<PAGE>

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                                             THE FOLLOWING ITEMS WERE THE 
                                             SUBJECT OF A FORM 12b-25 AND ARE 
                                             INCLUDED HEREIN; ITEM 6 AND ITEM 7.

                                          
                   U.S. SECURITIES AND EXCHANGE COMMISSION
                                          
                            WASHINGTON, DC  20549
                                          
                                FORM 10-KSB/A
                                          
                               AMENDMENT NO. 1

(Mark One)
/X/   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 

                     For the fiscal year ended August 31, 1998

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

                    For the transition period from ____________ to ___________.

                        COMMISSION FILE NO.:  0-27928

                             --------------------

                      NICOLLET PROCESS ENGINEERING, INC.
                (Name of small business issuer in its charter)


               MINNESOTA                                 41-1528120
    (State or other jurisdiction of                    (IRS Employer
    incorporation or organization)                   Identification No.)


   420 NORTH FIFTH STREET, FORD CENTRE,
   SUITE 1040, MINNEAPOLIS, MINNESOTA                        55401
 (Address of principal executive offices)                 (Zip Code)


                  Issuer's telephone number:  (612) 339-7958

    Securities registered under Section 12(b) of the Exchange Act:  NONE.

        Securities registered under Section 12(g) of the Exchange Act: 
                                          
                          COMMON STOCK, NO PAR VALUE

                              --------------------   

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

     Check if there is no disclosure of delinquent filers in response to Item 
405 of Regulation S-B contained in this Form, and no disclosure will be 
contained, to the best of registrant's knowledge, in definitive proxy or 
information statements incorporated by reference in Part III of this Form 
10-KSB or any amendment to this Form 10-KSB.   / /

     State issuer's revenues for its most recent fiscal year. $1,122,579

     As of November 20, 1998, 6,211,861 shares of Common Stock of the 
Registrant were deemed outstanding, and the aggregate market value of the 
Common Stock of the Registrant (based upon the average of the closing bid and 
asked prices of the Common Stock at that date as reported by the OTC Bulletin 
Board), excluding outstanding shares beneficially owned by directors and 
executive officers, was approximately $2,621,000.
                                          
  Transitional Small Business Disclosure Format (check one):  YES / /  NO /X/

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--------------------------------------------------------------------------------

<PAGE>

     THIS FORM 10-KSB CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS.  FOR THIS 
PURPOSE, ANY STATEMENTS CONTAINED IN THIS FORM 10-KSB THAT ARE NOT STATEMENTS 
OF HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS.  WITHOUT 
LIMITING THE FOREGOING, WORDS SUCH AS "MAY," "WILL," "EXPECT," "BELIEVE," 
"ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE OR OTHER VARIATIONS 
THEREOF OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY FORWARD-LOOKING 
STATEMENTS.  THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND 
UNCERTAINTIES, AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A 
VARIETY OF FACTORS, INCLUDING THOSE DESCRIBED UNDER THE CAPTION "IMPORTANT 
FACTORS TO CONSIDER."

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

RESULTS OF OPERATIONS
     
     NET SALES.  Net sales decreased 51% to approximately $1.1 million in the 
year ended August 31, 1998 compared to approximately $2.3 million in the year 
ended August 31, 1997.  Die casting sales decreased 59% to approximately 
$495,000 for the year ended August 31, 1998 compared to approximately $1.2 
million  for the prior year period.  Plastics sales decreased 47% to 
approximately $112,000 for the year ended August 31, 1998 compared to 
approximately $210,000 for the prior year period.  The MCA product sales 
decreased 42% to $278,000 compared to approximately $475,000 for the prior 
year period.  The decrease in sales relating to the die cast product is 
primarily the result of a change in personnel in the sales manager position.  
The decrease in the plastics sales is primarily due to a technical delay in 
rewriting the new platform.  The decrease in sales relating to the MCA 
product is primarily the result of new product development of the new CCA 
modular analyzer which slowed sales and reduced marketing efforts during the 
second and third quarters of fiscal 1998.

     GROSS MARGINS.  The gross margin was 7% of revenues in the year ending 
August 31, 1998 compared to approximately 28.5% of revenues for prior year. 
Gross profit for year ending August 31, 1998 decreased 87% to approximately 
$79,000 compared to approximately $650,000 for the prior year.  The decrease 
in gross margins, as percent of sales, and in absolute dollar values, is 
largely due to the fixed amortization cost related to the lower overall sales 
and substantial warranty costs related to the conversion of existing plastic 
customers to the new SQL platform.

     SALES AND MARKETING EXPENSES.  Sales and marketing expenses decreased 6% 
to approximately $1.3 million for the year ended August 31, 1998 from 
approximately $1.4 million for the prior year.  The decrease for the year 
ending August 31, 1998 is the result of reduced commission expenses from 
lower sales offset by additions to the sales force during the fourth quarters 
of fiscal 1997 and increased advertising, marketing and travel expenses 
associated with the sales additions.  The Company expects that sales and 
marketing expenses will increase significantly over the next year as the 
Company increases its selling efforts associated with its CCA analyzer and 
plastics products.

     RESEARCH AND DEVELOPMENT EXPENSES.  Research and development expenses 
for the year ending August 31, 1998 were approximately $711,000, or 63.4% of 
revenues, compared to approximately $788,000, or 34.5% of revenues for the 
prior year.  This increase in research and development expenses as a percent 
of sales is due to lower revenues, offset by staff reductions from the prior 
fiscal year.

     GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative 
expenses decreased 8% to approximately $905,000 in the year ending August 31, 
1998 compared to approximately $985,000 for the prior period.  The decrease 
in general and administrative expense is due to a reduction in public and 
investment relations expenses.


                                      2

<PAGE>

     INTEREST INCOME.  There was no interest income for the year ending 
August 31, 1998 compared to approximately $43,000 for the prior period.  This 
decrease was due to a decrease in investments in short term securities.

     INTEREST EXPENSE.  Interest expense increased to approximately $152,000 
for the year ending August 31, 1998 compared to approximately $24,000 for the 
prior year period.  This increase was due to interest incurred on the bank 
line of credit.

     NET LOSS.  The net loss was approximately $2.9 million or $0.70 per 
share for the year ending August 31, 1998 compared to a loss of approximately 
$2.5 million and $0.75 per share for the prior year period.  This increased 
loss is primarily due to reduced sales volume across all product lines.

LIQUIDITY AND CAPITAL RESOURCES

     In March 1996, the Company completed an initial public offering of 
1,000,000 shares of common stock.  In May 1996, the underwriter exercised its 
overallotment option to purchase an additional 171,215 shares of common 
stock. The net proceeds to the Company from the initial public offering was 
approximately $4.3 million.  The Company's Common Stock is quoted on the 
Nasdaq SmallCap Market under the symbol "NPET."

     In May 1997, the Company entered into two lines of credit with Norwest 
Business Credit, Inc. and Norwest Bank Minnesota, National Association 
(collectively, "Norwest") for an aggregate of up to $800,000 in borrowings 
(the "Credit Facilities").  In June 1998, Norwest assigned all of its rights 
and obligations under the Credit Facilities to TECHinspirations, Inc. (TECH). 
 The Credit Facilities are discretionary.  Credit availability under these 
facilities is based on accounts receivable of the Company's United States 
operations and accounts receivable and inventories of the Company's 
international operations. The Credit Facilities are used primarily to finance 
working capital.  As of November 30, 1998 the Company borrowed approximately 
$1,955,000 under the Credit Facilities.  In November 1998, the Company 
entered into a letter of intent with TECH, pursuant to which TECH would 
arrange for additional debt financing for a total maximum amount of 
$3,000,000, and $1,500,000 of the indebtedness would be converted into 
1,500,000 shares of preferred stock.  In connection with the financing, the 
company has also agreed to pay TECH $25,000 per month for a period of one 
year.

     On November 7, 1997, the Company completed a private placement of an 
aggregate of 1,266,667 shares of Common Stock.  The gross proceeds to the 
Company from the private placement were approximately $760,000.

