior year
      to
      our two former customers where we experienced higher than normal margins as
      their programs were winding down during the first half of 2005.





**Operating
      Expenses**





General
      and administrative expenses were approximately $1,035,000 or 45.3% of net sales
      in the second quarter of 2006 compared to approximately $1,057,000 or 18.2%
      of
      net sales in the second quarter of 2005, a decrease of approximately $22,000.





General
      and administrative expenses consist primarily of salaries and benefits,
      professional services, depreciation of office, equipment and computer systems
      and occupancy expenses. In comparison to the second quarter of 2005, payroll
      related expenses decreased $91,000 due to lower headcount and salary reductions
      taken in the fourth quarter of 2005. Professional services, which include legal,
      auditing, and consulting fees, decreased approximately $48,000 in 2006 compared
      to prior year expenses. Non-recurring charges were approximately $284,000 in
      the
      second quarter of 2006 compared to approximately $13,000 during the second
      quarter of 2005, an increase of approximately $271,000. These expenses include
      fees related to our successful appeal of our Nasdaq de-listing, fees paid to
      our
      Special Committee, professional fees related to fairness opinions, and legal
      fees related to corporate development activity as we continue to review
      strategic options including the sale or merger of all or part of the Company
      as
      described in previous filings. Public company related costs such as investor
      relations and Sarbanes-Oxley expenses
      were approximately $69,000 in the second quarter of 2006 compared to
      approximately $96,000 during the second quarter of 2005, a decrease of
      approximately $27,000 during the second quarter of 2006. We recorded stock
      compensation expenses during the second quarter of 2006 of approximately
      $121,000 compared to $0 for the second quarter of 2005 related to Board of
      Director and employee stock option grants as required by the new SFAS123R
      reporting requirements. Other operating expenses decreased approximately
      $248,000 during the second quarter of 2006 compared to the second quarter of
      2005 primarily due to lower operating costs at our new Franklin Park
      facility.


20
 *Contents*




Selling
      and marketing expenses were approximately $191,000 or 8.4% of net sales in
      the
      second quarter of 2006 compared to approximately $245,000 or 4.2% of net sales
      in the second quarter of 2005. 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 2006, commission paid to independent sales organizations decreased
      approximately $50,000; payroll-related expenses decreased approximately $12,000
      due to headcount and pay reductions. Costs related to our Singapore office
      increased approximately $9,000 during the second quarter related to increased
      staffing levels and operational costs of the office that was established during
      the prior year. Other sales expenses, including travel related expenses
      decreased approximately $1,000 in the second quarter of 2006 versus
      2005.





**Operating
      Loss**





Operating
      loss from continuing operations was approximately $624,000 in the second quarter
      of 2006 compared to an operating loss of approximately $108,000 in the second
      quarter of 2005. The increase in operating loss of approximately $516,000 was
      primarily related to lower gross profit resulting from the sale of our RF
      product line in October 2005 of approximately $591,000 combined with
      non-recurring expenses of approximately $271,000 as described above.





**Interest
      Income**





We
      recorded no interest income during the second quarter of 2006. Interest income
      of approximately $2,000 was recorded in the second quarter of 2005 related
      to
      income received on our interest bearing bank accounts.




**Interest
      Expense**




There
      was
      no interest expense in the second quarter of 2006, compared to approximately
      $171,000 in the second quarter of 2005. Primary factor in the decrease in
      interest expense related to our conversion of our debt to equity in March 2006.
      Included in prior year interest expense was $77,000 in non-cash interest expense
      recorded in the second quarter of 2005. The 2005 expenses are related to the
      amortization on warrants issued to Silicon Valley Bank for approximately $12,000
      related to the financing agreement, and approximately $65,000 related to the
      issuance of long-term debt during the second quarter of 2005 by M.A.G. Capital,
      LLC.




21
 *Contents*





**Other
      Income**





The
      Company did not record any other income/expense in the second quarter of 2006
      or
      2005.





**Income
      Taxes**





During
      the second quarter of 2006 and 2005, the Company recorded no income tax expense.





