UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

                               ------------------
                                   (MARK ONE)

                 [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1997

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

 For the transition period from _____________________ to ______________________

                         Commission file number 0-28606

                            NUWAVE TECHNOLOGIES, INC.
                 (name of small business issuer in its charter)

                               DELAWARE 22-3387630
                   (State or other jurisdiction (IRS Employer
              of incorporation or organization) Identification No.)

                               ONE PASSAIC AVENUE
                           FAIRFIELD, NEW JERSEY 07004
               (Address of principal executive offices)(Zip Code)

                                 (973) 882-8810
                (Issuer's telephone number, including area code)

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

                  Securities registered under Section 12(b) of
                               the Exchange Act:

                                      NONE

                  Securities registered under Section 12(g) of
                               the Exchange Act:

                          COMMON STOCK, $.01 PAR VALUE

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. Yes [XX] No [ ]

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

<PAGE>

State issuer's revenues for its most recent fiscal year: $10,275

Aggregate market value of the voting stock held by non-affiliates based on the
last sale price for such stock at March 12, 1998: $23,507,750

The number of shares of Common Stock outstanding as of March 12, 1998: 5,601,819


Transitional Small Business Disclosure Format: Yes [ ] No [XX]




















                                       ii

<PAGE>

                            NUWAVE TECHNOLOGIES, INC.
                                   FORM 10-KSB
                                      INDEX

<TABLE>
<CAPTION>


<S>                                                                                                              <C>
GLOSSARY ........................................................................................................iv


PART I   1

         ITEM 1.  BUSINESS........................................................................................1
         ITEM 2.  PROPERTY.......................................................................................14
         ITEM 3.  LEGAL PROCEEDINGS..............................................................................14
         ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................14

PART II  15

         ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                           STOCKHOLDER MATTERS...................................................................15
         ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION......................................16
         ITEM 7.  FINANCIAL STATEMENTS...........................................................................32
         ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                           ACCOUNTING AND FINANCIAL DISCLOSURE...................................................33

PART III 33

         ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
                           COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.....................................34
         ITEM 10 EXECUTIVE COMPENSATION..........................................................................37
         ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                            MANAGEMENT...........................................................................40
         ITEM 12  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................42
         ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K...............................................................49

SIGNATURES.......................................................................................................55

</TABLE>



                                      iii

<PAGE>

                                    GLOSSARY

A/B Roll Editing. The ability to access two or more playback tape machines
simultaneously and combine the video signals in the process of Video Production.

Analog Light Waves. A spectrum (band) of electro magnetic waves of different
frequencies in which each frequency represents a specific color..

Analog Video Waves. Electric currents that represent corresponding light waves
in an electrical circuit.

ASIC. An Application Specific Integrated Circuit. ASICs are produced in the form
of a silicon wafer (a "chip") containing electrical circuits through which
information in the form of electric signals flows and is processed. ASICs are
generally produced in large quantities by highly automated equipment.

Compression. The process of reducing actual data transmitted or stored through
the removal of data, with the objective that enough of the data removed will be
retrieved during expansion by interpolation or other processing methods that
attempt to recreate such data in order to create an acceptable image.

Digital Process. The process by which information is broken down into discrete
binary bits and thereafter manipulated and transmitted.

FPS. Frames Per Second. The rate at which video frames are presented. In
standard broadcast television, frames are presented at 30 fps.

Frame Extrapolation Process. Process by which one or more Virtual Frames are
produced by comparing two real frames and inferring location and other
information in the Virtual Frame by manipulating the compared data. The Virtual
Frame is then inserted in the video to create a smooth motion.

Frame Synchronization. The presentation of two or more video frames of the same
duration at the same time, from different sources, usually for purposes of
mixing or otherwise manipulating them in the course of a video production.

Initial Products. The principal products currently being developed by the
Company, i.e., the AVP, the Magic Card, the NUWAVE Dual TBC and the NUWAVE
Ministudio.

Interlaced Scanning. The presentation of video information in the form of
alternate horizontal lines in two separate fields representing one composite
frame. The NTSC and PAL standards are based on Interlaced Scanning.

                                       iv

<PAGE>

Morphing. The application of a Frame Extrapolation Process to different images,
in which several Virtual Frames provide a smooth transition from one image to
the other.

Multimedia Computer. A computer that combines computing ability with the ability
to produce sound and process video from traditional sources attached to the
computer.

Noise. Salt and pepper patterns appearing at random in video presentations
usually caused by deterioration of the signal in data transmission, data
compression or decompression.

Non-Linear Editing. Editing by means of random instantaneous access to video
source material that is stored as discrete segments.

NTSC or PAL. National Television Standard Codes or Phase Alternate Lines, used
in virtually all broadcast television in North America and Europe, respectively,
based on interlaced scanning of alternating horizontal lines (525 in the case of
NTSC and 625 in the case of PAL). In these systems, two separate fields are
presented on an alternating basis, each at the rate of 30 fps.

OEM. Original Equipment Manufacturer. A manufacturer who includes components
such as the AVP or the Magic Card in a final product that such manufacturer
markets under its own label.

PCB. A printed circuit board. Generally a multi-layered board comprised of
several layers of insulating material (usually fiberglass) on which copper
traces (copper lines capable of carrying electric current) have been imprinted.

Randall Connectors. Refers to two mechanical connector schemes for which patents
have been granted: 1) A universal connector to allow different kinds of
connectors to fit on the same printed circuit board; 2) A computer card
extension board for audio/video signals.

Real Time. Transmission of data as an event occurs.

Satellite Distribution System. A system based on the transmission of information
from a point of origination to a orbiting satellite relay station, from which
such information may be retransmitted directly over a large area to discrete
receivers.

Settop Box. A device providing for the conversion and/or distribution of video
signals interposed between individual items of video equipment, such as between
a television and an arcade game, a personal computer and/or a satellite
broadcast receiver.

TBC. Time Base Corrector. A device attached to a video source that corrects to a
known timing source distortions in the rate each frame containing video
information is presented and presents a consistent timed signal and frame
synchronization. TBCs are an

                                       v

<PAGE>

essential component in sophisticated video production processes in which multi
video sources are manipulated, combined and otherwise processed.

VGA. Video Graphics Array. The typical form in which video is encoded in a
computer for processing or display on a computer monitor. A VGA display is based
on individual "pixels" making up a computer screen. VGA must be converted into
broadcast signals that are displayed in compliance with NTSC or PAL standards.

Video Production. The process by which individual video source material is
collected , created, combined, edited and recorded.

Virtual Frame. An artificial frame produced by a Frame Extrapolation Process.





                                       vi

<PAGE>

                                     PART I

ITEM 1.  BUSINESS

         NUWAVE Technologies, Inc. (the "Company"), a development stage
enterprise organized in July 1995, was formed to develop, manufacture and market
products which improve picture quality in set-top boxes, televisions, VCRs,
camcorders and other video devices by enhancing and manipulating video signals,
and facilitate the production of sophisticated consumer and professional videos.
The television, telecommunications and computer markets are converging and, in
the process, redefining the way their constituencies interact. The Company
believes that video display is the common denominator of that interaction, and
that the products it is developing will allow it to participate in the growth of
the converging market.

         The Company has produced fully operational prototypes of (1) an analog
video processor which significantly enhances video picture quality (the "AVP"),
(2) another video enhancement device which combined the AVP with digitally based
frame extrapolation video noise reduction circuits for use in NTSC or PAL
standard devices (the "Magic Card"), and (3) a time base corrector providing for
analog to digital conversion and the synchronization of up to 3 video sources
(the "NUWAVE Dual TBC"). The Company also has produced an initial prototype of a
video editing "studio" mounted on PCBs (the "NUWAVE Ministudio"). The AVP, the
Magic Card, the NUWAVE Dual TBC and the NUWAVE Ministudio are called the
"Initial Products."

         The Company originally anticipated devoting significant resources to
the final commercial development of the Initial Products. However, with the
introduction and apparent favorable reception of the "NUWAVE Video Processor"
("NVP") and a separate proprietary software product ("Softsets") (as described
below) by the OEM, Professional and Retail markets and to best capitalize on the
expanding and converging markets, the Company has determined to devote
substantially all of the personnel and economic resources it would have devoted
to the Initial Products to the marketing of the NVP and Softsets. The decision
to commit substantial resources towards the final commercial development of the
Initial Products will be based in large part on the Company's experience in
marketing the NVP, therefore the Company cannot predict when, if at all, it will
finalize commercial development of these products or commence marketing them.

         The Company, using its Advanced Engineering Group (as described below),
created the NVP which significantly enhances video images. The Advanced
Engineering Group also developed Softsets which provides end users and
manufacturers who use the NVP in their products with an option to manipulate the
attributes of video images to their own taste or standards. A more detailed
explanation of Softsets is described below in this Item 1 under the heading "The
Company's Video Enhancement Products."

<PAGE>

         During 1997 the Company began marketing its NVP as the "NUWAVE Video
Processor" and the "Crystal Wave Video(TM)" circuit, and the Active and/or
Passive Softsets as "Crystal Wave Softsets" through comprehensive sales
presentations to prospective customers. Although the Company is unable to
predict whether its marketing efforts will be successful, it believes based upon
its presentations that the products have been well received, and several
potential customers have indicated their desire to continue discussions. The
Company recently entered into its first OEM contract, a multi-year supply
agreement with Thomson Consumer Electronics, Inc. ("Thomson") for the purchase
of the NVP Application Specific Integrated Circuit ("ASIC") chip. Thomson is the
largest manufacturer and marketer of television receivers and related video
products in the U.S. under the RCA, GE and ProScan brands. The Company expects
to produce the ASIC chips in accordance with the customer's specific application
requirements supported by firm commitments rather than producing and
inventorying standard ASIC chips in anticipation of the requirements of its
potential customers.

         The technology on which the Company's Initial Products is based was
originated by Rave Engineering Corporation ("Rave") prior to the Company's
organization and is licensed to the Company by Rave pursuant to an Exclusive
Worldwide License Agreement between the Company and Rave dated July 21, 1995
(the "License Agreement"). The Company also entered into a Development Agreement
dated July 21, 1995 (the "Development Agreement") with Rave pursuant to which
Rave did work in connection with the development of the Initial Products. Rave's
role in the development of these products is substantially completed. See Item
6, "Management's Discussion and Analysis," for a discussion of the terms of the
License Agreement and the Development Agreement.

         In March 1997 the Company agreed with Rave to exclude from the License
Agreement certain video transmission technology which Rave may develop for
application in the video game industry (the "Video Game Technology"). In return,
Rave agreed to pay the Company 2.5% of net sales of products using the Video
Game Technology and 25% of any fees it receives from licensing such technology.
The Video Game Technology is not used in any of the Company's current products,
and the Company had no current plans to develop it. The Company continues to
hold the rights to the technology outside the video game industry under the
License Agreement.

         The Company has established an Advanced Engineering Group (the
"Advanced Engineering Group") made up of its own employees and third party
consultants who work with the Company on a project by project basis. The
Advanced Engineering Group operates under the direction of the Vice
President-Marketing/Technical Development to support the continuing development
of its products and related or new technology, and the identification of
additional sources of new technology. The Company has used its Advanced
Engineering Group to create the NVP, to develop a significant amount of the
software included in each of its products and to develop circuitry to allow
certain of the products to be produced as ASICs for which the Company has filed
patent applications. The Advanced Engineering Group also developed

                                        2

<PAGE>

the Softsets for the NVP and certain of the enhancements to it. The Company
intends to continue to use the Advanced Engineering Group to finalize the
commercialization of the products it has developed.

         The Company is a development stage enterprise. It has had only a
limited operating history and has sold only limited quantities of its products
to date (primarily to independent sales representatives for demonstration
purposes). The Company's prospects must be considered in light of the risks
associated with the establishment of a new business in the evolving electronic
video industry, as well as further risks encountered in the shift from
development to commercialization of new products based on innovative technology.
There can be no assurance that the Company will be able to generate revenues or
achieve profitable operations. See Item 7, "Financial Statements," and Item 6,
"Management's Discussion and Analysis."

History

         The Company was conceived of by Mr. Ernest Chu in June 1994 when he met
with Mr. Ted Wong, the President of Prime Technology, Inc. ("Prime") as a result
of an introduction by employees of a high-technology company for which Mr. Chu
was then rendering consulting services in his individual capacity. At that time,
Prime was the exclusive licensee of Rave's technology. Mr. Chu believed that the
technology had the potential to be commercialized on a mass basis for use in the
video broadcast industry. In the Fall of 1994, Mr. Chu and Mr. Wong determined
that the Rave technology could be most effectively exploited if a new company
were organized to license the technology and related products and directly
commercialize and manufacture them, rather than relying on sublicensing. They
agreed that Prime and Mr. Chu would directly participate in the equity of the
new entity, and Rave would participate through its approximately 20% equity
ownership in Prime and through royalty and development payments from the new
company. Prime would continue to be responsible for sublicensing through an
agency agreement with the new company. The parties recognized the need for an
experienced president to operate the new company and to commercialize the
products, and began negotiations with Mr. Gerald Zarin, whom Mr. Wong had
recently met, to accept that position and participate in the Company's equity.

         Negotiations commenced in December 1994 and continued among Mr. Zarin,
Mr. Chu, and Mr. Wong on behalf of Prime and Mr. Randy Burnworth on behalf of
Rave through early July 1995. As a result of these negotiations, the Company was
organized in July 1995, at which time Prime terminated its exclusive license
arrangement with Rave and the Company entered into the License Agreement. In
addition, Rave agreed to continue the development of the technology and the
Initial Products pursuant to the Development Agreement and Prime became the
Company's exclusive agent to sublicense the products covered by the License
Agreement to third parties (subject in all cases to the Company's approval)
under the terms of the Agency Agreement. See Item 6, "Management's Discussion
and Analysis," for a description of the Agency Agreement. Mr. Zarin became the
Company's President and Mr. Chu became the Chairman of its Board of

                                        3

<PAGE>

Directors and acting Chief Financial Officer. Mr. Wong became a director of the
Company. The Company also entered into a consulting agreement with Corporate
Builders, L.P., a limited partnership controlled by Mr. Chu.

         In connection with their organizational activities, Messrs. Chu, Wong,
Burnworth and Zarin, as well as Rave and Prime, acted as "Promoters" of the
Company within the meaning of the regulations promulgated by the Commission
pursuant to the provisions of the Securities Act of 1933 (the "Securities Act").

         Mr. Wong, a former director of the Company, is a director and an
approximate 16% shareholder in Prime. Mr. Wong is also the President and Chief
Executive Officer of Prime. Mr. David Kwong, a director of the Company, is a
director and approximate 22% shareholder of Prime. Mr. Kwong is also a Vice
President of Prime. Rave is an approximate 20% shareholder of Prime, and Mr.
Burnworth is a director of Prime. Mr. Burnworth is not a shareholder or officer
of Rave; however, he is the primary source of Rave's technology and provides the
direct supervision with respect to all of the development performed by Rave.
Substantially all of the stock of Rave is owned by members of Mr. Burnworth's
immediate family. No officer or director of the Company, except for Mr. Kwong,
has any ownership interest in, or serves as a director or officer of, Prime. No
officer or director of the Company has any ownership interest in, or serves as a
director or officer of, Rave.

         Rave's principal activities were to provide services for the Company
pursuant to the Development Agreement. The Development Agreement provides that
all results of development, including unrelated developments, belong to the
Company, and that Rave will not undertake any development activities for third
parties without the consent of the Company. Except for the "Game Engine
Technology" referred to above and certain medical industry activities (which
consent was given and has subsequently lapsed) no other requests to the Company
have been made. Prime was organized in 1993 and, at that time, substantially all
of its activities related to proposed licensing of Rave's products and
technology and the organization of the Company. The exclusive licensing
arrangement between Rave and Prime relating to the technology used by the
Company was terminated in July 1995.