     On February 26, 1998, the Company sold 450,000 shares of Common Stock 
for an aggregate purchase price of $250,000.  On March 12, 1998, the Company 
sold an additional 450,000 shares of Common Stock for aggregate proceeds of 
$250,000.

     Net cash used in operating activities was approximately $872,000 and 
$2.2 million of the years ending August 31, 1998 and 1997, respectively.  The 
cash was used primarily to fund the Company's operating losses.  The Company 
provided cash of approximately $54,000 and approximately $648,000 relating to 
investing activities for the years ending August 31, 1998 and 1997, 
respectively.  Net cash provided by financing activities for the years ending 
August 31, 1998 and 1997 was approximately $1.2 million and $375,000, 
respectively.  The net cash provided by financing activities for the year 
ending August 31, 1998 was primarily the result of the Company utilizing its 
Credit Facilities.  


                                      3

<PAGE>

     The Company anticipates capital expenditures of approximately $100,000 
through fiscal 1999 related to additional equipment for sales personnel and 
research and development facilities.

     The report of the Company's auditors contains an explanatory paragraph 
to the effect that the Company's recurring losses and negative cash flows 
from operations raise substantial doubts about its ability to continue as a 
going concern.  If the Company's operations do not provide sufficient cash or 
the Company is unable to raise additional debt or equity financing, in either 
case sufficient for the Company to continue operations, the Company may be 
forced to cease operations.

IMPACT OF YEAR 2000

     YEAR 2000 ISSUES:

     As the year 2000 approaches the various problems that may result from 
the improper processing of dates and date sensitive calculations by computers 
and other machinery can create breakdowns and erroneous results.  Recognizing 
the impact on all companies using computers, NPE is taking steps necessary to 
insure that potential problems do not adversely affect its operations.  The 
Company also realizes the critical impact this may have in the product 
provided to our customer.

     THE COMPANY'S STATE OF READINESS:

     The Company held initial meetings in mid 1997 to establish a task force 
represented by the carious departments in the Company.  The Company continues 
the assessment efforts and outlined actions required for their 
implementation. In October of 1998, the Year 2000 Plan was developed which 
outlines six phases. These phases are as follows:  Phase (I) Inventory and 
Assess, Phase (II) Prioritize, Phase (III) Resolved, Phase (IV) Test, Phase 
(V) Contingency Plan and Phase (VI) Control.  The Company expects to complete 
the plan in the fiscal third quarter of 1999.  (March, April, May).

     COST ASSOCIATED WITH YEAR 2000 ISSUES:

     The majority of the work to date has been performed by the Company's 
employees.  This has limited the cost, however management does expect 
requirements as the evaluations are completed.  The Company anticipates 
Capital Expenditures in fiscal 1999 to be approximately $150,000.  Year 2000 
issues included in this amount are expected to be $40,000 to $50,000.  The 
replacement or upgrades to the Company's telephone system has been advanced 
to Year 2000 ready and included in the above capital expenditures.

     RISKS ASSOCIATED WITH YEAR 2000 ISSUES:

     Until system integration testing is substantially in process and/or 
complete, the Company cannot fully estimate the risks of its Year 2000 issue. 
To date, the Company's expenses are in material.  As a result of system 
integration testing, the Company may identify business activities that are at 
risk of Year 2000 disruption.  The absence of any such determination at this 
point represents only the status currently in the implementation phases and 
should not be construed to mean that there is no business activity which is 
at risk of a Year 2000 disruption. It is possible a disruption to a major 
business activity could have a material adverse effect on the Company's 
financial condition and results of operations.  In additional, many of the 
Company's business critical external providers may not appropriately address 
their Year 2000 issues, the result of which could have a material adverse 
effect on the Company's financial condition and results of operations.


                                      4

<PAGE>

     THE COMPANY'S CONTINGENCY PLANS:

     Because the complete assessment of Year 2000 issues is incomplete, the 
Company has not developed contingency plans for this issue.  The Company is 
aware of the possibility, however, that certain business activities may be 
identified as at risk.  Consistent with the plan, the Company will develop 
contingency plans for such activities as and if such determinations are made. 
In addition, the Company is developing contingency plans to minimize impact 
of Year 2000 issues if resolutions fail and are left incomplete while 
performing Phases III and VI of the plan.

                        IMPORTANT FACTORS TO CONSIDER

     The following factors are important and should be considered carefully 
in connection with any evaluation of the Company's business, financial 
condition, results of operations and prospects.
                                          
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE RESULTS
                                          
     To date, the Company has incurred continuing operating losses.  As of 
August 31, 1998, the Company's accumulated deficit was approximately $10.0 
million.  Net losses for the year ended August 31, 1998 were approximately 
$2.9 million.  Historically, the Company has financed its operations through 
public and private placements of Common Stock and short-term borrowings.  The 
Company is dependent on increasing its revenue base to achieve profitability. 
 Expenses will continue to increase as the Company begins to increase its 
sales and marketing activities.  There can be no assurance that the Company 
will ever generate substantial revenues or achieve profitability.  The 
Company's results of operations will depend upon numerous factors, including 
market acceptance of the Company's products, the timing of customer orders, 
the level of pricing and product competition and the Company's ability to 
manufacture and market its products efficiently and competitively.
                                          
NEED FOR ADDITIONAL CAPITAL

     The Company plans to continue to expand its sales and marketing 
activities. Although the Company believes that the proceeds from the private 
placements and the Credit Facilities with TECHinspirations, Inc., the cash on 
hand and future revenues will be sufficient to meet the Company's operating 
and capital requirements through August 1999, there can be no assurance that 
the Company will not require additional financing earlier.  Any additional 
required financing may not be available on terms satisfactory to the Company, 
if at all. The Company will need additional financing.

EFFECTS OF DELISTING FROM NASDAQ SMALLCAP MARKET

     Effective March 11, 1998, the Company's Common Stock was no longer 
quoted on the Nasdaq Small Cap Market because the Company no longer met, and 
currently does not meet standards for continued listing on the Nasdaq Small 
Cap Market. The Company's Common Stock is currently quoted in the 
"over-the-counter" market and is eligible to trade on the OTC Bulletin Board. 
 The public trading market for the Company's Common Stock has been, and may 
continue to be, adversely effected by this development.  In order for the 
Company's Common Stock to be quoted on the Nasdaq Small Cap Market, the 
Company will be required to meet initial listing criteria.  These criteria 
require the Company to have at least:


                                      5

<PAGE>

     -  three market makers in the Common Stock
     -  total net tangible assets of $4.0 million
     -  a minimum bid price for the Common Stock of $4.00 per share
     -  300 holders of its Common Stock
     -  1 million shares of its Common Stock held by non-affiliates, having a
        market value of  $5 million or more

The Company does not expect to be able to achieve these criteria in the 
foreseeable future.  Consequently, the ability of shareholders to sell their 
shares of the Company's Common Stock may be further impaired, not only in the 
number of shares which may be bought and sold, but also through delays in the 
timing of transactions and reductions in security analysts and the news media 
coverage, if  any, of the Company. 

LENGTHY SALES CYCLES

     The Company's products, in particular the Process Vision and the 
Plastics Monitoring System, are subject to a long sales cycle, lasting from 
approximately eight to twelve months or longer.  This cycle may result in 
delays in realizing revenues from the sale of the Company's products.

VARIABILITY OF QUARTERLY OPERATING RESULTS

     The Company's operating results can vary substantially from quarter to 
quarter due to various factors including among others: the size and timing of 
customer orders; lengthy sales cycles for the Company's products, in 
particular the Process Vision and the Plastics Monitoring System; the buying 
patterns of manufacturers in the Company's target markets; delays in the 
introduction of products or product upgrades by the Company or by other 
providers of hardware and software components; customer order deferrals in 
anticipation of new products; market acceptance of new products; reduction in 
demand for existing products; changes in operating expenses; and general 
economic conditions.  There can be no assurance that future product upgrades 
and resulting customer order deferrals will not impact its quarterly 
operating results.