**RESULTS
      FOR THE SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO THE SIX MONTHS ENDED JUNE
      30,
      2005**





**Net
      Sales**





Net
      sales
      were approximately $4,579,000 for the six months ended June 30, 2006, a decrease
      of approximately $5,944,000 or 56.5% from the first six months of 2005. The
      sales within of our RF business was the primary factor in the sales decline,
      with RF sales down approximately $5,797,000 in the six months of 2006 versus
      six
      months of 2005 due to the sale of the RF business in October 2005. The decrease
      in sales of the digital products of approximately $497,000 was the result of
      prior year sales to two former customers that were winding down programs. Prior
      year revenues for these two former customers were approximately $1,313,000
      in
      the first six months of 2005. Sales to our remaining customer base increased
      by
      approximately $816,000 during the first six months of 2006, or approximately
      27%
      above prior year sales levels with these remaining customers, with stronger
      sales reported across the board of our digital product line. Other revenues
      for
      the first six months of 2006 were approximately $350,000 above other revenues
      recorded in the first six months of 2005. Primary drivers in the increase were
      VAP commissions of approximately $157,000 and non-PCB revenues of approximately
      $99,000. Pursuant to our sale of the RF product line in October 2005, we receive
      commissions on shipments made to these customers in 2006 as we continue to
      assist in the transition of these customers.





The
      non-PCB sales recorded in the first six months of 2006 were the result of our
      ongoing efforts to effectively grow our core business into other products that
      we initiated during the latter half of 2005.





**Gross
      Profit and Cost of Goods Sold**





The
      Company’s gross profit for the first six months of 2006 was approximately
      $1,204,000, or 26.3% of Net Sales, compared to a gross profit of approximately
      $2,202,000, or 20.9% of Net Sales, for the first six months of 2005. The sale
      of
      our RF business in October 2005 was the primary factor in the decline in gross
      profit dollars, and increase in our profit margins, as the RF business typically
      represented higher volume, lower margin mix when compared to the digital product
      line.


22
 *Contents*


**Operating
      Expenses**





General
      and administrative expenses were approximately $2,613,000 or 57.0% of net sales
      in the first six months of 2006 compared to approximately $2,012,000 or 19.1%
      of
      net sales in the first six months of 2005, an increase of approximately
      $601,000.





General
      and administrative expenses consist primarily of salaries and benefits,
      professional services, depreciation of office, equipment and computer systems
      and occupancy expenses. In comparison to the first six months of 2005, payroll
      related expenses decreased $214,000 due to lower headcount and salary reductions
      taken in the fourth quarter of 2005. Professional services, which include legal,
      auditing, and consulting fees, decreased approximately $110,000 in 2006 compared
      to prior year expenses. Non-recurring charges were approximately $668,000 for
      the first six months of 2006 compared to approximately $65,000 for the first
      six
      months of 2005, an increase of approximately $603,000. These expenses include
      fees related to our successful appeal of our Nasdaq de-listing, fees paid to
      our
      Special Committee, professional fees related to fairness opinions on potential
      transactions, and legal fees related to continued corporate development activity
      as we continue to explore various strategic options, including the sale or
      merger of all or part of the Company as described in previous filings. Public
      related costs such as investor relations and Sarbanes-Oxley expenses were
      approximately $168,000 for the first six months of 2006 compared to
      approximately $175,000 for the first six months of 2005, a decrease of
      approximately $7,000. We recorded stock compensation expenses during the first
      six months of 2006 of approximately $690,000 compared to $0 for the first six
      months of 2005. Approximately $453,000 of stock compensation was related to
      Board of Director and employee stock option grants as required by the new
      SFAS123R reporting requirements, while the remaining $237,000 in stock
      compensation expense was related to the re-pricing of previously issued warrants
      on debt issued to MAG Capital, LLC when we converted our debt to equity earlier
      in 2006. Other expenses decreased approximately $361,000 during the first six
      months of 2006 primarily related to reduced operating costs for our new Franklin
      Park facility.