Background--Video Images

         The human eye perceives all images as a result of its ability to
recognize light. Light travels as continuous electromagnetic waves ("Analog
Light Waves") that are either emitted by the object being observed or reflected
from it. Analog Light Waves vary in frequency and amplitude, and can be directly
captured as images. For example, in photography, light waves strike film treated
with certain chemicals and the energy from the light wave causes chemical
reactions that change the translucency of the film. As a result, the image can
be recreated by again passing light through the film. In computers, visual
images can be stored and manipulated after Analog Light Waves have been broken
down into smaller constituent parts expressed as digital signals. These digital
signals are


                                        4

<PAGE>

transmitted as bits and then reconstituted into Analog Light Waves visible to
the human eye.

         Broadcast television technology is based on analog light wave
transmissions. Analog Light Waves are captured by an electronic television
camera and turned into usable electrical energy in the form of a lower frequency
Analog Video Wave. That wave is transmitted to a receiver, where it is projected
at the standard broadcast rate of 30 fps against a phosphorescent screen. The
screen then emits Analog Light Waves, making the image visible to the human eye.

         Modern video telecommunications, such as satellite broadcasting and
cable television, generally combine both analog and digital processes in order
to capture and transmit images. For example, in digital satellite video
telecommunication the image is digitized by a computer processor and then
broadcast to a satellite. The digital information is received and rebroadcast by
the satellite directly to a receiver, and then reconstituted into energy in the
form of an analog wave and displayed at 30 fps to create a visible image.

         Band widths available for satellite video transmission are limited by
the Federal Communications Commission ("FCC"). These limitations significantly
restrict the amount of information that can be transmitted in any time interval
and require most information to be transmitted in a compressed digitized format.

         Internet telecommunication is subject to greater limitations. All sites
on the Internet are computers that process data on a digital basis linked by
telephone lines. Information is typically transmitted over these lines from
computers through modems. Currently, the fastest modems available for general
use can transmit only a fraction of the digital information necessary to create
real time images at 30 fps. Even if the speed of a modem was increased, the
limitations of currently available personal computers for general use make it
unlikely that a user would be able to retrieve and display data at a rate
greater than 15 fps. One result is that real time teleconferences are generally
accomplished by using special high speed modems and dedicated telephone lines
rather than using the Internet. These telephone lines are usually provided by a
national carrier having the equivalent band width of approximately 24 standard
telephone lines, which is then able to transmit the video images at 30 fps.
Charges for these dedicated lines are substantially the same as for standard
line equivalents, making real time teleconferences expensive. The ability to use
the Internet or otherwise use standard telephone lines for teleconferencing
would substantially reduce costs of teleconferencing.

         Given the physical limitations of satellite, cable and telephone
systems, and their increasing interactivity, ever more emphasis is being placed
on compression technology as a means to allow more data to be transmitted in any
time interval. Using a variety of techniques, portions of a digital description
of an image are omitted in the transmission of information, and, by mathematical
formula or inference, most of the omitted data is then replaced after reception.
The result of this compression technology has been to increase the number of
channels available for digital satellite broadcasting from

                                        5

<PAGE>

50 to 150, and to significantly improve the quality of images transmitted over
the Internet. The Company believes that improvements in the amount of
compression possible will continue. However, as the amount of compression
increases, more data will likely be lost, and the quality of the image will
deteriorate.

         Image information may be lost in the process of compression or
distorted during recording, transmission or playback because of various factors,
including signal interference or deterioration of original film quality and
camera focus. Some of the problems from this loss or distortion of image
information include lack of clarity, a "washed out" look and excessive or
inadequate black level.

         One of the methods used to compress digitized video information for
storage and transmission (other than television transmission) is to eliminate
frames. A phenomenon causing analogous results occurs when the hard drive of a
computer, or some other component, cannot retrieve or present data at
sufficiently high fps. In either case, image movement is erratic and
unrealistic. Regardless of whether the signal is compressed, the image may be
subject to Noise.

The Company's Video Enhancement Products

The NVP and Softsets

         The NVP controls, corrects and improves analog video signals' use of
digital control (software). The NVP first detects and replaces all important
picture synchronization and stability attributes. It then separates and corrects
the color and black and white information. The NVP enhances fine details of an
image and reduces distortions incurred in the course of transmitting the image,
corrects the pure black content of images and adjusts perceived light on
projected images. Fine detail enhancement is achieved by a proprietary circuit
that analyzes the form of the analog waves at the point of origin or display,
and processes the wave to significantly increase the clarity of the image.

         The NVP achieves "blackness" correction by establishing a "reference to
true black" and adjusting the rest of the color spectrum to that reference,
making a "washed out" image appear more vivid. Similar referencing currently is
available only in expensive video display units, TV monitors, and projection
systems; the NVP's proprietary circuits enable the process to be performed
inexpensively on a PCB, ASIC or a small portion of a integrated circuit chip.

         The NVP also contains circuits that provide for the adjustment of light
in images and brightness of the colors presented, similar to circuits
traditionally included in televisions.

         The NVP can be used prior to further processing of the Analog Video
Wave at the source of the video signal and/or at the other end of the process
prior to the display of the video image. In the form of a chip, it can be
included in a television set,

                                        6

<PAGE>

video projector or in a video conference display or in the decoder or routing
box that connects a typical television to a cable broadcasting company or a
multichannel satellite provider. The NVP also can be included in any personal
computer that has a capture board, a device enabling the computer to convert
standard broadcast video signals into a digitized form. This enables the image
to be enhanced prior to digitization.

         Through its Advanced Engineering Group, the Company has developed
Softsets to control the functions of the NVP. The Softsets give both end users
and manufacturers who use the NVP in their products the ability to manipulate
the attributes of video images to their own taste or standards. For example, the
manufacturer of a set-top box who includes the NVP and Softsets in its product
could offer viewers the ability to select predetermined optimum video parameters
for "Sports," "Movies" "Drama" or other predesignated programming from their
remote control ("Active Softsets"). Additionally, program providers or other
transmitters can encode their signal so that a receiving device containing the
NUWAVE Softsets and enhanced NVP will automatically adjust its video parameters
to a predetermined value when the signal is received ("Passive Softsets"). The
encoded signal can also be included in the actual programming.

         During 1997 the Company began marketing the NVP as the "NUWAVE Video
Processor" and the "Crystal Wave Video(TM)" circuit, and the Active and/or
Passive Softsets as "Crystal Wave Softsets" through comprehensive sales
presentations to prospective customers. Although the Company is unable to
predict whether its marketing efforts will be successful, it believes, based on
its presentations, that the products have been well received, and several
potential customers have indicated their desire to continue discussions. The
Company recently entered into its first OEM contract, a multi-year supply
agreement with Thomson for the purchase of the NVP ASIC. The Company expects to
produce the ASIC chips in accordance with the customer's specific application
requirements supported by firm commitments rather than producing and
inventorying standard ASIC chips in anticipation of the requirements of its
potential customers.


 The Initial Products

         The Company originally anticipated devoting significant resources to
the final commercial development of the Initial Products including the Magic
Card, NUWAVE Dual TBC and the NUWAVE Ministudio. However, with the introduction
and apparent favorable reception of the NVP and Softsets by the OEM (including
an order from Thomson), Professional and Retail markets and to best capitalize
on the expanding and converging markets, the Company has determined to devote
substantially all of the personnel and economic resources it would have devoted
to these products to the marketing of the NVP and Softsets. Because the final
commercial development of the Initial Products will be based in large part on
the Company's experience in marketing the NVP, the Company cannot predict when,
if at all, it will finalize commercial development of these products or commence
marketing them.

                                        7

<PAGE>

The Company's Other Potential Products

         The Company intends to continue to use outside consultants to assure
exposure to new ideas and technology. The Company through its Advanced
Engineering Group, its Development Agreement with Rave and other potential
sources of new technologies with other third parties, is conducting
investigation, research and development activities with respect to other
products relating to video telecommunications although none are material to the
Company's present plan of operation. These activities may give rise to
additional products which may be commercialized by the Company. However, there
can be no assurance that its efforts will result in marketable products or
products which can be produced at commercially acceptable costs.

Research and Development

         Research and development activity with respect to the Company's Initial
Products was carried out by Rave prior to July 21, 1995 when the Company and
Rave entered into the License Agreement and the Development Agreement. The
technology on which the Company's Initial Products were based was originated by
Rave prior to the Company's organization and the Company relied on Rave for the
development of the Initial Products. The technology is licensed to the Company
by Rave pursuant to the License Agreement. Rave's role in the development of the
Initial Products is substantially completed.

         In March 1997 the Company agreed with Rave to exclude from the License
Agreement the Video Game Technology. In return, Rave agreed to pay the Company
2.5% of net sales of products using the Video Game Technology and 25% of any
fees it receives from licensing such technology. The Video Game Technology is
not used in any of the Company's current products, and the Company had no
current plans to develop it. The Company continues to hold the rights to the
technology outside the video game industry under the License Agreement.

         The Company's Advanced Engineering Group currently operates to support
the continuing development of its products and related technology, and the
identification of additional sources of new technology. The Advanced Engineering
Group has been used to create the NVP, to develop a significant amount of the
software included in each of its products and to develop new circuitry to allow
certain of the products to be produced as ASICs for which the Company has filed
patent applications. The Advanced Engineering Group also developed Softsets for
the NVP and certain of the enhancements to it. As of March 10, 1998, the
Advanced Engineering Group consisted of 3 of the Company's employees and outside
consultant organizations who have on their respective staffs engineers,
technicians and support personnel (totaling more than 30 personnel) who devote
time to NUWAVE on an as needed project by project basis. The Company anticipates
that the make up of its Advanced Engineering Group will change from time to time
depending on its current and anticipated development and commercialization
plans.

                                        8

<PAGE>

The Company's strategy with respect to new products and technologies is to
continue to utilize the Advanced Engineering Group as well as other independent
third party sources and to increase its internal technical and engineering staff
as appropriate.

         From July 17, 1995 through December 31, 1997, the Company incurred
expenses of $3,808,800 on research and development, of which approximately 71%
was paid to Rave pursuant to the Development Agreement. During the next 12
months, the Company intends to spend approximately $2,073,500 on research and
development and in support of the commercialization of its products. Of that
amount the Company estimates that approximately 49% will be paid to Rave
pursuant to the Development Agreement and approximately 51% will be spent by the
Advanced Engineering Group for software development, ASIC chip development, and
supervising and directing production engineering undertaken by third parties and
on internal research and development. In the event the Company is able to
generate sufficient revenues from sales of its Softsets and NVP products during
such 12-month period, it anticipates it will increase its expenditures on
research and development and the identification of new sources of technology.

Marketing and Distribution

         The Company commenced the marketing of its NVP and Softsets to
manufacturers of video products including televisions, VCR's, Digital Video Disk
Players ("DVD's"), set-top boxes, satellite distribution systems, digital
cameras, camcorders, etc. The Company has also introduced its technology to
companies that manufacture component parts and semiconductors used in the
manufacture of such video products. The Company believes that the inclusion of
its NVP and Softsets in such video products will allow them to produce
significantly better images, allow for product differentiation and the low cost
to the user will make it an attractive product. The Company's goal is to
position itself to take advantage of the converging television,
telecommunication and computer markets by developing multiple products from its
unique video enhancement technology.

         In that regard, the Company established three independent sales and
marketing divisions to service the market needs: 1) the Crystal Wave Division
for OEM, 2) the ProWave Division for the professional market as described below,
and 3) the CWave Division for the Retail and Direct Consumer markets. The core
of NUWAVE's unique technology is the NVP ASIC chip. This integrated circuit will
be incorporated into each of NUWAVE's divisional product lines.

         The Crystal Wave potential customer base is manufacturers of products
that can utilize the NVP ASIC including the following product categories: TV,
VCR, Camcorder, Digital Camera, Set Top Box, Large Screen TV, LCD TV, Plasma LCD
TV, Audio/Video Receivers, Direct TV (DSS systems) and Web TV. Such
manufacturers include Thomson, Sony, Matsushita, Phillips, Mitsubishi, Sharp,
Sanyo, Samsung, JVC, Zenith, General Instruments, Packard Bell, Compaq, IBM,
Dell Computers, LSI Logic, etc.

                                        9

<PAGE>

         Initially, the Company elected to contact all of the potential
customers listed above directly or in conjunction with selected consultant
organizations such as Competitive Technologies, Inc. ("CTI") with whom the
Company has contracted with on a commission basis. CTI, for over twenty six
years, has been in the business of taking R&D and technology companies and
introducing them to major companies specializing in their respective markets.
The Company's sales strategy is a direct consultative sales approach that
requires the direct presence of its own engineering and sales personnel to
properly present and demonstrate the technology, explain the sales and marketing
concepts, and maintain direct contact from an engineering position throughout
the entire sales cycle. Although the Company is unable to predict whether its
marketing efforts will be successful, it believes, based on its presentations,
that the products have been well received, and several potential customers have
indicated their desire to continue discussions. The Company recently entered
into its first OEM contract, a multi-year supply agreement with Thomson for the
purchase of the NVP ASIC chip.

         During 1997, the Company formed its ProWave Division for sales and
marketing of the NVP 2.2 and related products to the professional video
marketplace. NUWAVE's potential customer base in this division fall into three
major categories: 1) Integrated Systems Dealers; 2) Professional Security and
Surveillance Dealers; and 3) Medical Imaging Dealers. These dealers will sell to
the ultimate user of the product. The Company plans to utilize independent
commissioned sales representatives along with its own internal staff and
management team to manage, oversee, train and support the sales effort of the
dealers. In November 1997 the Company contracted with The LACOM Group to help
the Company activate a national independent sales "rep" and dealer network to
support the launch of this Division. Through February 23, 1998 eight
organizations had signed contracts to represent the Company's ProWave Division.
Management anticipates adding several additional sales rep organizations over
the next two months and expects to have their product and sales training along
with the necessary sales and marketing programs and materials in place by the
end of the third quarter of 1998. To date, the Company has sold limited
quantities of the NVP 2.2. (primarily for sales demonstration purposes).

         The Company is currently developing a retail product for those
Consumers that have a TV and do not have a NUWAVE enabled product but want to
improve the picture quality of their home viewing. This product will be marketed
by the Company's CWave Division. NUWAVE's potential customer base for the retail
product(s) are all major retail outlets for consumer electronics products such
as: Retail Consumer Electronics Dealers; Retail Electronics & Personal Computer
Distributors; Home Shopping Networks; Infomercial Companies; Mail Order Consumer
Electronics; Wholesale Clubs; Mass Merchants; Discount Retail Stores; Department
Stores and OEM Manufacturers.

         In addition to product sales, the Company may license the manufacture
of its product and use of its technology in situations in which such
arrangements are to its economic advantage. However, because its emphasis has
been on product sales and OEM

                                       10

<PAGE>

manufacturing, it has not yet developed a comprehensive licensing program,
established proposed royalties or otherwise determined the terms and conditions
of the arrangements it may want to make with proposed licensees or others. These
programs will be developed and considered in conjunction with Prime pursuant to
the terms of the Agency Agreement, with product research and development, and
prevailing market conditions.

         The Company intends to support the above sale efforts through various
sales and marketing programs/ activities including trade advertising, attendance
at industry trade shows, attendance at participating dealer shows, attendance at
end user events, literature mailers and Co-op dealer advertising.

Manufacturing

         The Company does not contemplate that it will directly manufacture any
of its products. It intends to contract with third parties to manufacture its
proposed NVP and Softsets. It also may license to third parties the rights to
manufacture the products, either through direct licensing, OEM arrangements or
otherwise.