LIMITED MARKETING EXPERIENCE

     A key element of the Company's business strategy is to promote the sale 
of its products by continuing to expand its sales and marketing efforts.  To 
date, the Company has had limited resources for sales and marketing 
activities and has primarily sold its products through its independent 
representative organizations.  The Company has not had sufficient resources 
to develop marketing materials and programs or to adequately train its 
independent representative organizations, which currently provide most of the 
Company's sales efforts in the plastic injection molding industry.  There can 
be no assurance that the Company will increase its sales activity, or that 
the Company will be able to develop and maintain an effective sales force.

DEPENDENCE UPON PLASTIC INJECTION MOLDING AND DIE CASTING INDUSTRIES

     Currently, the Die Casting Products and the Plastics Products are 
designed only for the die casting and plastic injection molding industries.  
Each of these industries is characterized by fluctuations in manufacturing 
capacity and pricing and gross margin pressures.  Segments of these 
industries have from time to time experienced significant economic downturns 
characterized by decreased product demand, production over-capacity, price 
erosion, work slowdowns and layoffs.  Historically, the die


                                      6

<PAGE>

casting industry has been deeply affected by economic cycles and tends to 
be characterized by quick declines at the very beginning of a downturn and 
gradual recoveries very late in the cycle. Accordingly, the Company's sales 
efforts to the die casting market are also subject to downturns in the 
economy.  Unlike the die casting industry, the plastic injection molding 
industry historically has grown steadily in recent years, even through 
downturns in the economic cycle.  Since 1994, however, when the Company 
entered the plastic injection molding industry, there have been no economic 
downturns as reflected by industry revenues which would enable the Company to 
gauge its impact on sales.  The Company's operations may in the future 
reflect substantial fluctuations from period to period as a consequence of 
such industry patterns, general economic conditions affecting the timing of 
orders from major customers, and other factors affecting capital spending. 
There can be no assurance that such factors will not have a material adverse 
effect upon the Company's business, operating results and financial 
conditions.

TECHNOLOGICAL OBSOLESCENCE

     The market for the Company's products is characterized by rapid 
technological advances, evolving industry standards, changes in end-user 
requirements and frequent new product introductions and enhancements.  The 
introduction of products embodying new technologies and the emergence of new 
industry standards could render the Company's existing products and products 
currently under development obsolete and unmarketable.  The Company's future 
success will depend upon its ability to enhance its current products and to 
develop and introduce new products that keep pace with technological 
developments, respond to evolving end-user requirements and achieve market 
acceptance.  Any failure by the Company to anticipate or respond adequately 
to technological developments or end-user requirements, or any significant 
delays in product development or introduction, could result in a loss of 
competitiveness or revenues.  Furthermore, the Company may not have 
sufficient financial resources to maintain research and development 
capabilities and, consequently, to maintain its technology position.  Even 
though the Company's products have been designed to incorporate the latest 
technology, some of the Company's competitors have greater financial 
resources and larger research and development staffs than the Company and 
accordingly may have greater capabilities to adapt their products to 
technological changes.

GROWTH REQUIREMENTS

     In addition to the Company's efforts to grow its existing core business, 
future growth of the Company will also depend on, among other things, the 
Company's ability to develop products for different industries and the 
Company's ability to gain market acceptance for the Company's products in new 
geographic areas.  In order to expand into additional industries, the Company 
must obtain necessary industry-specific knowledge and successfully design new 
products specific to the new industries.  In order to enter new geographical 
markets, the Company must successfully develop effective distribution 
channels, product recognition and product and customer support capabilities.  
All of these requirements present significant risks, and may require 
additional investment by the Company.  To date, the Company has begun limited 
expansion into industries other than die casting and plastic injection 
molding, including the machine tool and plastic extrusion industries.  No 
assurance can be given that the Company will be able to successfully manage 
or generate necessary funding for these aspects of its business or adequately 
monitor and control the additional costs and expenses associated with growth.

COMPETITION

     The markets for the Company's products are highly competitive.  Several 
companies offer lower cost products that compete with the Company's products. 
Many of the Company's competitors and potential competitors include a number 
of established companies that have significantly greater financial, 


                                      7

<PAGE>

technical and marketing resources than the Company.  There can be no 
assurance that such competitors will not develop products that are superior 
to the Company's products or that achieve greater market acceptance.  There 
is no assurance that the Company will be able to compete successfully against 
current and future sources of competition or that the competitive pressures 
faced by the Company will not adversely affect its financial performance.

DEPENDENCE ON KEY EMPLOYEES

     The Company's success depends on the performance of its executive 
officers and other key personnel, and in particular Robert A. Pitner, the 
Company's Chief Executive Officer and Interim Chief Financial Officer, Evros 
Psiloyenis, the Company's President and Chief Operating Officer and Pierce A. 
McNally, the Company's Chairman of the Board and Director of Corporate 
Development.  The loss of the services of either Mr. Pitner, Mr. Psiloyenis 
or Mr. McNally could have a material adverse effect on the Company.  The 
Company's future success will also depend in part upon its ability to attract 
and retain highly qualified personnel.  Competition in the recruiting of 
highly qualified personnel in the Company's industry is intense.  While the 
Company has not experienced any difficulty in attracting and retaining 
talented and qualified employees to date, there can be no assurance that the 
Company can retain its key employees or that it can attract, assimilate and 
retain other qualified personnel in the future.

PROTECTION OF INTELLECTUAL PROPERTY

     The Company primarily relies upon unpatented trade secrets to protect is 
proprietary technology.  The Company's success will depend on its ability to 
preserve these trade secrets and no assurance can be given that others will 
not independently develop or acquire substantially equivalent techniques, 
gain access to the Company's proprietary technology or disclose such 
technology to third parties.  Furthermore, there can be no assurance that the 
Company will ultimately protect meaningful rights to such unpatented 
proprietary technology. The Company generally requires its employees to 
execute nondisclosure agreements to preserve these trade secrets.  The 
Company's success may also depend on its ability to obtain patent protection 
for its products and to operate without infringing the proprietary rights of 
third parties.  The Company has not undertaken any independent investigation 
to determine whether it is infringing any intellectual property rights of 
others.  No assurances can be given that any future patent applications will 
be issued or that the scope of any patent protection will exclude competitors 
or provide competitive advantages to the Company.  Furthermore, there can be 
no assurance that others will not claim rights in or ownership of proprietary 
rights held by the Company, or that the Company's products and processes will 
not infringe, or be alleged to infringe, the proprietary rights of others.  
Moreover, there can be no assurance that others have not developed or will 
not develop similar products, duplicate any of the Company's products or 
design around the Company's patents, if issued.  In addition, whether or not 
any patents are issued to the Company, others may hold or receive patents 
which contain claims having a scope that covers products subsequently 
developed by the Company.

INTERNATIONAL SALES

     The Company intends to expand its operations outside of the United 
States, in part by the addition of international sales representatives, and 
to enter additional international markets, which will require significant 
management attention and financial resources.  International sales are 
subject to inherent risks, including unexpected changes, in regulatory 
requirements, currency exchange rates, tariffs and taxes, difficulties in 
staffing and managing foreign operations, longer payment cycles, greater 
difficulty in accounts receivable collection and political and economic 
instability.  If, for any reason, exchange or price controls or other 
restrictions on foreign currencies were imposed, the Company's business could 
be adversely affected.  In addition, the laws of certain countries do not 
protect the 


                                      8

<PAGE>

Company's products and intellectual property rights to the same extent as do 
the laws of the United States.  There can be no assurance that these factors 
will not have a material adverse effect on the Company's future international 
sales and, consequently, on the Company's business, operating results and 
financial condition.

PRODUCT LIABILITY

     The Company may be exposed to product liability claims with respect to 
defective parts produced by machines served by Process Vision.  While the 
Company believes it would have adequate defenses to any such claim, any such 
claims could have an adverse effect on the Company.  The Company currently 
maintains product liability insurance in the face amount of $2,000,000; 
however, there can be no assurance that any insurance coverage would be 
adequate to cover product liability claims.