Selling
      and marketing expenses were approximately $397,000 or 8.7% of net sales in
      the
      first six months of 2006 compared to approximately $530,000 or 5.0% of net
      sales
      in the first six months of 2005. 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 2005, commission paid to independent sales organizations decreased
      approximately $83,000; payroll-related expenses decreased approximately $80,000
      due to headcount and pay reductions. Costs related to our Singapore office
      increased approximately $39,000 during the first six months of 2006 related
      to
      the full year impact of additional support staff as well as the full year impact
      of operational costs of the office that was established during the prior year.
      Travel related
      expenses decreased approximately $9,000 in the first six months of 2006 versus
      2005.


23
 *Contents*




**Operating
      Loss**





Operating
      loss from continuing operations was approximately $1,805,000 in the first six
      months of 2006 compared to an operating loss of approximately $339,000 in the
      first six months of 2005. Primary factors to the increased operating loss
      include the following; reduction of sales and gross profit dollars pursuant
      to
      the sale of our RF product line in October 2005; non-recurring costs related
      to
      corporate development and stock compensation increased by approximately $603,000
      and $690,000 in the first six months of 2006 respectively compared to the prior
      period as discussed in the operating expense section above.





**Interest
      Income**





We
      recorded no interest income during the first six months of 2006. Interest income
      of approximately $6,000 was recorded in the first six months of 2005 related
      to
      income received on our interest bearing bank accounts.





**Interest
      Expense**





Interest
      expense was approximately $404,000 in the first six months of 2006, primarily
      related to the financing costs with Mercator versus approximately $236,000
      in
      2005 paid to Silicon Valley Bank. The Company recorded non-cash interest expense
      of approximately $357,000 in the first six months of 2006 related to expensing
      of the unamortized portion of Long Term Debt due to the conversion to equity
      compared to $98,000 in the first six months of 2005. The 2005 expenses are
      related to the amortization on warrants to Silicon Valley Bank for approximately
      $24,000 related to the financing agreement, and approximately $74,000 related
      to
      the Mercator issuance of long-term debt.





**Other
      Income**





The
      Company did not record any other income/expense in the first six months of
      2006
      or 2005.




24
 *Contents*




**Income
        Taxes**
 
 During
        the first six months of 2006 and 2005, the Company recorded no income tax
        expense.


**Liquidity
      and Capital Resources**





Net
      cash
      used by operations was approximately $950,000 for the first six months of 2006
      compared to approximately $3,099,000 used by operations for the first six months
      of 2005.





Accounts
      Receivable decreased approximately $133,000 due to reduced sales levels.
      Inventories decreased approximately $1,588,000 related to decreased activity
      in
“RF” and DBS businesses. Accounts Payable decreased approximately $1,019,000
      primarily due to the decreased activity in “RF” and DBS businesses.





Net
      cash
      provided by investing activities was approximately $25,000 reflecting the sale
      of equipment and repayment of notes receivable for the first three months of
      2006 compared to investing activities used in 2005 of approximately $1,800,000.
      Capital expenditures were approximately $21,000 in the first six months of
      2006
      compared to approximately $115,000 in the first six months of 2005. Prior year
      activity was primarily related to the acquisition of the Jayco business in
      February 2005.





Net
      cash
      provided by financing activities was approximately $2,171,000 related to the
      refinancing by the Mercator Groups. Net cash provided by financing activities
      in
      2005 was 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 six months of 2005.





Currently
      the Company is committed to growing its core business, as it relates to the
      continuing operations of its digital product line. The Company’s Special
      Committee is also reviewing strategic options including the sale or merger
      of
      all or part of the Company. However, if the Company is unable to secure adequate
      financing to grow its core business, or if the Special Committee does not
      approve a suitable strategic option, the Company may be forced to modify its
      strategic growth plan.





Our
      ability to fund working capital will depend on our future performance, which
      is
      subject 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.


25
 *Contents*




The
      Company incurred substantial non-recurring expenses during the first six months
      of 2006 related to special committee fees, professional fees, legal, audit
      and
      cost for merger and acquisition activity as detailed in the above comments.
      These costs are anticipated to continue until an appropriate strategic option
      can be successfully implemented. We believe the funding received in the first
      quarter is adequate to cover additional non-recurring costs anticipated through
      the remainder of the year.





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





**Inflation**





Management
      believes inflation has not had a material effect on the Company’s operations or
      on its financial position. However, expected supplier price increases averaging
      approximately 4% may have a material effect on the Company’s operations and
      financial position in the remainder of 2006, 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.
      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.