         The Company intends to produce the NVP ASIC chip in accordance with the
customer's specific application requirements supported by firm commitments
rather than producing and inventorying ASIC chips in anticipation of
applications required by customers in the future. In this regard, the Company
contracted with Adaptive Micro-Wave, Inc. ("Adaptive"), an engineering firm
specializing in engineering product management to provide necessary technical
support and manage this process under the Company's direction. The Company also
contracted with The Engineering Consortium ("TEC"), a specialized design
engineering group, to complete the work necessary to convert the Company's
current NVP PC board design to ASIC specifications and contracted with Zentrum
Mikroelectronik Dresden GmbH ("ZMD"), a fabricator and manufacturer of
integrated circuits for production of the ASIC. The Company anticipates
producing the initial ASIC during the second half of 1998 in accordance with the
requirements of the Thomson supply agreement and believes that this initial ASIC
will be readily adaptable to other customer specifications, if required.

         The Company will be dependent on third parties such as ZMD for the
manufacture of its NVP ASIC chips. Although management believes it will be able
to continue to negotiate satisfactory manufacturing and supply agreements, the
failure to do so would have a material adverse effect on the Company.
Furthermore, there can be no assurance that such manufacturers will dedicate
sufficient production capacity to satisfy the Company's requirements within
scheduled delivery times or at all. Failure or delay by the Company's suppliers
in fulfilling its anticipated needs would adversely affect the Company's ability
to develop and market its products. However, the Company may have difficulty in
continuing to obtain contractual agreements with the suppliers of such materials
due to, among other things, possible material shortages or possible lack of
adequate purchasing power.

                                       11

<PAGE>

Patents; Proprietary Information

         To the extent practicable, the Company has filed or intends to file
U.S. patents and/or copyright applications relating to certain of its proposed
products and technologies either on its own behalf (or on behalf of Rave with
respect to products and technology licensed pursuant to the License Agreement
and/or Development Agreement) and to file corresponding applications in key
industrial countries worldwide. In April 1996, the Company filed on behalf of
Rave two patent applications for its Randall connector system and received one
patent in respect thereof in November 1997 and the second patent in respect
thereof in January 1998.

         In July 1996, the Company filed for a patent on behalf of Rave with
respect to AVP. In January 1998, an initial rejection was received from the
patent examiner's office based on similarity to an existing patent. The Company
has filed an amendment more thoroughly differentiating the invention for which
the application is being filed from the existing patent. Although the Company
believes such patent application contains patentable claims, no assurance can be
given that a patent will be obtained. In March 1998, the Company filed three
additional patent applications (one with regard to its NVP and two with regard
to its Softsets). Although the Company believes that each of these applications
contains patentable claims which are independent of the technology involved in
the above-mentioned patent application filed on behalf of Rave, there is no
assurance that any patents will be granted. If granted, there is no assurance
that any patent will afford the Company commercially significant protection of
its technology or that the Company will have adequate resources to enforce its
patents. Because the Company also intends to license and/or sell its technology
and products in foreign markets, it intends to seek foreign patent protection.
With respect to foreign patents, the patent laws of other countries may differ
significantly from those of the United States as to the patentability of the
Company's products or technology. Moreover, the degree of protection afforded by
foreign patents may be different from that in the United States. Patent
applications in the United States are maintained in secrecy until patents issue,
and since publication of discoveries in the scientific or patent literature
tends to lag behind actual discoveries by several months, the Company cannot be
certain that it will be the first creator of inventions covered by any patent
applications it makes or the first to file patent applications on such
inventions.

         Based on Rave's experience in the video industry, that of the Company's
own officers and directors with technical backgrounds, third party advisors who
are familiar with the patent process, and patent searches made in connection
with the patent applications filed for the AVP and the Company's NVP, the
Company believes that the products it intends to market and sell do not infringe
the patents or other proprietary rights of third parties and is not aware of any
patents held by its competitors that will prevent, limit or otherwise interfere
with the Company's ability to make and sell the products it intends to market.
However, it is possible that competitors in both the United States and foreign
countries, many of which have substantially greater resources and have made
substantial investments in competing technologies, may have applied for, or may
in the future apply for and obtain, patents which have an adverse impact on the
Company's

                                       12

<PAGE>

ability to make and sell its products. In addition, because of the developmental
stage of the Company, claims that the Company's products infringe on the
proprietary rights of others are more likely to be asserted after commencement
of commercial sales incorporating the Company's technology. There can also be no
assurance that competitors will not infringe the Company's patents. Defense and
prosecution of patent suits, even if successful, are both costly and time
consuming. An adverse outcome in the defense of a patent suit could subject the
Company to significant liabilities to third parties, require disputed rights to
be licensed from third parties or require the Company to cease selling its
products.

         To the extent the Company determines to keep certain aspects of its
technology as trade secrets, the Company intends to protect these developments
by manufacturing techniques (principally by reducing its circuits to ASIC form
which prevents visual inspection of the relevant circuits) that make it more
difficult to reverse-engineer or understand the mechanisms by which either
designs or process technology operate.

Competition

         The markets that the Company intends to enter are characterized by
intense competition, and, particularly with respect to the market for video,
editing, production and processing products, significant price erosion over the
life of a product. The Company's products may compete with those of numerous
well-established companies, such as Sony Electronics, Inc., Panasonic Division
of Matsushita Electric Industrial Co., Motorola, Inc., Mitsubishi International
Corp., and Phillips Electronics, NV which already design, manufacture and/or
market video technology and other products. These companies have substantially
greater financial, technical, personnel and other resources than the Company and
have established reputations for success in the development, licensing, sale and
service of their products and technology. Certain of those competitors dominate
their industries and have the financial resources necessary to enable them to
withstand substantial price competition or downturns in the market for video
products.

         The markets for the technology and products being developed by the
Company are characterized by rapid changes and evolving industry standards often
resulting in product obsolescence or short product life cycles. As a result,
certain companies may be developing technologies or products the Company is
unaware of which may be functionally similar, or superior, to some or all of
those being developed by the Company. Consequently, the ability of the Company
to compete successfully will depend on its ability to complete development and
introduce its products and technology to the marketplace in a timely and
cost-competitive manner, to continually enhance and improve such products and
technology, to adapt its proposed products to be compatible with specific
products manufactured by others, and to successfully develop and market new
products and technology. There can be no assurance that the Company will be able
to compete successfully, that its competitors or future competitors will not
develop technologies or products that render the Company's products and
technology obsolete or

                                       13

<PAGE>

less marketable or that the Company will be able to successfully enhance its
proposed products or technology or adapt them satisfactorily.

Management Information Systems

         The Company believes that the capacity of its existing data processing
and management information systems is sufficient to allow the Company to expand
its business without significant additional capital expenditures. In addition,
the Company has consulted with its software vendor about the year 2000 and data
processing changes that will be required and has been assured that our software
will be capable of handling process dates beyond the year 2000 by the end of
1998.

Employees

         The Company currently has nine full-time employees and, depending on
its level of business activity, expects to hire additional employees in the next
12 months, as needed, to support marketing and sales, manufacturing and research
and development.


ITEM 2.  PROPERTY

Facilities

         The Company has established its headquarters in Fairfield, New Jersey.
Pursuant to the sublease relating to such facility, the Company is obligated to
make monthly rental payments of $5,400. The lease is on a month-to-month basis.
The Company's subleased portion of the facility is approximately 2,500 square
feet and the sublease entitles the Company to share certain common areas.


ITEM 3.  LEGAL PROCEEDINGS

         The Company is not a party to any legal proceedings.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1998.

                                       14

<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Company's Common Stock, par value $.01 per share ("Common Stock"),
has been traded since July 1996 on the NASDAQ SmallCap Stock Market under the
symbol "WAVE" for Common Stock and "WAVEW" for Common Stock Warrants. Prior to
that time, there was no public market for the Common Stock or Warrants. The
following table sets forth the range of high and low closing sale prices for the
Common Stock as reported on the NASDAQ SmallCap Stock Market during each of the
quarters presented. The quotations set forth below are inter-dealer quotations,
without retail mark-ups, mark-downs or commissions and do not necessarily
represent actual transactions.


                                  COMMON STOCK

QUARTERLY PERIOD ENDED              HIGH                       LOW

March 31, 1997                      $ 9.75                     $ 6.50

June 30, 1997                       $ 8.50                     $ 5.63

September 30, 1997                  $ 8.13                     $ 4.50

December 31, 1997                   $ 6.38                     $ 3.68


         As of March 12, 1998, there were approximately 71 holders of record of
the Company's Common Stock. This number does not include beneficial owners of
the Common Stock whose shares are held in the names of various dealers, clearing
agencies, banks, brokers and other fiduciaries.

         The Company has never declared or paid any cash dividends. The Company
currently intends to retain any future earnings to finance the growth and
development of its business and future operations, and therefore does not
anticipate paying any cash dividends in the foreseeable future.

                                       15

<PAGE>

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

                          Summary Financial Information

         The summary financial data set forth below is derived from and should
be read in conjunction with the financial statements, including the notes
thereto, filed as part of this Form 10-KSB.

<TABLE>
<CAPTION>


Statement of Operations               Year Ended          Year Ended      July 17, 1995
Data                                 December 31,        December 31,    (Inception) to
                                         1996                1997          December 31,
                                                                              1997
<S>                                  <C>                 <C>                <C>

Revenues                             $      0.00         $    10,275        $    10,275
Net Loss                             $ 4,430,649         $ 3,848,316        $ 9,189,556
Net loss per common share            $     (1.18)        $     (0.72)
Weighted average number of             3,767,403           5,343,348
  shares

</TABLE>


Balance Sheet Data:                  December 31,        December 31,
                                        1996                 1997

Working capital                      $ 5,776,740         $  1,709,988
Total assets                         $ 6,291,898         $  2,270,763
Total liabilities                    $   373,110         $    153,623
Deficit accumulated during           $ 5,341,240         $  9,189,556
   the development stage
Stockholders' equity                 $ 5,918,788         $  2,117,140


Forward Looking Statements

         This Report on Form 10-KSB contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements
other than statements of historical facts included in this Report, including
without limitation, the statements under "General," "Marketing and Sales,"
"Research and Development," "Manufacturing," "Liquidity and Capital Resources,"
and "Plan of Operation" are forward-looking statements. The Company cautions
that forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those indicated in the
forward-looking statements, due to several important factors herein identified.
Important factors that could cause actual results to differ materially from
those indicated in the forward-looking statements ("Cautionary Statements")
include

                                       16

<PAGE>

delays in product development, competitive products and pricing, general
economic conditions, risks of intellectual property litigation, product demand
and industry capacity, new product development, commercialization of new
technologies, the Company's ability to raise additional capital when required,
and the risk factors detailed from time to time in the Company's annual report
on Form 10-KSB and other materials filed with the Securities and Exchange
Commission ("SEC").

         All subsequent written and oral forward-looking statements attributable
to the Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements.


         General

         The Company, a development stage enterprise organized in July 1995, was
formed to develop, manufacture and market products which improve picture quality
image in set top boxes, televisions, VCR's, DVD's, camcorders and other video
devices by enhancing and manipulating video signals, and to facilitate the
production of sophisticated consumer and professional videos. In July 1996 the
Company completed an initial public offering ("IPO") of its common stock and
warrants from which it received net proceeds of $9,538,428 and repaid $2,000,000
principal amount of promissory notes issued in a previous financing. On February
11, 1998, the Company received net proceeds of $915,000 for issuance of 253.485
shares of its Common Stock to an investor. The Company also issued warrants to
purchase up to 50,000 shares of its Common Stock to such investor. In addition
the Company may issue "Puts" to the investor over a two year period whereby the
investor shall purchase a minimum of $1,000,000 up to an maximum of $5,000,000
of the Company's Common Stock (valued at 88% of the market value thereof) if
certain pre-conditions are met.

         At the time of the IPO, the Company had produced and tested fully
operational working prototypes of the Initial Products. Subsequent to the IPO,
the Company established the Advanced Engineering Group to support the continuing
development of its products and related technology, and the identification of
additional sources of new technology. The Advanced Engineering Group is made up
of the Company's own employees and third party consultants who work with the
Company on a project by project basis. The Advanced Engineering Group operates
under the direction of the Vice President-Marketing/Technical Development. The
Company has used its Advanced Engineering Group to create the NVP, to develop a
significant amount of the software included in each of its products and to
develop new circuitry to allow certain of the products to be produced as ASICs.
The Advanced Engineering Group also developed the Softsets for the NVP and
certain of the enhancements to it. Utilizing this technology, the Company has
developed the ProWave NVP 2.2 that is currently available as a stand-alone unit
or a PC board with software. The Advanced Engineering Group is currently
developing a commercial video retail product also utilizing the NVP technology
(the "retail version"). During the first half of 1997, the Company began
marketing the NVP

                                       17

<PAGE>

and Softsets as well as the NVP 2.2 as a stand-alone unit and as a PC board with
software. In September, 1997 the Company began selling limited quantities of the
NVP 2.2 (primarily to representatives for demonstration purposes).

         The Company intends to produce the NVP in the form of an ASIC chip in
accordance with the customer's specific application requirements supported by
firm commitments rather than producing and inventorying ASIC chips in
anticipation of applications required by customers in the future. In this
regard, the Company contracted with Adaptive to provide necessary technical
support and manage this process under the Company's direction. The Company also
contracted with TEC to complete the work necessary to convert the Company's
current NVP PC board design to ASIC specifications and contracted with ZMD for
production of the ASIC. The Company anticipates the ASIC will be in production
during the second half of 1998 and recently entered into a multi-year supply
agreement with Thomson for the purchase of the NVP ASIC chip.

         The Company has significantly scaled back its research and development,
and marketing and related activities with respect to all other existing or
proposed products in order to concentrate its resources on the continued
development and marketing of its Softsets and NVP products (i.e., ASIC chip for
the OEM market, the NVP 2.2 in the stand alone unit and PC board version for the
professional video market and the consumer video retail version). The Company
believes this product strategy will allow it to take full advantage of the
growth opportunity presented by the converging PC, television, HDTV and
telecommunication markets, which the Company believes to be quite significant.
The Company anticipates this strategy will also allow it to conserve its
resources and at the same time maximize the benefits to be derived from
introducing these products into these converging and expanding markets.

         As of December 31, 1997, the Company had accumulated a deficit during
the development stage of $9,189,556, which includes a net loss for the year
ended December 31, 1997 of $3,848,316. The loss for the year ended December 31,
1997 included $2,336,000 in selling, general and administrative expenses,
representing an increase of $527,432 compared to the year ended December 31,
1996. Such increase was primarily a result of sales and marketing efforts
discussed more fully below ($417,757), and general operating expenses as a
result of the Company's planned growth and expansion following the IPO,
including increased personnel and payroll costs ($94,952), professional and
legal services costs ($100,794), insurance costs ($95,848), depreciation expense
($23,497), office rent ($22,629) and other ($31,955). Such increases were
partially offset by a $260,000 decrease in the payments made to Prime
Technologies, Inc. pursuant to the Exclusive Agency Agreement (see Liquidity and
Capital Resources below). Although the Company anticipates deriving some revenue
from the sale of its proprietary software (Softsets) and the NVP products within
the next 12 months, no assurance can be given that these products will be
successfully marketed during such period. Even if revenues are produced from the
sale of such products, the Company expects to continue to incur losses for at
least the next 12 months. See "Liquidity and Capital Resources."

                                       18

<PAGE>

Marketing and Sales

         During the past twelve months, the Company contracted with a
professional marketing communications firm to assist in the development and
implementation of a program to develop market awareness and commercialization of
its products. This program has included development of Company and product
brochures and press kits, product specification sheets, development of a Company
booth for use at trade shows, attendance at key trade shows, mailers, the
production of corporate videos for use at sales presentations, development of
and placement of advertisements in key industry journals, etc. During 1997, the
Company began sales presentations of the NVP and Softsets to prospective OEM
customers (i.e., original equipment manufacturers of set top boxes, televisions,
multimedia computers and teleconferencing equipment). Although the Company is
unable to predict whether its marketing efforts will be successful, it believes
that the products have been well received. The Company anticipates the ASIC will
be in production during the second half of 1998 and as indicated above recently
entered into a multi-year supply agreement with Thomson for the purchase of the
NVP ASIC chip. Several other potential customers have signed Confidentiality/Non
Disclosure agreements with NUWAVE allowing them to expand their review and
examination of NUWAVE's exclusive video enhancement technology.