APPLICABILITY OF "PENNY STOCK RULES"

     Federal regulations under the Exchange Act, regulate the trading of 
so-called "penny stocks" (the "Penny Stock Rules"), which are generally 
defined as any security not listed on a national securities exchange or 
Nasdaq, priced at less than $5.00 per share and offered by an issuer with 
limited net tangible assets and revenues.  Because the Company's Common Stock 
trades below $5.00 per share and is not listed on Nasdaq or any national 
securities exchange, trading, if any, of the Company's Common Stock will be 
subject to the full range of the Penny Stock Rules.  Under these rules, 
broker-dealers must take certain steps prior to selling a "penny stock," 
which steps include: (i) obtaining financial and investment information from 
the investor; (ii) obtaining a written suitability questionnaire and purchase 
agreement signed by the investor; and (iii) providing the investor a written 
identification of the shares being offered and the quantity of the shares.  
If the Penny Stock Rules are not followed by the broker-dealer, the investor 
has no obligation to purchase the shares.  The application of the 
comprehensive Penny Stock Rules make it more difficult for broker-dealers to 
sell the Company's Common Stock and shareholders of the Company may have 
difficulty in selling their shares in the future in the secondary trading 
market.

POSSIBLE VOLATILITY OF STOCK PRICE

     The stock market has from time to time experienced significant price and 
volume fluctuations that are unrelated to the operating performance of 
particular companies.  These broad market fluctuations may adversely affect 
the market price of the Company's Common Stock.  In addition, the market 
price of the Company's Common Stock may be highly volatile.  Factors such as 
a small market float, fluctuations in the Company's operating results, 
announcements of technological innovations or new products by the Company or 
its competitors, developments with respect to patents or proprietary rights, 
changes in stock market analyst recommendations regarding the Company, other 
technology companies or the Company's industry generally and general market 
conditions may have a significant effect on the market price of the Common 
Stock.


                                      9

<PAGE>

ITEM 7.   FINANCIAL STATEMENTS.
                                          
                        INDEX TO FINANCIAL STATEMENTS
                                          
     
The following items are included herein:

<TABLE>
<CAPTION>
     Financial Statements:                                          Pages:
     ---------------------                                          ------
     <S>                                                            <C>
     Report of Ernst & Young LLP..................................   F-1

     Balance Sheets as of August 31, 1998 and 1997................ F-2 - F-3

     Statements of Operations for the years ended 
       August 31, 1998 and 1997...................................   F-4

     Statements of Changes in Shareholders' Equity (Deficit) 
       for the years ended August 31, 1998 and 1997...............   F-5

     Statements of Cash Flows for the years ended 
       August 31, 1998 and 1997...................................   F-6

     Notes to Financial Statements................................ F-7 - F-21
</TABLE>

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE.

     Not applicable.


                                      10

<PAGE>
                                       
                                  SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the 
registrant caused this report to be signed on its behalf by the undersigned, 
thereunto duly authorized.

Date:  December 14, 1998         NICOLLET PROCESS ENGINEERING, INC.

                                 By: /s/ Robert A. Pitner
                                    ------------------------------------------
                                     Robert A. Pitner
                                     Chief Executive Officer and Interim Chief
                                     Financial Officer
                                     (principal executive officer)







                                      11

<PAGE>

                             FINANCIAL STATEMENTS

                      NICOLLET PROCESS ENGINEERING, INC.

                     YEARS ENDED AUGUST 31, 1998 AND 1997


                      Nicollet Process Engineering, Inc.

                             Financial Statements


                     Years ended August 31, 1998 and 1997



                                    CONTENTS
<TABLE>
         <S>                                                         <C>
         Report of Independent Auditors...............................1

         Balance Sheets...............................................2
         Statements of Operations.....................................4
         Statement of Changes in Stockholders' Equity (Deficit).......5
         Statements of Cash Flows.....................................6
         Notes to Financial Statements................................7
</TABLE>


                        Report of Independent Auditors


Board of Directors and Stockholders
Nicollet Process Engineering, Inc.

We have audited the accompanying balance sheets of Nicollet Process 
Engineering, Inc. as of August 31, 1998 and 1997, and the related statements 
of operations, changes in stockholders' equity (deficit), and cash flows for 
each of the years then ended. These financial statements are the 
responsibility of the Company's management. Our responsibility is to express 
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the financial position of Nicollet Process 
Engineering, Inc. at August 31, 1998 and 1997, and the results of its 
operations and its cash flows for each of the years then ended in conformity 
with generally accepted accounting principles.

As discussed in Note 2 to the financial statements, the Company's recurring 
losses and negative cash flows from operations raise substantial doubts about 
its ability to continue as a going concern. The 1998 financial statements do 
not include any adjustments that might result from the outcome of this 
uncertainty.


Minneapolis, Minnesota
October 16, 1998

/s/ Ernst & Young LLP

                                                                            F-1


<PAGE>

                     Nicollet Process Engineering, Inc.

                               Balance Sheets
<TABLE>
<CAPTION>
                                                                                       AUGUST 31
                                                                                 1998              1997
                                                                       ------------------------------------
<S>                                                                    <C>                  <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                  $ 257,910     $          -
   Accounts receivable (net of allowance for doubtful
     accounts of 1998--$80,199; 1997--$73,490)                                  124,985          815,942
   Accounts receivable-related party                                                  -           19,313
   Inventories                                                                  245,257          190,813
   Prepaid expenses                                                              14,670           21,103
                                                                       ------------------------------------
Total current assets                                                            642,822        1,047,171

Property and equipment:
   Computer equipment                                                           497,596          486,594
   Furnishings and equipment                                                    176,647          173,022
   Leasehold improvements                                                        70,211           70,211
                                                                       ------------------------------------
                                                                                744,454          729,827
   Less accumulated depreciation                                               (507,684)        (387,423)
                                                                       ------------------------------------
                                                                                236,770          342,404
Other assets:
   Software development costs (net of accumulated amortization of
     1998--$377,575; 1997--$148,556)                                            184,492          413,511
   Other assets                                                                  11,691           63,475
                                                                       ------------------------------------
                                                                                196,183          476,986


                                                                       ------------------------------------
Total assets                                                                 $1,075,775       $1,866,561
                                                                       ====================================
</TABLE>


                                                                            F-2

<PAGE>

<TABLE>
<CAPTION>
                                                                                       AUGUST 31
                                                                                 1998              1997
                                                                       ------------------------------------
<S>                                                                    <C>                <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
   Checks written in excess of bank balance                                      $    -        $ 128,595
   Notes payable--current portion                                                23,564           49,655
   Notes payable--line of credit                                                      -          486,538
   Accounts payable                                                             393,562          536,360
   Accrued payroll liabilities                                                   57,237           58,173
   Customer deposits                                                            114,015           10,835
   Current portion of capitalized lease obligation                                    -            7,496
   Other current liabilities                                                     74,078           66,747
                                                                       ------------------------------------
Total current liabilities                                                       662,456        1,344,399

Notes payable                                                                 1,514,803           23,401

Deferred revenue                                                                      -           26,000

Stockholders' equity (deficit):
   Preferred stock, no par value:
     Authorized shares--3,000,000
     Issued and outstanding shares--none
   Common stock, no par value:
     Authorized shares--12,000,000
     Issued and outstanding shares--6,211,861 at August 31, 1998 and
       3,368,527 at August 31, 1997                                           8,939,949        7,653,600
   Accumulated deficit                                                      (10,039,933)      (7,179,339)
                                                                       ------------------------------------
                                                                             (1,099,984)         474,261
   Less stock subscription receivable                                            (1,500)          (1,500)
                                                                       ------------------------------------
Total stockholders' equity (deficit)                                         (1,101,484)         472,761
                                                                       ------------------------------------
Total liabilities and stockholders' equity (deficit)                         $1,075,775       $1,866,561
                                                                       ====================================
</TABLE>

SEE ACCOMPANYING NOTES.


                                                                             F-3

<PAGE>

                       Nicollet Process Engineering, Inc.