26
 *Contents*




**Item
      3.Controls and Procedures**




***a)
      Disclosure controls and procedures*** .
      As of
      the end of the period covered by this report, the Company carried out an
      evaluation, under the supervision and with the participation of the Company's
      management, including the Company's Chief Executive Officer and the Company's
      Principal Accounting Officer, of the effectiveness of the design and operation
      of the Company's disclosure controls and procedures (as defined in Rules
      13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as
      amended).





Based
      on
      this evaluation, our Chief Executive Officer and Principal Accounting Officer
      concluded that our disclosure controls and procedures were effective, except
      as
      discussed in the next paragraph below, in timely alerting them to material
      information relating to the Company required to be included in our periodic
      filings with the Securities and Exchange Commission. It should be noted that
      in
      designing and evaluating the disclosure controls and procedures, management
      recognized that any controls and procedures, no matter how well designed and
      operated, can provide only reasonable assurance of achieving the desired control
      objectives, and management necessarily was required to apply its judgment in
      evaluating the cost-benefit relationship of possible controls and procedures.
      The Company has designed its disclosure controls and procedures to reach a
      level
      of reasonable assurance of achieving desired control objectives and, based
      on
      the evaluation described above, the Company’s Chief Executive Officer and
      Principal Accounting Officer concluded that the Company’s disclosure controls
      and procedures were effective at reaching that level of reasonable assurance,
      except as discussed in the next paragraph below.





As
      previously reported in the Company’s annual report on Form 10-KSB for the year
      ended December 31, 2005, the Company has a material weakness within its internal
      control framework relating to the preparation and timeliness of financial
      reporting, in connection with the adequacy of segregation of duties. The Company
      attributes this material weakness to limited personnel resources. Though the
      Company has implemented levels of supervisory reviews and employs a temporary
      workforce from time to time, there can be no assurance that these measures
      can
      definitively prevent transactional errors from occurring or provide the
      necessary accounting and financial reporting support to the Company’s accounting
      and finance department.


27
 *Contents*




**(b)** ***Changes
      in internal controls*** **.** There
      was no change in the Company's internal control over financial reporting during
      the three and six months ended June 30, 2006 that has materially affected,
      or is
      reasonably likely to materially affect, its internal control over financial
      reporting.




**Part
      II - Other Information**





**Item
      1: Legal proceedings**


In
      July
      2006, the Company received notice of a complaint filed in relation to a
      potential patent infringement relating to one item that the DBS division
      purchased during 2005 and sold under its liquidation in 2006. The Company
      believes that the claim is without merit and the outcome is not expected to
      have
      a material adverse effect on the financial position or results of operations
      of
      the Company.





**Item
      6: Exhibits**





(a)
            Exhibits





31.1
            Certification
                of the CEO pursuant to Section 302 of the Sarbanes-Oxley
                Act.31.2
            Certification
                of the CFO pursuant to Section 302 of the Sarbanes-Oxley
                Act.32.1
            Certification
                pursuant to 18 U.S.C. Section 135O, as adopted pursuant to section
                906 of
                the Sarbanes-Oxley Act of 2002.32.2
            Certification
                pursuant to 18 U.S.C. Section 135O, as adopted pursuant to section
                906 of
                the Sarbanes-Oxley Act of 2002.


28
 *Contents*




**SIGNATURE**





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





**M~WAVE,
                Inc.**Date:
                August 11, 2006
            /s/
                Jeff FiglewiczJeff
                FiglewiczController
                and Principal Accounting Officer




**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 Convertible Preferred Stock
              43.4
              
              Certificate
                  of Designations for Series B Convertible Preferred Stock
              104.1
              
              Specimen
                  Common Stock Certificate
              310.1
              
              2003
                  Stock Incentive Plan
              210.2
              
              Warrant
                  to Purchase Stock dated March 31, 2004 by and between the Company
                  and
                  Silicon Valley Bank
              210.3
              
              Employment
                  Agreement dated July 28, 2004 between the Company and Jim
                  Mayer
              310.4
              