         In April 1997, the Company formed its ProWave Division for sales and
marketing of the NVP 2.2 and related products to the professional video market
(e.g., medical imaging and security surveillance systems). In September 1997,
the Company began selling limited quantities (primarily for demonstration
purposes) of its first commercial product, the NVP 2.2. In November 1997 the
Company contracted with The LACOM Group to help the Company activate a national
"rep" and dealer sales network to support the launch of this Division. Through
February 23, 1998 eight organizations had signed contracts to represent the
Company's ProWave Division. Management anticipates adding several additional rep
organizations over the next two months and expects to have their product and
sales training along with the necessary sales and marketing programs and
materials in place by the end of the second quarter of 1998. During the last
quarter of 1997, the Company began its premarketing efforts with regards to the
retail market by introducing a prototype of its stand-alone consumer product to
selected retail chains.

         The Company is currently developing a retail product for those
Consumers that have a TV and do not have a NUWAVE enabled product but want to
improve the picture quality of their home viewing. This product will be marketed
by the Company's CWave Division.

         During the past twelve months the Company has recruited a Vice
President of Sales, and contracted with professional sales consultants to
establish the development of the Company's sales organization managed by the
Vice President of Sales. In this regard, the Company has contracted with
Competitive Technologies, Inc. ("CTI") to assist it in the development of
NUWAVE's OEM business. CTI, for over twenty six years, has

                                       19

<PAGE>

been in the business of taking R&D and technology companies and introducing them
to the major companies specializing in their respective markets. The Company
also has contracts with several individuals and organizations that will act in a
commissioned sales representation capacity regarding the Company's products.
During the year ended December 31, 1997, the Company's sales and marketing costs
included $230,361 for professional sales and marketing consultants compared to
$43,509 for the year ended December 31, 1996; $289,892 for advertising and
public relations compared to $131,231 for the year ended December 31, 1996; and
$47,610 for trade shows (no expenditures for trade shows in 1996). The Company
began its sales and marketing activities during the fourth quarter of 1996
resulting in the increases for the full year activities shown for 1997. The
Company is continually reviewing its needs with a view to maximizing efficiency
while conserving its resources.

Research and Development

         Research and development activity with respect to the Company's Initial
Products was carried out by Rave prior to July 21, 1995, the date upon which the
Company and Rave entered into the License Agreement and the Development
Agreement. The technology on which the Company's Initial Products is based was
originated by Rave prior to the Company's organization and is licensed to the
Company by Rave pursuant to the License Agreement. Pursuant to the Development
Agreement the Company has utilized Rave to continue the development of the
Initial Products. Rave's role in the development of these products is
substantially completed.

         The Development Agreement terminates on October 2, 1998 unless the
parties agree to additional services to be performed by Rave and related
compensation. Because (i) the development of the Initial Products has been
substantially completed, (ii) the Company has increased its ability to take
advantage of the expertise of its Advanced Engineering Group, and (iii) it has
determined to devote substantially all of its resources to its Softsets and the
NVP products, the Company believes that in the event the Development Agreement
were not extended, there would not be a materially adverse effect on its
operations or ability to develop new technology.

         The Company's Advanced Engineering Group utilizes the services of third
party contractors in connection with its research and development activities.
The Company intends to continue to use outside consultants to assure exposure to
new ideas and technology and its Advanced Engineering Group to direct, supervise
and coordinate such efforts. The Company has used its Advanced Engineering Group
to create the NVP, to develop a significant amount of the software included in
each of its products and to develop new circuitry to allow certain of the
products to be produced as ASICs. In April 1997, it contracted with Adaptive to
assist in the ASIC development process. In November of 1997 the Company
contracted with TEC to complete the ASIC design in coordination with Adaptive
under the supervision of the Company's Vice President of Marketing/Technical
Development. The Advanced Engineering Group also developed Softsets and certain
of the enhancements to the NVP. The Company intends to use

                                       20

<PAGE>

members of the Advanced Engineering Group to assist it with the continued
development of the NVP in its OEM and retail versions but otherwise
significantly reduce its research & development activities for the Initial
Products.

         From July 17, 1995 through December 31, 1997, the Company incurred
expenses of $3,808,800 on research and development, of which approximately 71%
was paid to Rave pursuant to the Development Agreement. During the next 12
months, the Company intends to spend approximately $2,073,500 on research and
development and in support of the commercialization of its products. Of that
amount the Company estimates that approximately 49% will be paid to Rave
pursuant to the Development Agreement and approximately 51% will be spent by the
Company's Advanced Engineering Group for software development, ASIC chip
development, and supervising and directing production engineering undertaken by
third parties and on internal research and development. In the event the Company
is able to generate sufficient revenues from sales of its Softsets and NVP
products during such 12-month period, it anticipates it will increase its
expenditures on research and development and the identification of new sources
of technology.

Manufacturing.


         The Company does not contemplate that it will directly manufacture any
of its products. It intends to contract with third parties to manufacture its
proposed NVP and Softsets. It also may license to third parties the rights to
manufacture the products, either through direct licensing, OEM arrangements or
otherwise.

         The Company intends to produce the NVP ASIC chip in accordance with the
customer's specific application requirements supported by firm commitments
rather than producing and inventorying ASIC chips in anticipation of
applications required by customers in the future. In this regard, the Company
contracted with Adaptive to provide necessary technical support and manage this
process under the Company's direction, contracted with TEC to complete the work
necessary to convert the Company's current NVP PC board design to ASIC
specifications and contracted with ZMD for production of the ASIC. The Company
anticipates producing the initial ASIC during the second half of 1998 in
accordance with the requirements of the Thomson supply agreement and believes
that this initial ASIC will be readily adaptable to other customer
specifications, if required.

Employees

         The Company currently has nine full-time employees and, depending on
its level of business activity, expects to hire additional employees in the next
12 months, as needed, to support marketing and sales, manufacturing and research
and development.

                                       21

<PAGE>

Liquidity and Capital Resources

         From its inception until the IPO, the Company relied for all of its
funding ($2,900,000 in cash plus the cancellation of the notes in the principal
amount of $350,000) on private sales of its debt and equity securities (the
"Private Financings"). In July 1996, the Company completed its IPO and received
net proceeds of $9,538,428. The Company used $2,073,652 of the net proceeds of
the IPO to repay the principal and interest on the outstanding notes issued to
investors in connection with the Private Financings. On February 11, 1998, the
Company received net proceeds of approximately $915,000 from the sale of 253,485
shares of common stock pursuant to an agreement with ProFutures Special equities
Fund, L.P. ("ProFutures") dated February 6, 1998. The agreement provides up to
$5,000,000 in additional equity funding under certain terms and conditions (see
Note 10 to Notes to Financial Statements -"Subsequent Events"). Under the terms
of the agreement, after the registration statement filed on Form S-3 on March 3,
1998 becomes effective, the Company shall have the right to draw up to
$5,000,000 in cash (in exchange for shares of Common Stock at a 12% discount to
market) at any time through February 5, 2000. The decision to make draws, and
the timing and amount of such draws are solely at the Company's discretion,
subject to certain conditions; however the Company is required to draw a minimum
of $1,000,000 by February 5, 2000.

         Pursuant to the terms of the License Agreement and the Development
Agreement, the Company is paying Rave minimum aggregate royalties to maintain
the exclusivity under the license agreement and development fees of $65,000 per
month for the term of the License Agreement. The License Agreement also provides
for additional payments of $60,000 per year through July 22, 1998 to be made to
Rave for consulting services to be rendered to the Company. The Development
Agreement also provides for Rave to receive additional payments under certain
conditions aggregating $850,000 to purchase or lease equipment for use in
developing the Licensed Products and Technology. The payments were originally to
be made in monthly installments not to exceed $23,611 with a lump sum payment of
$283,336 due in March 1998, if certain conditions were met. In this regard, on
April 22, 1997, the Company deposited $300,000 into a certificate of deposit.
The certificate of deposit has been pledged as collateral for an irrevocable
standby letter of credit opened by the Company to guarantee monthly equipment
lease payments (not to exceed $23,611 per month) to be made by the Company on
behalf of Rave pursuant to the Development Agreement. The balance of the standby
letter of credit will be reduced by any payments made and any cash restriction
on the certificate of deposit is limited to the balance of the standby letter of
credit. Through December 31, 1997, the Company had made payments of $386,657
against the $850,000 of equipment purchases and at that date had $221,481
pledged as collateral to guarantee the monthly equipment lease payments.
Expenditures of the remaining $241,862 of the $850,000 will depend on finalizing
mutually agreed plans for the development of additional products for evaluation
by the Company during the remaining term of the Development Agreement.

         The technology on which the Initial Products is based has been licensed
from Rave pursuant to the License Agreement. Pursuant to the terms of the
License

                                       22

<PAGE>

Agreement, the Company is obligated to pay Rave royalties ("Royalties") of (i) 2
1/2% of net sales of products utilizing Rave's technology ("Sales Royalties"),
and (ii) 25% of any sublicensing fees received by the Company from sublicenses
of the products and technology covered by the License Agreement ("Licensed
Products and Technology"). Payments of Sales Royalties will commence upon the
earlier of (i) accumulated net sales of Licensed Products and Technology sold by
the Company or its future affiliates reaching an aggregate of $50,000,000, or
(ii) the Company's aggregate net profits from sales of Licensed Products and
Technology equaling $5,000,000.

         Pursuant to the terms of an Exclusive Agency Agreement ("the "Agency
Agreement") dated as of July 21,1995 between the Company and Prime, Prime will
receive 35% of net sublicensing fees received by the Company with respect to the
first $50,000,000 of aggregate net sales made by the Company's sublicensees,
after subtracting the payments to Rave and licensing expenses, and thereafter
45%. Prime will also receive up to an additional $1,500,000 of which (i)
$400,000 has been paid in accordance with the terms of the Agency Agreement,
(ii) $400,000 is payable out of the Company's first sublicensing fees, and (iii)
$700,000 is payable out of the Company's portion of sublicensing royalties when
net sublicensing sales exceed $200,000,000. The Agency Agreement only pertains
to the Licensed Products and Technology covered by the License Agreement with
Rave.

         The Company has determined to concentrate its resources and product
strategy on the sale of its Softsets and NVP products and therefore the Company
anticipates that its available cash will be sufficient to satisfy its
contemplated cash requirements for at least through the remainder of 1998.

Plan of Operation

         The Company's plan of operation over the next 12 months focuses
primarily on the marketing and sales of its Softsets and NVP products in the
OEM, professional video and retail markets and the continued effort necessary to
support the sales and marketing of these products.

         The Company anticipates, based on its current proposed plans and
assumptions relating to its operations, that it has sufficient cash to satisfy
the estimated cash requirements of the Company for the next 12 months from the
date of this document. In the event of unanticipated expenses, delays or other
problems the Company might be required to either utilize the equity financing
available under the terms of its agreement with ProFutures (see Note 10 to Notes
to Financial Statement - "Subsequent Events") or to seek additional funding
elsewhere. In addition, in the event that the Company receives a larger than
anticipated number of initial purchase orders upon introduction of Softsets and
the NVP products, it may require resources greater than its available cash or
than are otherwise available to the Company. In such event the Company may be
required to raise additional capital. There can be no assurance that such
additional capital will be available to the Company if needed, on commercially
reasonable terms or at all.

                                       23

<PAGE>

         The Company's future performance will be subject to a number of
business factors, including those beyond the Company's control, such as economic
downturns and evolving industry needs and preferences, as well as the level of
competition and the ability of the Company to successfully market its products
and technology. There can be no assurance that the Company will be able to
successfully implement a marketing strategy, generate significant revenues or
achieve profitable operations. In addition, because the Company has had only
limited operations to date, there can be no assurance that its estimates will
prove to be accurate or that unforeseen events will not occur.

Year 2000 Project

         The Company believes that the capacity of its existing data processing
and management information systems is sufficient to allow the Company to expand
its business without significant additional capital expenditures. In addition,
the Company has consulted with its software vendor about the year 2000 and data
processing changes that will be required and has been assured that our software
will be capable of handling process dates beyond the year 2000 by the end of
1998.

Impact of the Adoption of Recently Issued Accounting Standards

         In June 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130") and
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 130 requires that a business enterprise classify items of
other comprehensive income by their nature in the financial statements and
display the account balance of other comprehensive income separately from
retained earnings and accumulated paid in capital in the equity section of the
balance sheet. SFAS 131 requires that a business enterprise report certain
information about operating segments, products and services, geographic areas of
operation, and major customers in complete sets of financial statements and in
condensed financial statements for interim periods. These standards are
effective for years beginning after 1997. The Company believes that these
standards will not have a material effect, if any, upon the Company's financial
condition or its results of operations.

         In February 1998, the Financial Accounting Standards Board issued
Financial Accounting Standards No. 132 "Employers' Disclosure about Pensions and
other Retirement Benefits" ("SFAS 132"). SFAS 132, an amendment of SAFS #'s 87,
88 and 106, standardizes the disclosure requirements for pensions and other post
retirement benefits, requires additional information on changes in the benefit
obligations and fair values of plan assets and eliminates certain disclosures
that are no longer useful. This standard is effective for years beginning after
December 15, 1997. The Company believes that this standard will not have a
material effect, if any, upon the Company's financial condition or its results
of operations.

                                       24

<PAGE>

Certain Factors That May Affect Future Results

         The following factors, among others, could cause actual results to
differ materially from those contained in forward-looking statements made in
this Annual Report on Form 10-KSB and presented elsewhere by management from
time to time.

         1. Development Stage Enterprise; Absence of Operating History. The
Company is a development stage enterprise. It has had only a limited operating
history and has sold only a limited quantity of its products to date (primarily
for demonstration purposes). Since its inception in July 1995, the Company has
been engaged primarily in raising funds, directing, supervising and coordinating
its Advanced Engineering Group and Rave in the continuing development of the
AVP, the NUWAVE Dual TBC, the NUWAVE Ministudio, the Magic Card, the NVP and
Softsets, pre-marketing and more recently the commencement of comprehensive
program for manufacturing and marketing the NVP and the recruitment of
management and technical personnel, including members of the Advanced
Engineering Group.

         The Company's prospects must be considered in light of the risks
associated with the establishment of a new business in the evolving electronic
video industry, as well as further risks encountered in the shift from
development to commercialization of new products based on innovative technology.
There can be no assurance that the Company will be able to generate revenues or
achieve profitable operations.


         2. Limited Revenues; Accumulated Deficit; Anticipated Future Losses. To
date, the Company has received only limited revenue from the sale of its
products (primarily from sales made for demonstration purposes) and does not
anticipate significant operating revenue until such time, if ever, as its
relevant technology and one or more of its products are completely developed,
manufactured in commercial quantities and available for commercial delivery.
There can be no assurance that the Company's technology and products, if
developed and manufactured, will be able to compete successfully in the
marketplace and/or generate significant revenue. The Company anticipates
incurring significant costs in connection with the development of its
technologies and proposed products and there is no assurance that the Company
will achieve sufficient revenues to offset anticipated operating costs. As of
December 31, 1997, the Company had an accumulated deficit of $9,189,556.
Although the Company anticipates deriving some revenue from the sale of its NVP
and related products and its Softsets within the next 12 months, no assurance
can be given that these products will be successfully marketed or even
completely developed and tested for commercial use during such period, and the
Company has projected its expenses based on the assumption that it will receive
no revenues from the sale of its products during the remainder of 1998. Even if
revenues are derived from the sale or license of the Company's products, the
Company will continue to incur substantial losses for at least the next 12
months from the date of this document. Included in such losses are research and
development expenses, marketing costs,

                                       25

<PAGE>

manufacture and assembly, and general and administrative expenses. In as much as
the Company will continue to have high levels of operating expenses and will be
required to make significant expenditures in connection with its continued
research and development activities, the Company anticipates that such losses
will continue until such time, if ever, as the Company is able to generate
sufficient revenues to support its operations. See "Summary of Financial
Information" and "Management's Discussion and Analysis."