                            Statements of Operations
<TABLE>
<CAPTION>
                                                                                YEAR ENDED AUGUST 31
                                                                               1998              1997
                                                                       ------------------------------------
<S>                                                                    <C>                <C>
Revenues                                                                    $ 1,122,575      $ 2,285,215
Cost of revenues                                                              1,043,569        1,634,808
                                                                       ------------------------------------
Gross profit                                                                     79,006          650,407

Operating expenses:
   Selling                                                                    1,313,875        1,400,614
   Research and development                                                     711,720          788,120
   General and administrative                                                   905,135          985,280
                                                                       ------------------------------------
                                                                              2,930,730        3,174,014
                                                                       ------------------------------------
Operating loss                                                               (2,851,724)      (2,523,607)
Interest expense                                                                152,194           24,380
Interest and other income                                                       143,324           43,905
                                                                       ------------------------------------
Net loss                                                                    $(2,860,594)     $(2,504,082)
                                                                       ====================================

Net loss per share--basic and diluted                                             $(.57)           $(.75)
                                                                       ====================================

Weighted average number of shares outstanding                                 4,995,608        3,342,379
                                                                       ====================================
</TABLE>

SEE ACCOMPANYING NOTES.


                                                                             F-4

<PAGE>

                       Nicollet Process Engineering, Inc.

             Statement of Changes in Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
                                                           COMMON STOCK ISSUED             ACCUMULATED
                                                   ------------------------------------
                                                        SHARES            AMOUNT             DEFICIT            TOTAL
                                                   -------------------------------------------------------------------------
<S>                                                <C>                <C>                <C>                <C>
Balance at August 31, 1996                               3,277,923        $7,675,841        $ (4,675,257)      $ 3,000,584
   Purchase back of common stock options                         -           (60,000)                  -           (60,000)
   Exercise of common stock options from common
     stock                                                  68,382               826                   -               826
   Issuance of common stock and warrants
     for services                                           22,222            36,933                   -            36,933
   Net loss                                                      -                 -          (2,504,082)       (2,504,082)
                                                   -------------------------------------------------------------------------
Balance at August 31, 1997                               3,368,527         7,653,600          (7,179,339)          474,261
   Sale of common stock, net of offering costs of
     $32,581                                             2,833,334         1,277,439                   -         1,277,439
   Issuance of common stock and warrants for
     services                                               10,000             8,910                   -             8,910
   Net loss                                                      -                 -          (2,860,594)       (2,860,594)
                                                   -------------------------------------------------------------------------
Balance at August 31, 1998                               6,211,861        $8,939,949        $(10,039,933)      $(1,099,984)
                                                   =========================================================================
</TABLE>

SEE ACCOMPANYING NOTES.


                                                                            F-5

<PAGE>

                       Nicollet Process Engineering, Inc.

                            Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                                         YEAR ENDED AUGUST 31
                                                                                        1998              1997
                                                                                ------------------------------------
<S>                                                                             <C>                 <C>
OPERATING ACTIVITIES
Net loss                                                                             $(2,860,594)     $(2,504,082)
Adjustments to reconcile net loss to net cash flows from operating activities:
     Depreciation                                                                        120,261           97,804
     Amortization                                                                        274,356          175,930
     Common stock and warrants issued for services provided                                8,910           36,933
     Deferred revenue                                                                    (26,000)          26,000
     Changes in other operating assets and liabilities:
       Accounts receivable                                                               690,957         (531,745)
       Accounts receivable-related party                                                  19,313          (19,313)
       Inventories                                                                       (54,444)         141,261
       Prepaid expenses                                                                    6,433            2,552
       Accounts payable                                                                 (142,798)         268,028
       Checks written in excess of bank balance                                         (128,595)         128,595
       Other current liabilities                                                           7,331          (46,271)
       Accrued payroll liabilities                                                          (936)          28,881
       Customer deposits                                                                 103,180          (25,718)
                                                                                ------------------------------------
Net cash used in operating activities                                                 (1,982,626)      (2,221,145)

INVESTING ACTIVITIES
Capital expenditures                                                                     (14,627)        (125,590)
Software development costs                                                                     -         (207,596)
Maturity of marketable securities                                                              -          973,224
Other assets                                                                               6,447            7,648
                                                                                ------------------------------------
Net cash (used in) provided by investing activities                                       (8,180)         647,686

FINANCING ACTIVITIES
Borrowings (payments) on line of credit                                                 (486,538)         486,538
Payments on notes payable                                                                (39,689)         (49,655)
Purchase of common stock options                                                               -          (60,000)
Proceeds from notes payable                                                            1,505,000                -
Payments on capitalized lease obligation                                                  (7,496)          (5,649)
Net proceeds from issuance of common stock                                             1,277,439            3,000
Proceeds from exercise of stock options and warrants                                           -              826
                                                                                ------------------------------------
Net cash provided by financing activities                                              2,248,716          375,060
                                                                                ------------------------------------

Net increase (decrease) in cash                                                          257,910       (1,198,399)
Cash at beginning of year                                                                      -        1,198,399
                                                                                ------------------------------------
Cash at end of year                                                                    $ 257,910               $-
                                                                                ====================================
</TABLE>

SEE ACCOMPANYING NOTES.


                                                                             F-6

<PAGE>

                       Nicollet Process Engineering, Inc.

                          Notes to Financial Statements

                                 August 31, 1998


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

Nicollet Process Engineering, Inc. designs, manufactures, markets and 
supports process monitoring and control systems, host level client/server 
software, and machine diagnostic tools for the die casting and plastic 
injection molding industries. The Company currently sells its products 
principally in domestic markets using a direct sales force and through a 
network of manufacturers' representatives. The Company also has a distributor 
in the United Kingdom serving both the high pressure die casting and plastics 
industries.

REVENUE RECOGNITION

Product revenues are generally recognized as products are shipped, but may be 
recognized when installed or accepted, depending upon the particular product 
and contract terms. Training and installation revenues are recognized as the 
services are performed, generally within a few days of delivery. The Company 
defers revenue related to any future obligations it could have under 
maintenance or warranty agreements. The Company recognizes revenue related to 
these agreements ratably over the life of the agreements or as the 
obligations are fulfilled.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with a maturity 
of three months or less to be cash equivalents.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or market.

PROPERTY AND EQUIPMENT

Property and equipment are carried at cost. Depreciation is provided on a 
straight-line basis over the estimated useful life of three to ten years. 
Leasehold improvements are amortized using the straight-line method over the 
shorter of their estimated useful lives or the underlying lease term, 
including option periods.


                                                                             F-7

<PAGE>

                       Nicollet Process Engineering, Inc.

                    Notes to Financial Statements (continued)


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

SOFTWARE DEVELOPMENT COSTS

The Company capitalizes software development costs in compliance with 
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs 
of Computer Software to be Sold, Leased or Otherwise Marketed." 
Capitalization of computer software development costs begins upon the 
establishment of technological feasibility for the product.

Amortization of capitalized computer software development costs begins when 
the products are available for general release to customers, and is computed 
as the greater of the ratio of current revenues for a product to the total of 
current and anticipated future revenues for the product or straight-line 
amortization over a period of three years.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company will record impairment losses on long-lived assets used in 
operations when indicators of impairment are present and the undiscounted 
cash flows estimated to be generated by those assets are less than the 
assets' carrying amount.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted 
accounting principles requires management to make estimates and assumptions 
that affect the amounts reported in the financial statements and accompanying 
notes. Actual results could differ from those estimates.

NET LOSS PER SHARE

In 1997, the Financial Accounting Standards Board issued Statement No. 128, 
"Earnings per Share" (Statement 128). Statement 128 replaced the calculation 
of primary and fully diluted earnings per share with basic and diluted 
earnings per share. Unlike primary earnings per share, basic earnings per 
share excludes any dilutive effective of options, warrants and convertible 
securities. Diluted earnings per share is very similar to fully


                                                                             F-8

<PAGE>

                       Nicollet Process Engineering, Inc.

                    Notes to Financial Statements (continued)


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

diluted earnings per share under the previous rules. All earnings per share 
amounts for all periods presented have been presented, and where necessary, 
restated to conform to the Statement 128 requirements. Diluted earnings per 
share is not presented as the effect of outstanding options and warrants are 
anti-dilutive.

INCOME TAXES

The Company accounts for income taxes using the liability method. Deferred 
income taxes are provided for temporary differences between the financial 
reporting and tax basis of assets and liabilities.