              Employment
                  Agreement dated July 28, 2004 between the Company and Joe
                  Turek
              310.5
              
              Employment
                  Agreement dated May 1, 2004 between the Company and Robert
                  Duke
              3
  29
 *Contents*
  10.6
              
              Subscription
                  Agreement date June 28, 2004 between the Company and Mercator Advisory
                  Group
              310.7
              
              Stock
                  Registration Rights Agreement date June 28, 2004 between the Company
                  and
                  Mercator Advisory Group
              310.8
              
              Non-statutory
                  Stock Option Agreement date July 28, 2004 between the Company and
                  Jim
                  Mayer
              310.9
              
              Asset
                  Purchase Agreement, dated February 25, 2005 by and between Jayco
                  Ventures,
                  Inc. and M-Wave DBS, Inc.
              510.10
              
              Employment
                  Agreement dated February 25, 2005 between M-Wave DBS, Inc. and
                  Joshua
                  Blake
              510.11
              
              Promissory
                  Note dated February 23, 2005 issued by M-Wave, Inc. to Mercator
                  Momentum
                  Fund, L.P.
              510.12
              
              Promissory
                  Note dated February 23, 2005, issued by M-Wave, Inc. to Monarch
                  Pointe
                  Fund, L.P.
              510.13
              
              Warrant
                  , dated February 23, 2005 issued by M-Wave, Inc. to Mercator Momentum
                  Fund, L.P.
              510.14
              
              Warrant
                  to dated February 23, 2005 issued by M-Wave, Inc, to Monarch Pointe
                  Fund,
                  L.P.10.15
              
              Warrant
                  dated February 23, 2005, issued by M-Wave, Inc. to M.A.G. Capital,
                  LLC10.16
              
              Non-statutory
                  Stock Option Agreement dated December 31, 2004 between Company
                  and Gordhan
                  Patel
              610.17
              
              Amendment
                  to 2003 Stock Incentive Plan
              710.18
              
              Sale
                  of real property located at 215 Park Street Bensenville,
                  Illinois
              810.19
              
              Asset
                  sale and transition agreement dated October 21, 2005 between the
                  Company
                  and American Standard Circuits
              810.20
              
              Agreement
                  with the Mercator Momentum Fund III amending Loan Document Purchase
                  Agreements it acquired from Silicon Valley Bank on November 9,
                  2005
              9
  30
 *Contents*
  10.21
              
              Agreement
                  with Ocean Park Advisors, LLC for financial consulting services
                  and B.
                  Riley & Co. for service regarding financial fairness opinion of
                  potential merger candidates
              1131.1
              
              Certification
                  of the CEO Pursuant to Sections 302 of the Sarbanes-Oxley
                  Act
              Filed
                  Herewith31.2
              
              Certification
                  of the CFO Pursuant to Sections 302 of the Sarbanes-Oxley
                  Act
              Filed
                  Herewith32.1
              
              Certification
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act
              Filed
                  Herewith32.2
              
              Certification
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act
              Filed
                  Herewith(1)
              
              Incorporated
                  herein by reference to the applicable exhibit to 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 10K for the 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 June 30,
                  2004(4)
              
              Incorporated
                  herein by reference to Appendix B to the Registrant's Definitive
                  Proxy
                  Statement filed July 6, 2004(5)
              
              Incorporated
                  herein by reference to the applicable exhibit to the Registrant's
                  form 8-K
                  filed March 2, 2005(6)
              
              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(7)
              
              Incorporated
                  herein by reference to Appendix A to the Registrant's Proxy Statement
                  filed April 29, 2005(8)
              
              Incorporated
                  herein by reference to the applicable exhibit to the Registrant's
                  form 8-K
                  filed October 5, 2005
  31
 *Contents*
  (9)
              
              Incorporated
                  herein by reference to the applicable exhibit to the Registrant's
                  form 8-K
                  filed February 2, 2006(10)
              
              Incorporated
                  herein by reference to the applicable exhibit to the Registrant's
                  form 8-K
                  filed March 7, 2006(11)
              
              Incorporated
                  herein by reference to the applicable exhibit to the Registrant's
                  form 8-K
                  filed February 13, 2006
   32