         3. Significant Capital Requirements; Dependence on Available Cash; Need
for Additional Financing. The Company's capital requirements in connection with
its development activities have been and will continue to be significant. The
Company has been dependent upon the proceeds of sales of its securities to
private investors to fund its initial development activities. On February 11,
1998, the Company received net proceeds of approximately $915,000 from the sale
of Common Stock to ProFutures pursuant to the Investment Agreement. Under the
terms of the Investment Agreement, the Company, subject to certain conditions,
has the right to draw up to $5,000,000 in cash by selling shares of Common Stock
to ProFutures from time to time for the next two years. The decision to make
draws and the timing and amount of such draws are solely at the Company's
discretion, subject to certain conditions. However, pursuant to the terms of the
Investment Agreement, the Company is required to draw a minimum of $1,000,000 in
cash in exchange for shares of Common Stock. The Company anticipates, based on
its current proposed plans and assumptions relating to its operations, that it
has sufficient cash to satisfy the estimated cash requirements of the Company
for the remainder of 1998. In the event of unanticipated expenses, delays or
other problems, the Company might be required to either utilize the equity
financing available under the Investment Agreement or seek additional funding
elsewhere. In addition, in the event that the Company receives a larger than
anticipated number of initial purchase orders upon introduction of Softsets or
the NVP products, it may require resources greater than its available cash or
than are otherwise available to the Company. In such event, the Company may be
required to raise additional capital. There can be no assurance that such
additional capital will be available to the Company if needed, on commercially
reasonable terms, or at all. The inability to obtain additional financing, when
needed, would have a material adverse effect on the Company, including possibly
requiring the Company to curtail or cease operations. To the extent that any
future financing involves the sale of the Company's equity securities, the
Company's then existing stockholders could be substantially diluted. See
"Management's Discussion and Analysis - Liquidity and Capital Resources."

         4. New Concept; Uncertainty of Market Acceptance; Lack of Marketing
Experience. The technology and products currently being developed by the Company
utilize new concepts and designs in video imagery and processing. The Company's
prospects for success will therefore depend on its ability to successfully sell
its products to key manufacturers and distributors who may be inhibited from
doing business with the Company because of their commitment to their own
technologies and products. As a result, demand and market acceptance for the
Company's technologies and products is subject to a high level of uncertainty.
The Company currently has limited financial, personnel and other resources to
undertake the extensive marketing activities that will be

                                       26

<PAGE>

necessary to market its technology and products once their development is
completed. There is no assurance that any of the Company's potential customers
will enter into any arrangements with the Company. There is no assurance that
the Company's marketing efforts will be successful. See "Business - Marketing"
and "Business - Research and Development."

         5. Dependence on Third-Party Design Changes. Commercialization of the
NVP and sale to manufacturers of the relevant video equipment will require such
manufacturers to adopt new circuit configurations to accommodate the relevant
chip in their products. Although the Company expects that manufacturers wishing
to utilize the NVP will make such modifications based on the benefits derived
from the improved performance of their products and the relative simplicity of
such modifications, there is no assurance that the necessary modifications will
be adopted widely, or at all. Additionally, the cost of such modifications may
inhibit or prevent their adoption. The failure of designers and manufacturers to
make such modifications would have a material adverse effect on the Company's
ability to sell and/or license the relevant products. See "Business -
Manufacturing."

         6. License. A portion of the technology from which the Company's
Initial Products were derived is licensed to the Company pursuant to the License
Agreement with Rave. The License Agreement provides that Rave will receive
minimum aggregate payments of Royalties and Development Fees, as defined in the
Development Agreement of $65,000 per month (the "Rave Minimum Payments"). If
Rave does not receive the Rave Minimum Payments, Rave has the option of electing
to make the License Agreement non-exclusive, which could, under some
circumstances, interfere with the Company's exploitation of its own technology.
The License Agreement also provides for the payment of Royalties based on the
net sales of the licensed products and technology as well as any sublicensing
fees paid to the Company. If the Company fails to pay the Royalties, Rave has
the option to terminate the License Agreement. See "Management's Discussion and
Analysis."

         7. Uncertainty of Product and Technology Development; Need for Product
Testing; Technological Factors. The Company originally anticipated devoting
significant resources to the final commercial development of its Magic Card
(which combines the analog based NVP with digitally based enhancements).
However, with the introduction and initial favorable reception of the NVP and
Softsets, the Company determined to devote substantially all of the personnel
and economic resources it would have devoted to the Magic Card to the marketing
of the NVP and Softsets. The Company believes this will give it the opportunity
to further refine the Magic Card based on its experience with the NVP and market
reaction. Because the final commercial development of the Magic Card will be
based in large part on the Company's experience in marketing the NVP, the
Company cannot predict when, if at all, it will finalize commercial development
of the Magic Card or commence marketing it.

                                       27
<PAGE>

         Product development efforts, with respect to all of the Company's
proposed products, are subject to all of the risks inherent in the development
of new technology and products (including unanticipated delays, expenses,
technical problems or difficulties, as well as the possible insufficiency of
funding to complete development). There can be no assurance as to when, or
whether, such developments will be successfully completed. No assurance can be
given that the products can be developed in commercially salable form within the
projected development schedule. If the Company, either through its Advanced
Engineering Group or Rave, is unable to complete its development activities with
respect to the Company's proposed products, it would have to complete
development through third parties. Although the Company presently believes it
has sufficient resources to complete development of these products, there is no
assurance that the Company will be able to complete such development in a timely
manner, or at all, or that it could enter into economically reasonable
arrangements for the completion of such products by third parties. In connection
with the development of commercially salable prototypes, the Company must
successfully complete a testing program for the products before they can be
marketed. Unforeseen technical problems arising out of such testing could
significantly and adversely affect the Company's ability to manufacture a
commercially acceptable version. In addition, the Company's success will depend
upon its technologies and proposed products meeting acceptable cost and
performance criteria and upon their timely introduction into the marketplace.
There can be no assurance the technologies and proposed products will
satisfactorily perform the functions for which they are designed, that they will
meet applicable price or performance objectives or that unanticipated technical
or other problems will not occur which would result in increased costs and/or
material delays in their development. See "Business - The Company's Video
Enhancement Products."

         8. Unconditional Obligation to Share Sublicense Fees. The Company has
entered into an Agency Agreement with Prime which provides that Prime will be
the Company's exclusive agent for entering into sublicenses with respect to the
products and technology licensed to the Company pursuant to the License
Agreement and will assist the Company in the development and implementation of a
sublicensing program. Subject to certain minimum sales requirements, the Agency
Agreement provides for the payment to Prime of 35% to 45% of net sublicense fees
received by the Company along with certain additional payments. To the extent
payments to Prime are based on sublicensing payments made to the Company, the
Agency Agreement provides that such payments must be made regardless of whether
the relevant sublicense is entered into through Prime's efforts or by the
Company itself. The unconditional obligation to pay Prime a portion of such
sublicensing fees may have an adverse effect on the Company's ability to enter
into profitable sublicensing arrangements with respect to the products and
technology licensed to the Company pursuant to the License Agreement or
adversely affect its ability to set competitive sublicense fees for those
products.

         9. Dependence on Third-Party Development and Manufacturing. The Company
does not contemplate that it will directly manufacture any of its products. It
intends to contract with third parties to manufacture its proposed NVP and
Softsets, and

                                       28
<PAGE>

related retail products. It also may license to third parties the rights to
manufacture the products, either through direct licensing, original equipment
manufacturer arrangements or otherwise.

         The Company will be dependent on third parties for the manufacture of
the ASIC-based NVP and related products as well as future products it may choose
to commercialize. Although the Company has entered into an agreement with a
potential manufacturer of its NVP ASIC chip, there can be no assurance that such
manufacturer will dedicate sufficient production capacity to satisfy the
Company's requirements within scheduled delivery times, or at all. Failure or
delay by the Company's suppliers in fulfilling its anticipated needs would
adversely affect the Company's ability to develop and market its products. In
addition, the Company will be dependent on third party vendors for many of the
components necessary for the final assembly of its ProWave Division products and
its anticipated retail products. The Company may have difficulty in obtaining
contractual agreements with the suppliers of such materials due to, among other
things, possible material shortages or possible lack of adequate purchasing
power. While management believes that these components are available from
multiple sources, it anticipates that the Company will obtain certain of them
from a single source, or limited number of sources, of supply. In the event that
certain of such suppliers are unable or unwilling to provide the Company with
such components on commercially reasonable terms, or at all, delays in securing
alternative sources of supply would result and could have a material adverse
effect on the Company's operations.

         10. Competition. The markets that the Company intends to enter are
characterized by intense competition, and, particularly with respect to the
market for video, editing, production and processing products, significant price
erosion over the life of a product. The Company's products will directly compete
with those of numerous well-established companies, such as Sony Electronics,
Inc., Panasonic Division of Matsushita Electric Industrial Co., Motorola, Inc.,
Mitsubishi International Corp. and Phillips Electronics, NV, which design,
manufacture and/or market video technology and other products. All of these
companies have substantially greater financial, technical, personnel and other
resources than the Company and have established reputations for success in the
development, licensing, sale and service of their products and technology.
Certain of these competitors dominate their industries and have the necessary
financial resources to enable them to withstand substantial price competition or
downturns in the market for video products. See "Business - Competition."

         11. Rapid Changes to Industry Standards; Product Obsolescence. The
markets for the technology and products being developed by the Company are
characterized by rapid changes and evolving industry standards often resulting
in product obsolescence or short product life cycles. As a result, certain
companies may be developing technologies or products of which the Company is
unaware which may be functionally similar, or superior, to some or all of those
being developed by the Company. As a result of all of the above, the ability of
the Company to compete will depend on its ability to complete development and
introduce to the marketplace in a timely and cost-

                                       29

<PAGE>

competitive manner its proposed products and technology, to continually enhance
and improve such products and technology, to adapt its proposed products to be
compatible with specific products manufactured by others, and to successfully
develop and market new products and technology. There is no assurance that the
Company will be able to compete successfully, that its competitors or future
competitors will not develop technologies or products that render the Company's
products and technology obsolete or less marketable or that the Company will be
able to successfully enhance its proposed products or technology or adapt them
satisfactorily. See "Business - Competition."

         12. Enforceability of Patents and Similar Rights; Possible Issuance of
Patents to Competitors; Trade Secrets. To the extent practicable, the Company
has filed or intends to file U.S. patents and/or copyright applications relating
to certain of its proposed products and technologies either on its own behalf
(or on behalf of Rave with respect to products and technology licensed pursuant
to the License Agreement) and to file corresponding applications in key
industrial countries worldwide. In April 1996, the Company filed two patent
applications on behalf of Rave for its Randall connector system and received one
patent in respect thereof in November 1997 and the second patent in respect
thereof in January 1998.

         In July 1996, the Company filed for a patent on behalf of Rave with
respect to the AVP. In January 1998, an initial rejection was received from the
patent examiner's office based on similarity to an existing patent. The Company
has filed an amendment more thoroughly differentiating the invention for which
the application is being filed from the existing patent. Although the Company
believes this patent application contains patentable claims, no assurance can be
given that a patent will be obtained. In April, 1998 the Company filed three
additional patent applications (one with regard to its NVP and two with regard
to its Softsets). Although the Company believes that each of these applications
contains patentable claims which are independent of the technology involved in
the above-mentioned patent application filed on behalf of Rave, there is no
assurance that any patents will be granted. If granted, there is no assurance
that any patent will afford the Company commercially significant protection of
its technology or that the Company will have adequate resources to enforce its
patents. Because the Company also intends to license and/or sell its technology
and products in foreign markets, it intends to seek foreign patent protection.
With respect to foreign patents, the patent laws of other countries may differ
significantly from those of the United States as to the patentability of the
Company's products or technology. Moreover, the degree of protection afforded by
foreign patents may be different from that in the United States. Patent
applications in the United States are maintained in secrecy until patents issue,
and since publication of discoveries in the scientific or patent literature
tends to lag behind actual discoveries by several months, the Company cannot be
certain that it will be the first creator of inventions covered by any patent
applications it makes or the first to file patent applications on such
inventions.

         Based on Rave's experience in the video industry, that of the Company's
own officers and directors with technical backgrounds; third party advisors who
are

                                       30

<PAGE>

familiar with the patent process; and patent searches made in connection with
the patent applications filed for the AVP and the Company's NVP, the Company
believes that the products it intends to market and sell do not infringe the
patents or other proprietary rights of third parties and is not aware of any
patents held by its competitors that will prevent, limit or otherwise interfere
with the Company's ability to make and sell the products it intends to market.
However, it is possible that competitors in both the United States and foreign
countries, many of which have substantially greater resources and have made
substantial investments in competing technologies, may have applied for, or may
in the future apply for and obtain, patents which have an adverse impact on the
Company's ability to make and sell its products. In addition, because of the
developmental stage of the Company, claims that the Company's products infringe
on the proprietary rights of others are more likely to be asserted after
commencement of commercial sales incorporating the Company's technology. There
can also be no assurance that competitors will not infringe the Company's
patents. Defense and prosecution of patent suits, even if successful, are both
costly and time consuming. An adverse outcome in the defense of a patent suit
could subject the Company to significant liabilities to third parties, require
disputed rights to be licensed from third parties or require the Company to
cease selling its products.

         The Company also relies on unpatented proprietary technology, and there
can be no assurance that others may not independently develop the same or
similar technology or otherwise obtain access to the Company's unpatented
technology. To protect its trade secrets and other proprietary information, the
Company requires employees, consultants, advisors and collaborators to enter
into confidentiality agreements. There can be no assurance that these agreements
will provide meaningful protection for the Company's trade secrets, know-how or
other proprietary information in the event of any unauthorized use,
misappropriation or disclosure of such trade secrets, know-how or other
proprietary information. If the Company is unable to maintain the proprietary
nature of its technologies, the Company could be adversely affected. See
"Business - Proprietary Information."

         13. Control by Management and Prime. The officers of the Company own
455,000 shares of Common Stock (not including currently exercisable options for
330,000 shares of Common Stock) or approximately 8.12% of the Company's
outstanding shares of Common Stock, and Prime (21.6% of the capital stock of
which is owned by Mr. David Kwong, a director of the Company, 21.6% of which is
owned by Rave and 16.1% of which is owned by Mr. Ted Wong, a former director of
the Company) beneficially owns 1,090,000 shares of Common Stock or approximately
19.5% of the Company's outstanding shares of Common Stock. Such officers and
Prime are therefore in a position to significantly influence the election of the
Company's directors and thereby select the management, and direct the policies,
of the Company.

         14. No Dividends. The Company has paid no cash dividends to date.
Payment of dividends on the Common Stock is within the discretion of the Board
of Directors and will depend upon the Company's earnings, its capital
requirements and financial condition, and other relevant factors. The Company
does not currently intend to

                                       31

<PAGE>

declare any dividends on its Common Stock in the foreseeable future. Currently,
the Company plans to retain any earnings it receives for development of its
business operations. See "Summary Financial Information."

         15. Limitation on Tax Loss Carryforwards. At December 31, 1997, the
Company had available unused net operating loss carryforwards ("NOLs")
aggregating approximately $3,761,463 to offset future taxable income. The unused
net operating loss carryforwards expire in various years from 2010 to 2012.
Under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"),
utilization of prior NOLs is limited after an ownership change, as defined in
such Section 382, to an amount equal to the value of the loss corporation's
outstanding stock immediately before the date of the ownership change,
multiplied by the federal long-term tax-exempt rate in effect during the month
that the ownership change occurred. The Company may be subject to limitations on
the use of its NOLs as provided under Section 382. Accordingly, there can be no
assurance that a significant amount of the Company's existing NOLs will be
available to the Company. In the event that the Company achieves profitability,
as to which there can be no assurance, such limitation would have the effect of
increasing the Company's tax liability and reducing the net income and available
cash resources of the Company in the future.