STOCK-BASED COMPENSATION

The Company has adopted the disclosure-only provisions of Statement of 
Financial Accounting Standards No. 123, "Accounting for Stock-Based 
Compensation," but applies Accounting Principles Board Opinion No. 25 (APB 
25) and related interpretations in accounting for its plans. Under APB 25, 
when the exercise price of employee stock options equals the market price of 
the underlying stock on the date of grant, no compensation expense is 
recognized.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1997, the FASB issued Statement 130, "Reporting Comprehensive 
Income." Statement 130 is effective for financial statements for fiscal years 
beginning after December 15, 1997. This standard defines comprehensive income 
as the changes in equity of an entity except those resulting from shareholder 
transactions. All components of comprehensive income are required to be 
reported in a new financial statement. The adoption of Statement 130 is not 
expected to have a material effect on the Company's financial statements.

In June 1997, the FASB also issued Statement 131, "Disclosures about Segments 
of an Enterprise and Related Information." Statement 131 is effective for 
financial statements for periods beginning after December 31, 1997. Statement 
131 establishes standards for


                                                                        F-9

<PAGE>

                       Nicollet Process Engineering, Inc.

                    Notes to Financial Statements (continued)


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

disclosures about operating segments, products and services, geographic areas 
and major customers. The adoption of Statement 131 is not expected to have a 
material effect on the Company's financial statements.

In October 1997, the AICPA issued Statement of Position 97-2, "Software 
Revenue Recognition" ("SOP 97-2"), which superseded SOP 91-1 for periods 
beginning after December 15, 1997. The adoption of SOP 97-2 is not expected 
to have a material effect on the timing of the Company's revenue recognition 
or cause changes to its revenue recognition policies.

RECLASSIFICATION

Certain prior year items have been reclassified to conform to current year 
presentation.

2. GOING CONCERN

The accompanying financial statements have been prepared on the basis that 
the Company will continue as a going concern, which contemplates the 
realization of assets and the satisfaction of liabilities in the normal 
course of business. The Company has incurred operating losses and has not 
generated positive cash flow from operations. As a result, the Company needs 
additional financing to continue as a going concern. The Company is in the 
process of finalizing a proposed debt/equities financing transaction. If the 
transaction is closed, the Company will be able to obtain a total of 
$3,000,000 of working capital (see Note 4). The Company also continues to 
explore other financing alternatives.

Because of uncertainties regarding the achievability of additional financing, 
no assurance can be given as to the Company's ability to continue in 
existence. The financial statements do not include any adjustments to reflect 
the possible future effects on the recoverability and classification of 
assets or the amount and classification of liabilities that may result from 
the possible inability of the Company to continue as a going concern.


                                                                           F-10

<PAGE>

                       Nicollet Process Engineering, Inc.

                    Notes to Financial Statements (continued)


3. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
                                           AUGUST 31
                                      1998           1997
                                -----------------------------
   <S>                          <C>             <C>
   Raw materials                    $ 77,230       $ 86,441
   Work-in-process                    31,679          8,626
   Finished goods                    136,348         95,746
                                -----------------------------
                                    $245,257       $190,813
                                =============================
</TABLE>

4. NOTES PAYABLE

In May 1997, the Company entered into an $800,000 line of credit agreement 
with a bank. All borrowings on the line of credit were due upon demand and 
bore interest at 3% above the bank's reference rate. In June 1998, the 
Company repaid any amounts outstanding on the line of credit and canceled the 
agreement. Also, in June 1998, the Company entered into a letter of intent 
with a third party to provide up to $3,000,000 of additional working capital 
to the Company. The Company is negotiating the final terms of the agreement, 
but as of August 31, 1998, the third party has loaned $1,505,000 to the 
Company at an interest rate of 9 1/2%. The proposed terms of the agreement 
call for the debt to be convertible into preferred stock. The Company will 
convert $1,500,000 of the outstanding debt as of August 31, 1998 into 
1,500,000 shares of preferred stock. The preferred stock carries voting 
rights at 6.67 per preferred share. In addition, the third party will be 
granted warrants to purchase up to 6,250,000 shares of the Company's common 
stock at exercise prices ranging from $.15 to $3.00 per share.

In August 1995, the Company acquired its existing Windows(TM) based die 
casting software from a third party. The total purchase price for the 
software was $300,000 payable in varying monthly installments through May 
1999. Because the agreement was non-interest bearing, the Company estimated a 
discount on the debt of approximately $40,000, which is being amortized to 
interest expense ratably over the period of the agreement. The obligation is 
secured by the die casting software.


                                                                           F-11

<PAGE>

                       Nicollet Process Engineering, Inc.

                    Notes to Financial Statements (continued)


The carrying amount of the Company's debt instruments in the balance sheet at 
August 31, 1998 approximates fair value.


                                                                          F-12

<PAGE>

                       Nicollet Process Engineering, Inc.

                    Notes to Financial Statements (continued)


5. COMMITMENTS

LEASES

The Company has entered into various operating leases for office, lab and 
storage facilities and for various equipment. Future lease payments for all 
operating leases, excluding executory costs such as management and 
maintenance fees, are as follows:

<TABLE>
   <S>                       <C>
   1999                             $45,424
   2000                              17,602
   2001                                 400
                             ------------------
                                    $63,426
</TABLE>
                             ==================

Rent expense was $122,167 and $108,013 for the years ended August 31, 1998 
and 1997, respectively.

LICENSE AGREEMENT

In October 1995, the Company paid $125,000 to obtain a non-exclusive 
worldwide license to utilize certain process monitoring software. 
Additionally, the Company issued the licensor an option to purchase 60,000 
shares of common stock at an exercise price of $3.00 per share. In April 1996 
the licensor exercised his rights under the agreement to have the Company 
repurchase the options at a price of $1.00 per share. The license runs for 
the length of the two underlying patents, which expire in 2002 and 2009. The 
Company has continuing royalty obligations of $1,800 per unit of process 
monitoring equipment sold by the Company to or on behalf of an OEM. Total 
royalty obligations were $10,800 and $32,600 for 1998 and 1997, respectively.

6. STOCK OPTIONS AND WARRANTS

OPTIONS

The Board of Directors approved the Nicollet Process Engineering 1990 Stock 
Option Plan (the "1990 Plan"). Under the 1990 Plan, the Company reserved 
600,000 shares for issuance to employees and directors as either incentive 
stock options, non-qualified options or stock appreciation rights. Under the 
1990 Plan, incentive stock options may be 


                                                                          F-13

<PAGE>

                       Nicollet Process Engineering, Inc.

                    Notes to Financial Statements (continued)


granted at prices not less than the fair market value of the Company's common 
stock at 


                                                                          F-14

<PAGE>

                       Nicollet Process Engineering, Inc.

                    Notes to Financial Statements (continued)


6. STOCK OPTIONS AND WARRANTS (CONTINUED)

the grant date. The grant price of non-qualified options is determined by the 
Compensation Committee, but the exercise price must be at least 85% of the 
fair market value of the common stock as of the grant date. Options are 
exercisable based on terms set by the Compensation Committee, but the option 
term may not exceed ten years from the date of grant.

On December 20, 1995, the Board of Directors adopted the 1995 Amended and 
Restated Stock Incentive Plan (the "1995 Plan") which was approved by the 
Company's shareholders on January 16, 1996. The 1995 Plan reserved an 
additional 400,000 shares of common stock. The 1995 Plan has provisions 
similar to the 1990 Plan regarding incentive stock options, non-qualified 
options and stock appreciation rights.

On June 1, 1998, the Board of Directors approved repricing the options held 
by current employees to $0.3125 per share for options previously issued at an 
exercise price of $1.00 or above.

A summary of changes in outstanding options and shares available for grant 
under the Company's stock option plans is as follows:

<TABLE>
<CAPTION>
                                                        SHARES          WEIGHTED-
                                      SHARES         OUTSTANDING         AVERAGE
                                    AVAILABLE         UNDER THE           PRICE
                                    FOR GRANT            PLAN           PER SHARE
                                   --------------------------------------------------------
   <S>                             <C>             <C>               <C>
   Balance at August 31, 1996          280,333           699,000             2.07
     Granted                          (171,500)          171,500             1.42
     Exercised                               -          (112,500)            1.00
     Canceled                           42,500           (42,500)            2.96
                                   ----------------------------------
   Balance at August 31, 1997          151,333           715,500             2.01
     Granted                          (190,000)          190,000             0.48
     Canceled                          164,000          (164,000)            0.48
                                   ----------------------------------
   Balance at August 31, 1998          125,333           741,500            $0.50
                                   ==================================
</TABLE>


                                                                            F-15

<PAGE>

                       Nicollet Process Engineering, Inc.