         16. Limitation on Liability of Directors and Officers. The Certificate
of Incorporation of the Company provides that (i) the Company will indemnify any
director, officer, employee or agent of the Company with respect to actions,
suits or proceedings relating to the Company and (ii) subject to certain
limitations, a director shall not be personally liable for monetary damages for
breach of his fiduciary duty. In addition, the Company has entered into an
indemnification agreement with each of the directors of the Company, which
provides that the director is entitled to indemnification to the fullest extent
permitted by law. Such indemnification will cover all expenses, liabilities,
judgments, penalties, fines and amounts paid in settlement which are incurred or
imposed upon the director if the director is a party, threatened to be made a
party to any action, suit or proceeding of any kind by reason of the fact that
such person served or serves as a director of the Company or served as a
director, officer, employee or agent with any other enterprise at the request of
the Company.

         17. General. Because of these and other factors, past financial
performance should not be considered an indicator of future performance.
Investors should not use historical trends to anticipate future result and
should be aware that the trading price of the Company's Common Stock may be
subject to wide fluctuations in response to quarter-to-quarter variations in
operating results, general conditions in the computer, video and
telecommunications industries, changes in earnings estimates and recommendations
by analysts and other events.

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<PAGE>

ITEM 7.  FINANCIAL STATEMENTS

         The information required by this item is incorporated by reference to
pages F-1 through F-23 of this Annual Report on Form 10-KSB.

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

(a)   Dismissal Of Independent Accounting Firm

        (i)   Coopers & Lybrand L.L.P. ("Coopers"), the independent accounting
              firm which audited the financial statements of the registrant
              during fiscal year 1996, was dismissed by the Company on February
              11, 1998.

        (ii)  Coopers' report on the Company's financial statements for either
              of the past two years did not contain an adverse opinion or a
              disclaimer of opinion, and was neither qualified nor modified as
              to uncertainty, audit scope, or accounting principles.

        (iii) The decision to change accountants was approved by the Board of
              Directors of the Company at the Meeting of the Board of Directors
              of the Company on February 4, 1998.

        (iv)  During the Company's two most recent fiscal years and any
              subsequent interim period preceding such dismissal, there were no
              disagreements with Coopers on any matter of accounting principles
              or practices, financial statement disclosure, or auditing scope or
              procedure, which disagreement(s), if not resolved to the
              satisfaction of Coopers, would have caused it to make reference to
              the subject matter of the disagreement(s) in connection with its
              report.

(b)   Engagement of New Independent Accountants

         The Company has engaged Richard A. Eisner & Company, LLP as its new
independent accountants effective February 11, 1998. During the Company's two
most recent fiscal years and any subsequent interim period prior to engaging
such accountants, the Company has not consulted with Richard A. Eisner &
Company, LLP regarding any of the matters specified in Item 304(a)(2) of
Regulation S-B.

         The disclosure called for by this Item 8 has been previously disclosed
by the Company under Item 4 of the Company's Current Report on Form 8-K filed
with the SEC on February 18, 1998.

                                       33

<PAGE>

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

DIRECTORS AND EXECUTIVE  OFFICERS

         Set forth below are the names, ages as of March 7, 1997 and business
experience of the directors and executive officers of the Company:

     Name               Age                          Position
=============           ===              =======================================

Gerald Zarin            57               Chairman of the Board of Directors,
                                           Chief Executive Officer and President
Ed Bohn                 52               Director
Lyle E. Gramley         71               Director
David Kwong             37               Director
Joseph A. Sarubbi       69               Director
Don Legato              54               Vice President - Sales
Jeremiah F. O'Brien     51               Vice President, Secretary and Chief
                                           Financial Officer
Robert Webb             62               Vice President - Marketing/Technical
                                           Development

         GERALD ZARIN has been a Director and President and Chief Executive
Officer of the Company since July 1995. He has been Chairman of the Board of
Directors since January 28, 1996. From June 1991 until January 1993, Mr. Zarin
was the Chairman, President and Chief Executive Officer of Emerson Radio
Corporation, which designs and sells consumer electronics products. From June
1993 to July 1995, he was President and Chief Executive Officer at AMD
Consulting, Inc., a business consulting firm. From November 1990 to June 1991,
he was President and Chief Executive Officer of JEM, Inc., an importer of fine
furnishings. From August 1987 to October 1990, he was Senior Vice President and
Chief Financial Officer of Horn & Hardart, Inc. Horn & Hardart, Inc. is the
parent company for Hanover House and various other hotels and fast food chains.
From 1976 to 1986, he was President and Chief Executive Officer of Morse
Electro, Inc., which designed and sold consumer electronics products.

         ED BOHN, has been a director of the Company since July 1995. From
February 1995 to the present, he has been a Director and Consultant of Jennifer

                                       34

<PAGE>

Convertibles, a furniture distributor. From September 1994 to the present, he
has operated as an independent consultant in financial and operational matters.
From January 1983 to March 1994, Mr. Bohn was employed in various capacities by
Emerson Radio Corporation, which designs and sells consumer electronics
products. From March 1993 to March 1994, he was Senior Vice President-Special
Projects; from March 1991 to March 1993, he was Chief Financial Officer and
Treasurer/Vice President of Finance. Emerson Radio filed in the United States
Bankruptcy Court, District of New Jersey, for protection under Chapter 11 of the
Federal Bankruptcy Act on September 29, 1993 and was discharged on March 31,
1994.

         LYLE E. GRAMLEY, has been a Director of the Company since December
1995. He has been employed by the Mortgage Bankers Association in Washington,
D.C. since 1985, as Senior Staff Vice President and Chief Economist from 1985 to
1992, and as a Consulting Economist from 1992 to the present. From 1980 to 1985,
Mr. Gramley was a member of the Board of Governors of the Federal Reserve Board.

         DAVID KWONG, has been a Director of the Company since July 1995. From
August 1993 to the present, he has been President of Premier Source
International, an importer/exporter of computer memory chips and from August
1993 to the present, he has been Executive Vice President of Prime Technology,
Inc., which performs business development for technology companies. From August
1989 to June 1993, he was Vice President of Advanced Computer Link, Inc., a
computer integration company.

         JOSEPH A. SARUBBI, has been a director of the Company since March 1996.
From October 1993 to June 6, 1996, he was a director of The Panda Project, Inc.,
a manufacturer of computers and semiconductor packages. Since April 1988, Mr.
Sarubbi has been a self-employed management and technical consultant to various
technology companies. From February 1986 to April 1988, he was Senior Vice
President of Manufacturing Operations for Tandon Corporation, a computer
manufacturer. From December 1952 to January 1986, Mr. Sarubbi was employed by
IBM in various senior engineering positions.

         DON LEGATO has been the Vice President-Sales of the Company since
February, 1997. From April 1994 to February 1997, he was the President of Gale
Group Ltd., Inc., a management consulting firm. From May 1993 to April 1994, he
served as Vice President Sales and Marketing and also as a Director for Applied
Safety Inc., (makers of the "World's First" Retrofit Driver's Side Airbag System
in the US). From June 1992 to May 1993 he was President of Technology Solutions
Distributing Inc., a computer products distribution company. From November 1972
to June 1992, he was President and CEO of T.L.D. Limited , Inc., a
manufacturer's representative company representing major electronics and
computer consumer products firm such as Sanyo, Sharp, Sony and Apple Computer.
He also served on Manufacturer's Advisory Councils for several of these
companies.

                                       35

<PAGE>

         JEREMIAH O'BRIEN has been Vice President and Secretary of the Company
since July, 1995 and Chief Financial Officer since January, 1996. From 1983 to
1989, he served as CFO and Executive Vice President for Cardiac Resuscitator
Corporation, a medical electronics manufacturer. From September 1989 through
June 1991, he served as Senior Vice President of Finance for Emerson Computer
Corporation and Emerson Technologies, Inc. (both of which manufacture and sell
electronic components and products). From June 1993 through March 1994, Mr.
O'Brien was Corporate Controller for Andin International, a jewelry
manufacturing company. During the period of July 1991 through July 1995, he also
functioned as an independent consultant in financial matters to various private
corporations.

         ROBERT WEBB has been the Vice President-Marketing/Technical Development
of the Company since September, 1995. From June 1995 to September 1995 Mr. Webb
acted as an independent consultant to various private corporations. From July
1994 until March 1995 he was Vice President of New Product Development for
Studio Magic, Inc., a company involved in the design and manufacture of computer
video equipment, and served as a consultant for such company from October 1993
to July 1994 and in April, 1995. From October 1973 until October 1993 he was
employed by Grass Valley Tektronix, which produces broadcast television
equipment. He served as a special advisor to the President of Grass Valley
Tektronix from February 1993 to September 1993; he was Division General Manager
- Graphics Systems from November 1990 to February 1993 and held various
executive positions prior to that time.


SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and any persons who beneficially own ten percent or more of
the Company's Common stock, to file with the SEC initial reports of beneficial
ownership and reports of changes in beneficial ownership of Common Stock. Such
persons are required by regulations of the SEC to furnish the Company with
copies of all Section 16(a) forms they file.

         Based solely upon a review of (i) copies of Section 16(a) filings
received by the Company during or with respect to the 1996 fiscal year and (ii)
certain written representations of its officers and directors with respect to
the filing of annual reports of changes in beneficial ownership on Form 5, the
Company believes that each filing required to be made pursuant to Section 16(a)
of the Exchange Act during the 1996 fiscal year, when the Company completed its
IPO, has been filed in a timely manner.

                                       36

<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

                       COMPENSATION OF EXECUTIVE OFFICERS

SUMMARY OF COMPENSATION

         The following table sets forth the annual and long-term compensation
paid by the Company for services performed on the Company's behalf since the
Company's inception in July 1995 through December 31, 1995 and for the fiscal
years ended December 31, 1996 and December 31, 1997, with respect to those
persons who were, as of December 31, 1997, the Company's Chief Executive Officer
and the Company's executive officers (the "Named Executive Officers").


                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                                                                                                  Long Term
                                              Annual Compensation                             Compensation Awards


                                                                                    Securities
                                                                                Underlying Options
                                                                 Other Annual   (Number of Shares)      All Other
Name and Principal Position      Year      Salary      Bonus     Compensation                         Compensation

<S>                              <C>      <C>               <C>       <C>             <C>                <C>

Gerald Zarin, President and      1995     $  39,800         $0        $0              200,000            $37,500(1)
  Chief Executive Officer        1996      $115,700    $50,000        $0                 0                 $0
                                 1997      $120,000         $0        $0                 0                 $0
Don Legato, Vice President-      1997      $129,800         $0        $0               60,000              $0
  Sales
Jeremiah O'Brien, Chief          1995     $  22,000         $0        $0               25,000              $0
  Financial Officer, Vice        1996      $ 93,100     $7,500        $0                5,000              $0
  President and Secretary        1997      $100,000         $0        $0                 0                 $0
Robert Webb, Vice                1995      $ 19,600         $0        $0               70,000              $0
  President-Marketing/           1996      $ 99,900    $17,500        $0                 0                 $0
  Technical Development          1997      $108,000         $0        $0                 0                 $0
</TABLE>

(1)  Payments made on account of services rendered in connection with the
     organization of the Company prior to July 17, 1995. In consideration
     for such services, Mr. Zarin also received 450,000 shares of Common
     Stock valued at $.01 per share. Mr. Zarin was elected Chairman of the
     Board on January 28, 1996.

OPTION GRANTS IN LAST FISCAL YEAR

         The following table sets forth all grants of options for the Company's
Common Stock to the Named Executive Officers of the Company during fiscal 1997.

                                       37

<PAGE>

                 OPTION GRANTS FOR YEAR ENDED DECEMBER 31, 1997
                       (Individual Grants in Fiscal Year)

<TABLE>
<CAPTION>

                                            %of Total
                         Number of            Options
                         Securities           Granted
                         Underlying          to Employees    Exercise or Base Price
Name                      Options          in Fiscal Year        ($/Share) (1)       Expiration Dates
----                      -------          --------------        -------------       ----------------
<S>                         <C>                 <C>                  <C>             <C>

Don Legato                  5,000               5.8                  6.875           February 10, 2001
                            5,000               5.8                  6.875           June 10, 2002
                           20,000              23.6                  6.875           February 10, 2003
                           30,000              35.4                  6.875           February 10, 2004
      TOTAL                60,000              70.6%
                           ======          =========
</TABLE>

(1) All grants of options have been made with exercise prices equal to fair
 value at date of grant.


AGGREGATED OPTION EXERCISES

         No options were exercised in fiscal year 1997 by any of the Named
Executive Officers. The following table sets forth, as of December 31, 1997, the
number of stock options and the value of unexercised stock options held by the
Named Executive Officers.

           Aggregated Option Exercises in Year Ended December 31, 1997
                           and Year-End Option Values

<TABLE>
<CAPTION>

                    Number of Securities            Value of Unexercised
                   Underlying Unexercised           In-The-Money Options1
Name            Options at December 31, 1997        at December 31, 1997
----            ----------------------------     ---------------------------
                           Exercisable         Unexercisable          Exercisable       Unexercisable

<S>                           <C>                   <C>                <C>                   <C>
Gerald Zarin                  200,000               0                  $1,000,000            $0
Robert Webb                    70,000               0                     350,000             0
Don Legato                     60,000               0                         0               0
Jeremiah O'Brien               30,000               0                     150,000             0
                               ------               -                    --------            --
TOTAL                         360,000               0                  $1,500,000           $ 0
                         ============               =           =================           ===
</TABLE>

(1)    The dollar value of the unexercised options has been calculated by
       determining the difference between the fair market value of the
       securities underlying the options and the exercise or base price of the
       option at exercise or fiscal year-end, respectively.


                                       38
<PAGE>

DIRECTORS' COMPENSATION

         All directors hold office until the next annual meeting of shareholders
and the election and qualification of their successors. Directors who are not
employees of the Company are entitled to a fee of $2,500 per year and $500 per
meeting attended (other than telephonic meetings) for serving on the Board of
Directors in addition to the reimbursement of reasonable expenses incurred to
attend any meetings. For the year ended December 31,1997, each non-employee
director received compensation of $500 for attendance at one non-telephonic
board meeting.

EMPLOYMENT AGREEMENTS

         Mr. Zarin entered into an Employment Agreement with the Company, dated
as of July 20, 1995, pursuant to which he agreed to serve as the Company's
President and Chief Executive Officer through December 31, 2000. In December,
1997, the term of the agreement was extended for two additional years to
December 31, 2002. The agreement provided for an initial salary of $90,000 per
year and increased to $120,000 per year on March 15, 1996. Mr. Zarin is also
entitled to an annual bonus equal to (i) 30% of his base compensation if the
Company's net income before taxes is equal to projections to be approved by the
Company's Board of Directors, (ii) 60% of his base compensation if the Company's
net profits before taxes are equal to 110% of such projections, and (iii) 100%
of his base compensation if the Company's net profits before taxes are equal to
120% of projections. Mr. Zarin can terminate the agreement upon 180 days notice.
The Company can terminate the agreement for good cause at any time. If the
Company terminates the agreement other than for good cause, or otherwise
materially breaches the contract, Mr. Zarin will receive a single payment equal
to the remaining payments he would have been entitled to receive during the
unexpired portion of the agreement. In addition, the employment agreement
provides Mr. Zarin with an option to purchase 200,000 shares of Common Stock at
$1.50 per share. The option expires December 31, 2000 and terminates if Mr.
Zarin voluntarily leaves the Company or the employment agreement is terminated
by the Company for good cause. In connection with services rendered in
establishing the Company and creating its business plan and projections, Mr.
Zarin received 450,000 shares of the Company's Common Stock valued at $.01 per
share.

         Mr. Webb entered into an Employment Agreement with the Company dated as
of September 11, 1995 pursuant to which Mr. Webb was appointed Vice
President-Marketing. In March 1997, his title was changed to Vice
President-Marketing/Technical Development in order to more accurately reflect
his duties. The employment agreement continues until March 31, 1996 and
thereafter for successive 3-month periods or upon termination. Mr. Webb's
initial salary was $5,000 per month and was increased to $108,000 per year as of
August 14, 1996. In connection with his employment agreement, Mr. Webb received
options to purchase 70,000 shares of the Company's Common Stock.

                                       39

<PAGE>

         Mr. Legato entered into an Employment Agreement with the Company dated
as of February 11, 1997 pursuant to which Mr. Legato was appointed Vice
President-Sales. The Employment Agreement continues until March 31, 1996 and
thereafter for successive 3-month periods or upon termination. Mr. Legato's
initial salary was $150,000 per annum as of August 14, 1996 and has not been
increased. In connection with his Employment Agreement, Mr. Legato received
options to purchase 60,000 shares of the Company's Common Stock.

         In connection with services performed by Mr. O'Brien, on July 17, 1995
he received 5,000 shares of the Company's Common Stock valued at $.01 per share
and has been granted options to purchase 25,000 shares of the Company's Common
Stock at $1.50 per share pursuant to an Option Agreement for the Purchase of
Common Stock dated September 11, 1995 and 5,000 shares of the Company's Common
Stock at $2.00 per share pursuant to an Option Agreement dated March 1, 1996.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT

         The table below is based on information obtained from the persons named
below with respect to the shares of Common Stock beneficially owned, as of March
31, 1997 (except as noted below), by (i) each person known by the Company to be
the owner of more than 5% of the outstanding shares of Common Stock, (ii) each
director and nominee for director, (iii) each executive officer included in the
Summary Compensation Table and (iv) all executive officers and directors of the
Company as a group.


                                         AMOUNT AND NATURE OF      PERCENTAGE OF
   NAME AND ADDRESS OF BENEFICIAL           OF BENEFICIAL          OUTSTANDING
              OWNER                           OWNERSHIP1           SHARES OWNED2
------------------------------------   ------------------------   --------------

Gerald Zarin                                   650,000 3                10.9%
    36 Troy Drive
    Short Hills, NJ 07078

Ed Bohn                                         28,000 4                  *
    322 Broadway
    Pompton Lakes, NJ 07442

Lyle Gramley                                    28,000 5                  *
    12901 Three Sisters Road
    Potomac, MD 20854

David Kwong                                  1,113,000 5, 6, 7          18.8%
    13694 Fremont Pines Road
    Los Altos, CA 94022

                                       40

<PAGE>

Joseph A. Sarubbi                               43,000 5                  *
    3221 S. Ocean Blvd., Suite 908
    Highland Beach, FL 33487

Don Legato                                      30,000 8                  *
    2 West Close Street
    Moorestown, NJ 08057

Jeremiah F. O'Brien                            37,500 9                   *
    525 W. 236th St., #5-F
    Riverdale, NY 10463

Robert Webb                                    70,000                    1.1%
    298 Stanton Mountain Rd.
    Lebanon, NJ 08833

Helen Burgess                                 577,854                    9.7%
    40 E. 30th St., 10th FL.
    New York, NY 10016

Prime Technology, Inc.                      1,090,000 6                 18.2%
    2041 Mission College Blvd.
    Suite 175
    Santa Clara, CA 95054

Ted Wong                                    1,090,000 6, 10             18.2%
    663 Spruce Drive
    Sunnyvale, CA 94086
                                            1,090,000 6, 11             18.2%
Rave Engineering Corporation
    10930 Technology Place, Suite B
    San Diego, CA 92127

All executive officers and directors as a   1,999,500 12                33.5%
group (8 persons)

* Less than 1%.

(1)      The number of shares of Common Stock beneficially owned by each person
         is determined under the rules of the SEC, and the information is not
         necessarily indicative of beneficial ownership for any other purpose.
         Under such rules, beneficial ownership includes any shares as to which
         the individual has sole or shared voting power or investment power and
         also any shares of Common Stock which the individual has the right to
         acquire within 60 days after March 24, 1998 through the exercise of any
         stock option or other right. The inclusion herein of any shares of
         Common Stock deemed beneficially owned does not constitute an admission
         of beneficial ownership of those shares. Unless otherwise indicated,
         the persons named in the table have sole voting and investment power
         with respect to all shares of Common Stock shown as beneficially owned
         by them.

(2)      The number of shares deemed outstanding includes shares outstanding as
         of March 24, 1998 plus any shares subject to options held by the person
         in question that are currently exercisable within 60 days after March
         24, 1998.

                                       41

<PAGE>

(3)      Includes 200,000 shares that may be acquired within 60 days of March
         24, 1998, upon the exercise of outstanding options.

(4)      Includes 23,000 shares that may be acquired within 60 days of March 24,
         1998, upon the exercise of outstanding options.

(5)      Includes 8,000 shares that may be acquired within 60 days of March 24,
         1998, upon the exercise of outstanding options.

(6)      David Kwong, a director of the Company, and Rave (substantially all of
         the stock of which is owned by the family of Randy Burnworth) each own
         approximately 21.6% of Prime's stock. Ted Wong, a former director of
         the Company, owns approximately 16.1% of Prime's stock. Messrs. Kwong,
         Burnworth and Wong are each directors of Prime. Each of Messrs. Kwong,
         Burnworth and Wong disclaim beneficial interest in the Company's Common
         Stock owned by Prime.

(7)      Includes 1,090,000 shares of the Company's Common Stock owned by Prime,
         as to which Mr. Kwong disclaims beneficial interest. See footnote (6)
         above.

(8)      Includes 30,000 shares that may be acquired within 60 days of March 24,
         1998, upon the exercise of outstanding options.

(9)      Includes 30,000 shares that may be acquired within 60 days of March 24,
         1998, upon the exercise of outstanding options. Also includes 2,500
         shares that may be acquired within 60 days of March 24, 1998, upon the
         exercise of outstanding warrants held by Mr. O'Brien's wife. As to
         these 2,500 shares, Mr. O'Brien disclaims beneficial interest.

(10)     Includes 1,090,000 shares of the Company's Common Stock owned by Prime,
         as to which Mr. Wong disclaims beneficial interest. See footnote (6)
         above.

(11)     Includes 1,090,000 shares of the Company's Common Stock owned by Prime,
         as to which Rave disclaims beneficial interest. See footnote (6) above.


(12)     See footnotes (1) through (11) above.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company was conceived of by Mr. Ernest Chu in June 1994 when he met
Mr. Ted Wong, the President of Prime as a result of an introduction by employees
of a high-technology company for which Mr. Chu was then rendering consulting
services in his individual capacity. At that time, Prime was the exclusive
licensee of all of the technology belonging to Rave. Mr. Chu believed that the
technology had the potential to be commercialized on a mass basis for use in the
video broadcast industry. In the fall of 1994, Mr. Chu and Mr. Wong determined
that the Rave technology could be most effectively exploited if a new company
were organized to license the technology and related products and devote its
principal attention to directly commercialize and manufacture such products,
rather than relying on sublicensing. They agreed that Prime and Mr. Chu would
directly participate in the equity of the new entity, and Rave would participate
through its approximately 20% equity ownership in Prime and through royalty and
development payments from the new company. Prime would continue to be
responsible for sublicensing through an agency agreement with the new company.
The parties recognized the need for an experienced president to operate the new
company and to commercialize the products, and began negotiations with Mr.
Gerald Zarin, whom Mr. Wong had recently met, to accept that position and
participate in the Company's equity.

         Negotiations commenced in December 1994 and continued among Mr. Zarin,
Mr. Chu and Mr. Wong, on behalf of Prime, and Mr. Randy Burnworth, on behalf of
Rave, through early July 1995. As a result of these negotiations, the Company
was

                                       42

<PAGE>

organized in July 1995, at which time Prime terminated its exclusive license
arrangement with Rave, and the Company entered into the License Agreement, as
described below. In addition, Rave agreed to continue the development of the
technology and the Initial Products pursuant to the Development Agreement
described below. Prime became the Company's exclusive agent to sublicense the
Rave technology-related products to third parties (subject in all cases to the
Company's approval) under the terms of the Agency Agreement described below. Mr.
Zarin became the Company's President and Mr. Chu became the Chairman of its
Board of Directors and acting Chief Financial Officer. Mr. Wong became a
director of the Company. The Company also entered into a consulting agreement
with Corporate Builders, L.P., a limited partnership controlled by Mr. Chu.

         In connection with their organizational activities, Messrs. Chu, Wong,
Burnworth and Zarin, as well as Rave and Prime, acted as "Promoters" of the
Company within the meaning of the regulations promulgated by the Commission
pursuant to the provisions of the Securities Act.

         Mr. Wong, a former director of the Company, is a director of Prime and
an approximate 16% shareholder in Prime. Mr. Wong is also the President and
Chief Executive Officer of Prime. Mr. David Kwong, a director of the Company, is
a director and approximate 22% shareholder of Prime. Mr. Kwong is also a Vice
President of Prime. Rave is an approximate 20% shareholder of Prime, and Mr.
Burnworth is a director of Prime. Mr. Burnworth is not a shareholder or officer
of Rave; however, he is the primary source of Rave's technology and provides the
direct supervision with respect to all of the development performed by Rave.
Substantially all of the stock of Rave is owned by members of Mr. Burnworth's
immediate family. No officer or director of the Company, except for Mr. Kwong,
has any ownership interest in, or serves as a director or officer of, Prime. No
officer or director of the Company has any ownership interest in, or serves as a
director or officer of, Rave.

         A substantial portion of the Company's technology has been licensed
from Rave pursuant to the License Agreement between the Company and Rave.
Pursuant to the terms of the License Agreement, the Company is obligated to pay
Royalties of (i) 2 1/2% of net sales of products utilizing Rave's technology
("Sales Royalties"), and (ii) 25% of any sublicensing fees received by the
Company from sublicenses of the Licensed Products and Technology. Payments of
Sales Royalties will commence upon the earlier of (i) accumulated net sales of
Licensed Products and Technology sold by the Company or its future affiliates
reaching an aggregate of $50,000,000, or (ii) the Company's aggregate net
profits from sales of Licensed Products and Technology equaling $5,000,000. As
of the date hereof, the Company has not sold or licensed any products and no
Royalties, other than the Rave Minimum Payments have been paid to Rave pursuant
to the License Agreement.

         The License Agreement also obligates the Company to pay $60,000 per
year to Rave for consulting services (the "Rave Consulting Fees") through July
21, 1998. The Rave Consulting Fees are payable in $15,000 quarterly
installments, in advance, plus

                                       43

<PAGE>

reasonable expenses. The License Agreement also provides that Rave will receive
minimum aggregate payments (the "Rave Minimum Payments") of Royalties and
Development Fees (pursuant to the Development Agreement described below) of at
least $65,000 per month. If Rave does not receive the Rave Minimum Payments, it
may elect to make the License Agreement non-exclusive. If the Company fails to
pay the Royalties, Rave may terminate the License Agreement and become the
licenser with respect to licenses granted by the Company pursuant to the License
Agreement.

         The License Agreement terminates upon the later to occur of either (i)
the expiration of the last to expire of the patents obtained with respect to the
Company's technology, or (ii) July 21, 2012.

         In March 1997, the Company agreed with Rave to exclude from the License
Agreement the Video Game Technology. In return, Rave agreed to pay the Company
2.5% of net sales of products using the Video Game Technology and 25% of any
fees it receives from licensing such technology. The Video Game Technology is
not used in any of the Company's current products, and the Company had no
current plans to develop it. As a result, the Company determined that it was
more likely that it would derive economic benefit from the technology if its
development and commercialization was undertaken by another party. The Company
continues to hold the rights to the technology outside the video game industry
under the License Agreement.

         The Company also entered into the Development Agreement with Rave
pursuant to which the Company formulated the Development Plan extending through
October 1998. The Development Plan focuses principally on the development of
defined products. Pursuant to its terms, it will be revised from time to time to
provide for the development of additional related products. The Development
Agreement provides for the payment to Rave of a monthly fee (the "Development
Fee") which, when aggregated with the Royalties provided for in the License
Agreement, must equal at least $65,000 per month. The Development Plan is to be
revised by October 2, 1998 and on each anniversary thereafter for each year the
Development Agreement remains in effect. The Development Agreement, which
terminates on October 2, 1998, provides that it continues for successive
12-month periods if the parties agree to additional services to be performed by
Rave and related compensation at least 12 months prior to its expiration. In
addition, the Development Agreement provides for Rave to receive payments
aggregating $850,000 to purchase or lease equipment (the "Equipment") for use in
developing the licensed products and technology. In this regard, on April 22,
1997, the Company deposited $300,000 into a certificate of deposit. The
certificate of deposit has been pledged as collateral for an irrevocable standby
letter of credit opened by the Company to guarantee monthly equipment lease
payments (not to exceed $23,611 per month) to be made by the Company on behalf
of Rave pursuant to the Development Agreement. The balance of the standby letter
of credit will be reduced by any payments made and any cash restriction on the
certificate of deposit is limited to the balance of the standby letter of
credit. Through December 31, 1997, the Company had made payments of $386,657
against the $850,000 of equipment purchases and at that date had $221,481
pledged as collateral to guarantee

                                       44

<PAGE>

the monthly equipment lease payments. Expenditures of the remaining $241,862 of
the $850,000 will depend on finalizing mutually agreed plans for the development
of additional products for evaluation by the Company during the remaining term
of the Development Agreement.

         The Development Agreement provides that all results of development,
including unrelated developments, belong to the Company, and that Rave will not
undertake any development activities for third parties without the consent of
the Company. To the best of the Company's knowledge, Rave is not providing
development activities for any third parties.

         Through December 31, 1997, all amounts paid to Rave pursuant to the
License Agreement and the Development Agreement have been charged to research
and development expenses ("Rave R & D Expenses"). For the cumulative period from
July 17, 1995 (inception) to December 31, 1997, Rave R & D Expenses were
$2,657,355.

         In order to assist it in obtaining sublicensing revenue, the Company
entered into the Agency Agreement with Prime which provides that Prime will be
the Company's exclusive agent for entering into sublicenses with respect to the
products and technology licensed to the Company pursuant to the License
Agreement. Because its products are not fully developed, and because it has
emphasized product sales rather than sublicensing, the Company has not developed
a licensing program, established proposed royalties, or otherwise determined the
terms or conditions of the arrangements it may want to make with proposed
licensees or others. These programs will be developed in conjunction with
product research and development and with Prime pursuant to the Agency
Agreement. For its services, with respect to the first $50,000,000 of aggregate
net sales made by the Company's sublicenses, after subtracting the payments to
Rave pursuant to the Licensing Agreement and licensing expenses, Prime will
receive 35% of net sublicensing fees received by the Company and thereafter 45%.
Because the Company has retained the right to enter into license and sublicenses
independently, payments to Prime are to be made regardless of whether the
relevant sublicenses are entered into through Prime's efforts or by the Company
itself. Prime will also receive up to an additional $1,500,000 of which (i)
$400,000 is payable regardless of the receipt of sublicense fees in installments
of $15,000 per month which began January 1, 1996 and increased in accordance
with the terms of the agreement to installments of $40,000 per month in July
1996, (ii) $400,000 is payable out of the Company's first sublicensing fees, and
(iii) $700,000 is payable out of the Company's portion of sublicensing royalties
when net sublicensing sales exceed $200,000,000.

         The Agency Agreement also provides that Prime will contribute its
royalty participation to pay Rave in any month in which the Company, after
making reasonable commercial effort, is unable to make the $65,000 Rave Minimum
Payment necessary to maintain the License Agreement on an exclusive basis with
such amounts to be repaid by the Company to Prime out of the Company's next
available royalty payment or 12 months from the date of such advance.

                                       45

<PAGE>

         The Agency Agreement terminates upon the termination of the License
Agreement or upon a default, as defined in the Agency Agreement.

         Prime has been paid $400,000 pursuant to the Agency Agreement through
December 31,1997.