                    Notes to Financial Statements (continued)


6. STOCK OPTIONS AND WARRANTS (CONTINUED)

As of August 31, 1998, there were 591,500 options outstanding with exercise 
prices at $0.3125 and 150,000 options outstanding with exercise prices 
between $0.40625 and $0.8125. At August 31, 1998, outstanding options had a 
weighted-average remaining contractual life of 3.55 years.

The number of options exercisable as of August 31, 1998 and 1997 were 736,500 
and 622,250, respectively, at weighted-average exercise prices of $0.37 and 
$2.06 per share, respectively.

The weighted-average fair value of options granted during the years ended 
August 31, 1998 and 1997 was $.41 and $.87, respectively.

PRO FORMA DISCLOSURES

Pro forma information regarding net income and earnings per share is required 
by Statement 123, and has been determined as if the Company had accounted for 
its employee stock options under the fair value method of that Statement. The 
fair value for these options was estimated at the date of grant using a 
Black-Scholes option pricing model with the following weighted-average 
assumptions for 1998 and 1997, respectively: risk-free interest rate of 6%; 
no dividend yield; volatility factor of the expected market price of the 
Company's common stock of 1.226% and .624%; and a weighted-average expected 
life of the option of five years.

The Black-Scholes option valuation model was developed for use in estimating 
the fair value of traded options which have no vesting restrictions and are 
fully transferable. In addition, option valuation models require the input of 
highly subjective assumptions including the expected stock price volatility. 
Because the Company's employee stock options have characteristics 
significantly different from those of traded options, and because changes in 
the subjective input assumptions can materially affect the fair value 
estimate, in management's opinion, the existing models do not necessarily 
provide a reliable single measure of the fair value of its employee stock 
options.


                                                                          F-16

<PAGE>

                       Nicollet Process Engineering, Inc.

                    Notes to Financial Statements (continued)


6. STOCK OPTIONS AND WARRANTS (CONTINUED)

For purposes of pro forma disclosures, the estimated fair value of the 
options is amortized to expense over the options' vesting period. The 
Company's pro forma information follows:

<TABLE>
<CAPTION>
                                           1998              1997
                                     ------------------------------------
   <S>                               <C>                <C>
   Pro forma net loss                     $(2,973,571)     $(2,725,224)
   Pro forma loss per share                     $(.60)           $(.82)
</TABLE>

Note: The pro forma effect on the net loss for 1998 and 1997 is not 
representative of the pro forma effect on net income (loss) in future years 
because it does not take into consideration pro forma compensation expense 
related to grants made prior to 1996.

WARRANTS

At August 31, 1998 and 1997, the Company has 489,440 and 597,636 shares of 
common stock reserved for the exercise of warrants that have been granted in 
connection with debt and equity offerings and in lieu of cash payment for 
services provided. The warrants are exercisable at prices ranging from $0.31 
to $3.60. The warrants expire at various times between November 1998 and May 
2001.

7. INCOME TAXES

The tax effects of significant  components of the Company's  deferred tax 
assets and liabilities are as follows:

<TABLE>
<CAPTION>
                                                      AUGUST 31
                                                1998              1997
                                          ----------------------------------
   <S>                                    <C>              <C>
   Deferred tax assets:
     Net operating loss carryforwards         $3,777,000       $2,749,000
     Inventory obsolescence                       38,200           37,900
     Other                                        60,800          109,400
   Deferred tax liabilities:
     Software development costs                   72,900          128,500
                                          ----------------------------------
   Net deferred tax assets                     3,803,100        2,767,800
   Valuation allowance                        (3,803,100)      (2,767,800)

</TABLE>

                                                                         F-17

<PAGE>

                       Nicollet Process Engineering, Inc.

                    Notes to Financial Statements (continued)

<TABLE>
<CAPTION>
   <S>                                    <C>              <C>
                                          ----------------------------------
                                                      $-               $-
                                          ==================================
</TABLE>

                                                                         F-18

<PAGE>

                       Nicollet Process Engineering, Inc.

                    Notes to Financial Statements (continued)


7. INCOME TAXES (CONTINUED)

For financial reporting purposes, a valuation allowance has been provided to 
offset the deferred tax assets related to the net operating loss 
carryforwards and other temporary differences. At August 31, 1998, the 
Company had net operating loss carryforwards of approximately $9,561,700, 
which are available to offset taxable income through 2013. The Company's 
ability to utilize these carryforwards to offset future taxable income is 
subject to certain restrictions under Section 382 of the Internal Revenue 
Code in the event of certain changes in the equity ownership of the Company. 
The Company's public offering resulted in a change in equity ownership under 
Section 382. As a result, the net operating loss carryforwards, generated 
prior to the change under Section 382, will be limited to offset a maximum of 
approximately $535,000 of taxable income in any one tax year. No income taxes 
have been paid in the years ended August 31, 1998 and 1997.

The effective income tax rate differed from the federal statutory rate as 
follows:

<TABLE>
<CAPTION>
                                                          YEAR ENDED AUGUST 31
                                                          1998             1997
                                                  -----------------------------------
   <S>                                            <C>               <C>
   Taxes at statutory rate                           $  (972,600)       $(851,000)
   State taxes, net of federal benefit                  (162,800)        (161,000)
   Change in valuation allowance                       1,035,300          957,000
   Other                                                 100,100           55,000
                                                  -----------------------------------
                                                            $  -             $  -
                                                  ===================================
</TABLE>

8. EMPLOYMENT AGREEMENTS

The Company entered into an employment agreement (the "Agreement") with its 
President and Chief Executive Officer in 1991. The Agreement was amended in 
July 1994 and October 1995. The Agreement provides for an annual base salary 
and a discretionary bonus. The Agreement contains a two year non-compete 
clause in the event of termination of employment. The Agreement may be 
terminated upon twelve months' notice by either party and immediately in the 
event the President and Chief Executive Officer defaults or does not perform. 
Upon termination, the Company is obligated to pay the President and Chief 
Executive Officer 100% of his current base salary for twelve 


                                                                           F-19

<PAGE>

                       Nicollet Process Engineering, Inc.

                    Notes to Financial Statements (continued)


months after separation if he is unable to find appropriate employment 
because of the non-compete clause.


                                                                         F-20

<PAGE>

                       Nicollet Process Engineering, Inc.

                    Notes to Financial Statements (continued)


8. EMPLOYMENT AGREEMENTS (CONTINUED)

In May 1995, the Company entered into an agreement with the Chairman of the 
Board (the "Chairman") for the Chairman to provide services to the Company. 
The Chairman receives compensation of $52,500 per year and a bonus payable at 
the discretion of the Board of Directors. In connection with the agreement, 
on September 1, 1995, the Chairman received options to purchase 10,000 shares 
of common stock at a price of $3.00 per share. The options vested immediately 
and remain outstanding for a period of five years. In October 1995, the 
Company amended the agreement to provide for the future grant of additional 
options to purchase 15,000 shares of common stock at the discretion of the 
Board of Directors.

9. CONSULTING AGREEMENTS

In August 1998, the Company entered into a consulting agreement with its 
"acting president" that provides for an annual base salary and a performance 
bonus, payable in cash, and an option to purchase 500,000 shares of common 
stock at an exercise price of $0.375 for five years. These options vest at 
40% after two years and 20% per year thereafter.

In August 1998, the Company entered into an agreement with Techinspirations, 
Inc. to provide expertise related to information processing technology, 
marketing, and product and financial plans. For services provided, the 
Company pays $25,000 per month for one year.

10. MAJOR CUSTOMERS

Sales to Customers A and B were 12% each of total sales in 1998.

Sales to Customer C were 11% of total sales in 1997.

11. SUPPLEMENTAL CASH FLOW INFORMATION

The Company paid interest of $130,100 and $24,380 for the years ended August 
31, 1998 and 1997, respectively.


                                                                         F-21

<PAGE>

                      NICOLLET PROCESS ENGINEERING, INC.

                      Exhibit Index to Annual Report On
                                 Form 10-KSB
                    For Fiscal Year Ended August 31, 1998
<TABLE>
<CAPTION>

ITEM NO.                   DESCRIPTION                                                   METHOD OF FILING
--------                   -----------                                                   ----------------
<C>     <S>                                                                              <C>
3.1     Articles of Incorporation, as amended...........................................        (3)

3.2     Bylaws, as amended..............................................................        (2)

4.1     Specimen Form of the Company's Common Stock Certificate.........................        (1)

4.2     Warrant for Purchase of Shares of Common Stock of the Company
         issued to Anelise Sawkins dated August 9, 1993.................................        (1)

4.3     Form of Warrant for Purchase of Shares of Common Stock of the
         Company issued in connection with November 1993 private
         placement......................................................................        (1)

4.4     Warrant for Purchase of Shares of Common Stock of the Company
         issued to Charlie Phelps dated May 5, 1994.....................................        (1)

4.5     Form of Warrant for Purchase of Shares of Common Stock of the
         Company issued in connection with advertising design
         services.......................................................................        (1)

4.6     Form of Warrant for Purchase of Shares of Common Stock of the
         Company issued in connection with January 1995 private
         placement......................................................................        (1)

4.7     Form of Warrant for Purchase of Shared of Common Stock of the
         Company issued in connection with February 1995 private
         placement......................................................................        (1)

4.8     Warrant for Purchase of Shares of Common Stock of the Company
         issued to Tuschner & Company, Inc. dated February 7,
         1995...........................................................................        (1)

4.9     Form of Warrant for Purchase of Shares of Common Stock of the
         Company issued in connection with March 1995 private
         placement......................................................................        (1)

4.10    Warrant for Purchase of Shares of Common Stock of the Company
         issued to Tuschner & Company dated March 2, 1995...............................        (1)

4.11    Form of Warrant for Purchase of Shares of Common Stock of the
         Company issued in connection with March 1995 bridge
         financing......................................................................        (1)

4.12    Form of Warrant for Purchase of Shares of Common Stock of the
         Company issued in connection with repayment of March
         1995 bridge financing..........................................................        (1)

4.13    Form of Warrant for Purchase of Shares of Common Stock of the
         Company issued in connection with January 1996 bridge
         financing......................................................................        (1)
</TABLE>


                                     E-1

<PAGE>

<TABLE>
<CAPTION>

ITEM NO.                   DESCRIPTION                                                   METHOD OF FILING
--------                   -----------                                                   ----------------
<C>     <S>                                                                              <C>
4.14    Warrant for Purchase of Shares of Common Stock of the Company
         issued to Dillon Advertising dated July 31, 1997...............................        (7)

4.15    Warrant for Purchase of Shares of Common Stock of the Company
         issued to Dillon Advertising dated August 31, 1997.............................        (7)

4.16    Registration Rights Agreement Dated as of November 7, 1997
         among the Company and certain Investors........................................        (6)

10.1    1990 Stock Option Plan..........................................................        (1)

10.2    1995 Amended and Restated Stock Incentive Plan..................................        (1)

10.3    Employment Agreement between the Company and Robert A.
         Pitner, dated July 31, 1994....................................................        (1)

10.4    Amendment No. 1, dated effective October 26, 1995 to
         Employment Agreement between the Company and Robert A.
         Pitner, dated July 31, 1994....................................................        (1)

10.5    Agreement between the Company and Pierce A. McNally, dated
         June 1, 1995...................................................................        (1)

10.6    Amendment No. 1, dated effective October 26, 1995 to
         Agreement between the Company and Pierce A. McNally,
         dated June 1, 1995.............................................................        (1)

10.7    Settlement Agreement between the Company and John W.
         Mickowski, dated October 1, 1995...............................................        (1)

10.8    Form of Indemnification Agreement by and between the Company
         and the Officers and Directors of the Company..................................        (1)

10.9    Lease Agreement by and between Hillcrest Development and the
         Company, dated January 11, 1993................................................        (1)

10.10   Agreement for the First Amendment to a Lease between
         Hillcrest Development and the Company, dated June 8,
         1993...........................................................................        (1)

10.11   Agreement for the Second Amendment to a Lease between
         Hillcrest Development and the Company, dated July 20,
         1993...........................................................................        (1)

10.12   Agreement for the Third Amendment to a Lease between
         Hillcrest Development and the Company, dated November
         12, 1993.......................................................................        (1)

10.13   Agreement for the Sixth Amendment to a Lease between
         Hillcrest Development and the Company, dated October 7,
         1994...........................................................................        (1)
</TABLE>


                                     E-2

<PAGE>

<TABLE>
<CAPTION>

ITEM NO.                   DESCRIPTION                                                   METHOD OF FILING
--------                   -----------                                                   ----------------
<C>     <S>                                                                              <C>
10.14   Agreement for the Seventh Amendment to a Lease between
         Hillcrest Development and the Company dated September 3,
         1996...........................................................................        (2)

10.15   Agreement for the Eighth Amendment to a Lease between
         Hillcrest Development and the Company dated October 18,
         1996...........................................................................        (2)

10.16   Software Purchase Agreement between Larry D. Glendenning, dba
         LDG Software Solutions and the Company dated effective
         August 1, 1995.................................................................        (1)

10.17   Promissory Note and Security Agreement in favor of Larry D.
         Glendenning, dba LDG Software Solutions dated effective
         August 1, 1995.................................................................        (1)
10.18
        Termination Agreement dated December 31, 1997 between the
         Company and Richard A. Koontz..................................................        (8)

10.19   Credit and Security Agreement dated as of May 28, 1997 by and
         between Norwest Business Credit, Inc. and the Company..........................        (4)

10.20   Credit and Security Agreement dated as of May 28, 1997 by and
         between Norwest Bank Minnesota, National Association and
         the Company....................................................................        (4)

10.21   Subscription Agreement dated as of November 7, 1997 among the
         Company and certain Investors..................................................        (5)

10.22   First Amendment dated as of November 24, 1997 to Credit and
         Security Agreement dated as of May 28, 1997 by and
         between Norwest Business Credit, Inc. and the Company..........................        (7)

10.23   Nonrecourse Assignment dated as of June 8, 1998 by and
         between Norwest Business Credit Inc. and
         TECHinspirations, Inc..........................................................        (8)

10.24   Employment Proposal Agreement dated July 26, 1998 between the
         Company and Evros Psiloyenis...................................................        (8)

23.1    Consent of Ernst & Young LLP....................................................  Filed herewith

27.1    Financial Data Schedule.........................................................  Filed herewith

</TABLE>

------------------------------------

(1)  Incorporated by reference for the Company's Registration Statement on Form
     SB-2 (File No. 333-00852C).

(2)  Incorporated by reference for the Company's Annual Report on Form 10-KSB
     for the fiscal year ended August 31, 1996 (File No. 0-27928).

(3)  Incorporated by reference for the Company's Quarterly Report on Form 10-QSB
     for the fiscal quarter ended February 28, 1997 (File No. 0-27928).


                                     E-3

<PAGE>

(4)  Incorporated by reference for the Company's Quarterly Report on Form 10-QSB
     for the fiscal quarter ended May 31, 1997 (File No. 0-27928).

(5)  Incorporated by reference for a Schedule 13D/A dated November 12, 1997,
     filed on behalf of Pierce A. McNally and Robert A. Pitner.

(6)  Incorporated by reference for the Company's Current Report on Form 8-K as
     filed with the Securities and Exchange Commission on November 17, 1997
     (File No. 0-27928).

(7)  Incorporated by reference for the Company's Annual Report on Form 10-KSB
     for the year ended August 31, 1997 (File No. 0-27928).

(8)  Incorporated by reference for the Company's Annual Report on Form 10-KSB
     for the year ended August 31, 1998 (File No. 0-27928).


                                     E-4