         Rave's principal activities are providing services for the Company
pursuant to the Development Agreement. Prime was organized in 1993 and, at that
time, substantially all of its activities related to proposed licensing of
Rave's products and technology and the organization of the Company. The
exclusive licensing arrangement between Rave and Prime relating to the
technology used by the Company was terminated in July 1995.

         In connection with the organization of the Company and the termination
of Prime's then existing licensing arrangements with Rave, on July 17, 1995,
Prime received 1,090,000 shares of the Company's Common Stock valued at $.01 per
share.

         The Company entered into a Consulting Agreement with Corporate
Builders, L.P. (the "Consultant") effective as of August 1, 1995 (the "Corporate
Builders Agreement"). Mr. Chu (who served as the Chairman of the Company's Board
of Directors and its acting Chief Financial Officer from its inception until
January 28, 1996) is a principal of the Consultant. The Corporate Builders
Agreement provides, among other things, that the Consultant will serve as an
advisor to the Company with regard to its relationship with the investment
community, assist the Company in developing a corporate strategy and business
and management goals, assist in the preparation of media presentations, oversee
the production of video production relating to the Company's products and
services, and, at the Company's request, have a representative of the Consultant
serve as a member of the Company's board of directors up to the time the Company
offers its securities to the public pursuant to a registration statement filed
pursuant to the Act. The term of the agreement is for two years unless
terminated by either party for any reason. The Consultant received fees of
$7,500 per month until August 1997, and thereafter $5,000 per month until the
agreement terminates. In connection with services rendered in establishing the
Company and creating its business plan and projections performed by Mr. Chu,
commencing in mid-1994, at the direction of Mr. Chu, in July 1995 the Company
issued 450,000 shares of the Company's Common Stock valued at $.01 per share
earned by Mr. Chu to First Earth Investors, Consultant, and W2 Technologies,
Inc., all entities affiliated with Mr. Chu, in the amounts of 250,000 shares,
125,000 shares and 75,000 shares, respectively, as capital contributions to each
of the respective entities. As of June 19, 1996, Consultant returned its 125,000
shares of the Company's Common Stock back to Mr. Chu. As of June 28, 1996, the
125,000 shares of the Company's Common Stock received by Mr. Chu from Consultant
were returned to the Company. The 125,000 shares of the Company's Common Stock
were returned to Mr. Chu and, subsequently, to the Company to prevent such
shares from being considered underwriting compensation to either Consultant or
Mr. Chu.

                                       46

<PAGE>

         The total consulting fees paid to Consultant pursuant to the Consulting
Agreement for the period from inception (July 17, 1995) to December 31, 1997 was
$175,000 plus out-of-pocket expenses. The total aggregate payments made to Mr.
Chu and the affiliated entities for the cumulative period from inception to
December 31, 1997 was $264,998.

         In connection with the organization of the Company, on July 17, 1995,
Mr. Gerald Zarin, the Company's President and Chairman of its Board of
Directors, received 450,000 shares of the Company's Common Stock valued at $.01
per share. Mr. Zarin entered into an Employment Agreement with the Company dated
as of July 20, 1995 and in that connection was granted options to purchase
200,000 shares of the Company's Common Stock at an exercise price of $1.50 per
share. The options expire December 31, 2000.

         In connection with the organization of the Company, Mr. Jeremiah
O'Brien, the Company's Vice President-Finance and Chief Financial Officer,
received 5,000 shares of the Company's Common Stock valued at $.01 per share. In
connection with his employment by the Company, as of July 17, 1995, Mr. O'Brien
was granted options to purchase 25,000 shares of Common Stock at an exercise
price of $1.50 per share, 10,714 of which vested immediately and the remainder
of which vested equally on July 17, 1996 and July 17, 1997. All of such options
expire on the fifth anniversary of their vesting. On March 1, 1996, Mr. O'Brien
was granted options to purchase an additional 5,000 shares of Common Stock at an
exercise price of $2.00 per share, which options expire March 1, 2001.

         In connection with his employment by the Company, on September 11,
1995, Mr. Robert Webb was granted options to purchase 70,000 shares of Common
Stock at an exercise price of $1.50 per share, 30,000 of which vested
immediately and the remainder of which vested equally on September 11, 1996 and
September 11, 1997. All of such options expire on the fifth anniversary of their
vesting.

         In connection with the organization of the Company, on July 17, 1995,
Mr. Edward Bohn received 5,000 shares of the Company's Common Stock valued at
$.01 per share. In connection with his agreement to continue serving as a
director of the Company, on March 1, 1996, Mr. Bohn was granted options to
purchase 15,000 shares of Common Stock at an exercise price of $2.00 per share.
The options expire March 1, 2001. In addition, since 1996, Mr. Bohn has acted as
a consultant to the Company from time to time on matters specified by the
Company's President. In that connection he has received compensation on a per
diem basis of $1,000 per day and on May 29, 1997, Mr. Bohn was granted options
to purchase 12,500 shares of Common Stock at an exercise price of $6.750. The
options expire as follows: 4,167 on May 29, 2003, 4,167 on May 29, 2004, and
4,167 on May 29, 2005. For the year ended December 31, 1996, Mr. Bohn received
$14,250 on account of such consulting services. In March 1997 Mr. Bohn entered
into a consulting agreement with the Company pursuant to which he agreed to act
as the

                                       47

<PAGE>

Company's consultant with regard to certain agreements for a three month period
for a rate of $1,000 per day with a minimum of $1,750 per week and a maximum of
$2,750 per week regardless of the actual time spent on the Company's behalf. For
the year ended December 31, 1997, Mr. Bohn received $57,250 on account of such
consulting services.

         In connection with his agreement to serve as a director, on November 9,
1995, Mr. Lyle Gramley was granted options to purchase 20,000 shares of Common
Stock at an exercise price of $1.50 per share. Mr. Gramley exercised his options
as of June 30, 1996.

         In connection with his agreement to serve as a director, on March 1,
1996, Mr. Joseph A. Sarubbi was granted options to purchase 35,000 shares of
Common Stock at an exercise price of $2.00 per share, 11,667 of which vested
immediately and 11,667 of which vested March 1, 1997 and 11,666 of which vested
March 1, 1998. As of March 19, 1998, Mr. Sarubbi exercised all of his vested
options. In addition, beginning in 1996, Mr. Sarubbi has acted as a consultant
to the Company from time to time on matters specified by the Company's
President. In that connection he has received compensation on a per diem basis
of $1,000 per day. For the year ended December 31, 1996, Mr. Sarubbi received
$6,000 on account of such consulting services.

         In July and August 1995, Ms. Helen Burgess purchased 437,854 shares of
the Company's Series A Preferred Stock for $1.50 per share in a private
placement, which shares were converted into Common Stock on a one-for-one basis
at the time of the Company's IPO in July 1996. In December 1995, Ms. Burgess
purchased certain promissory notes in the principal amount of $350,000 and
70,000 shares of Common Stock. In March 1996, when the Company concluded a
Private Placement of an aggregate of (i) $2,000,000 senior subordinated
non-negotiable promissory notes (collectively, the "Bridge Notes") bearing
interest at the rate of 6% per annum and (ii) 400,000 shares of Common Stock
(the "Bridge Shares") to certain accredited investors, Ms. Burgess exchanged
such notes for Bridge Notes in the principal amount of $350,000 and 70,000
additional shares of Common Stock. The Bridge Notes were repaid from the
proceeds of the Company's IPO. Ms. Burgess is a limited partner in the
Consultant.

         On March 27, 1996, Mr. David Kwong, a director of the Company,
purchased $150,000 principal amount of Bridge Notes and 30,000 Bridge Shares.
The Bridge Notes were repaid from the proceeds of the Company's IPO.

         With respect to each transaction between the Company and an affiliate
of the Company, a majority of the disinterested members of the Board of
Directors determined that such transactions were on terms at least as fair as
had they been consummated with unrelated third parties. The Board of Directors
has adopted a policy that prior to entering into any transaction with a related
party, a similar determination must be made with respect to such transaction by
a majority of the Company's disinterested directors.

                                       48

<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)      EXHIBITS

EXHIBIT          DESCRIPTION
-------          -----------

1.1*     Form of Underwriting Agreement (See Exhibit 1.1 to Registration
         Statement on Form SB-2 filed with the Commission on April 2, 1996).
3.1*     Articles  of  Incorporation  of  the  Company  (Delaware)  (See
         Exhibit  3.1(a) to  Registration  Statement  on Form SB-2 filed
         with the Commission on April 2, 1996).
3.2*     Certificate of Amendment to Articles of Incorporation of the Company
         (Delaware) (See Exhibit 3.1(b) to Registration Statement on Form SB-2
         filed with the Commission on April 2, 1996).
3.3*     Certificate of Authority (New Jersey) (See Exhibit 3.1(c) to
         Registration Statement on Form SB-2 filed with the Commission on
         April 2, 1996).
3.4*     Amended  Certificate  of  Authority  (New  Jersey) (See Exhibit
         3.1(d) to  Registration  Statement  on Form SB-2 filed with the
         Commission on April 2, 1996).
3.5*     Certificate of Amendment to Articles of Incorporation of the
         Company (Delaware) (See Exhibit 3.1(e) to Registration Statement on
         Form SB-2 filed with the Commission on April 2, 1996).
3.6*     By-Laws of the Company (See Exhibit 3.2 to Registration Statement
         on Form SB-2 filed with the Commission on April 2, 1996).
4.1*     Form of Common Stock Certificate (See Exhibit 4.1 to Amendment No. 2 to
         Registration Statement on Form SB-2 filed with the Commission on July
         3, 1996).
4.2*     Form of Public Warrant Agreement between the Company, American
         Stock Transfer & Trust Company and Rickel & Associates, Inc. (See
         Exhibit 4.2 to Amendment No. 1 to Registration Statement on Form SB-2
         filed with the Commission on May 22, 1996).
4.3*     Form of Public Warrant Certificate (See Exhibit 4.3 to Amendment
         No. 2 to Registration Statement on Form SB-2 filed with the Commission
         on July 3, 1996).
4.4*     Form of Underwriter's Warrant Agreement (including Warrant Certificate)
         between the Company and Rickel & Associates (See Exhibit 4.4 to
         Amendment No. 1 to Registration Statement on Form SB-2 filed with the
         Commission on May 22, 1996).
4.5*     Selected Dealer Agreement among Rickel & Associates, Inc. and certain
         underwriters (See Exhibit 4.5 to Amendment No. 2 to Registration
         Statement on Form SB-2 filed with the Commission on July 3, 1996).
5.1*     Opinion of counsel to the Company concerning the legality of the
         securities offered in the Company's Initial Public Offering (See
         Exhibit 5.1 to

                                       49

<PAGE>

         Amendment No. 2 to Registration Statement on Form SB-2 filed with the
         Commission on July 3, 1996).
5.2*     Opinion of Greenberg Taurig Hoffman Lipoff Rosen & Quentel, P.A. (See
         Exhibit 5.1 to Registration Statement on Form S-8 filed with the
         Commission on November 12, 1997).
5.3*     Opinion of counsel to the Company concerning the legality of the
         securities being offered (See Exhibit 5 to Registration Statement on
         Form S-3 filed with the Commission on March 8, 1998).
10.1*    Restated Employment Agreement dated as of July 20, 1995 between NUWAVE
         Engineering, Inc. and Gerald Zarin (See Exhibit 10.1 to Registration
         Statement on Form SB-2 filed with the Commission on April 2, 1996).
10.2*    Employment Agreement dated as of September 11, 1995 between NUWAVE
         Engineering, Inc. and Robert I. Webb (See Exhibit 10.2 to Registration
         Statement on Form SB-2 filed with the Commission on April 2, 1996).
10.3*    Consulting Agreement dated as of July 18, 1995 between NUWAVE
         Engineering, Inc. and Corporate Builders, L.P. (See Exhibit 10.3 to
         Registration Statement on Form SB-2 filed with the Commission on April
         2, 1996).
10.4*    Letter Agreement dated as of November 22, 1995 between NUWAVE
         Technologies, Inc. and Rickel & Associates, Inc. (See Exhibit 10.5 to
         Registration Statement on Form SB-2 filed with the Commission on April
         2, 1996).
10.5*    1996 Performance Incentive Plan (See Exhibit 10.6 to Registration
         Statement on Form SB-2 filed with the Commission on April 2, 1996).
10.6*    Exclusive Worldwide License Agreement dated as of July 21, 1995 between
         NUWAVE Engineering, Inc. and Rave Engineering Corporation (See Exhibit
         10.7 to Registration Statement on Form SB-2 filed with the Commission
         on April 2, 1996).
10.7*    Development Agreement dated as of July 21, 1995 between NUWAVE
         Engineering, Inc. and Rave Engineering Corporation (See Exhibit 10.8 to
         Registration Statement on Form SB-2 filed with the Commission on April
         2, 1996).
10.8*    Exclusive Agency Agreement dated as of July 21, 1995 between NUWAVE
         Engineering, Inc. and Prime Technology, Inc. (See Exhibit 10.9 to
         Registration Statement on Form SB-2 filed with the Commission on April
         2, 1996).
10.9*    Assignment dated as of July 21, 1995 between NUWAVE Engineering, Inc.,
         Prime Technology, Inc. and Rave Engineering Corporation (See Exhibit
         10.10 to Registration Statement on Form SB-2 filed with the Commission
         on April 2, 1996).
10.10*   Shareholders' Agreement dated as of July 21, 1995 (See Exhibit 10.11 to
         Registration Statement on Form SB-2 filed with the Commission on April
         2, 1996).

                                       50

<PAGE>

10.11*   Finder's Agreement dated as of September 1, 1995 among NUWAVE
         Technologies, Inc., Prime Technology, Inc. and Harvest Technologies,
         Inc. (See Exhibit 10.12 to Registration Statement on Form SB-2 filed
         with the Commission on April 2, 1996).
10.12*   Finder's Agreement dated as of January 16, 1996 among NUWAVE
         Engineering, Inc., Prime Technology, Inc. and Jay Vahl (See Exhibit
         10.13 to Registration Statement on Form SB-2 filed with the Commission
         on April 2, 1996).
10.13*   Option Agreement for the Purchase of Common Stock dated as of July 17,
         1995 between NUWAVE Engineering, Inc. and Jeremiah F. O'Brien (See
         Exhibit 10.14 to Registration Statement on Form SB-2 filed with the
         Commission on April 2, 1996).
10.14*   Option Agreement for the Purchase of Common Stock dated as of September
         11, 1995 between NUWAVE Engineering, Inc. and Robert I. Webb (See
         Exhibit 10.15 to Registration Statement on Form SB-2 filed with the
         Commission on April 2, 1996).
10.15*   Option Agreement for the Purchase of Common Stock dated as of November
         9, 1995 between NUWAVE Engineering, Inc. and Lyle E. Gramley (See
         Exhibit 10.16 to Registration Statement on Form SB-2 filed with the
         Commission on April 2, 1996).
10.16*   Option Agreement for Purchase of Common Stock dated as of March 1, 1996
         between NUWAVE Technologies, Inc. and Jeremiah F. O'Brien (See Exhibit
         10.17 to Registration Statement on Form SB-2 filed with the Commission
         on April 2, 1996).
10.17*   Option Agreement for Purchase of Common Stock dated as of July 20, 1995
         between NUWAVE Technologies, Inc. and Gerald Zarin (See Exhibit 10.18
         to Registration Statement on Form SB-2 filed with the Commission on
         April 2, 1996).
10.18*   Option Agreement for Purchase of Common Stock dated as of March 1, 1996
         between NUWAVE Technologies, Inc. and Joseph A. Sarubbi (See Exhibit
         10.19 to Registration Statement on Form SB-2 filed with the Commission
         on April 2, 1996).
10.19*   Option Agreement for Purchase of Common Stock dated as of March 1, 1996
         between NUWAVE Technologies, Inc. and Ed Bohn (See Exhibit 10.20 to
         Registration Statement on Form SB-2 filed with the Commission on April
         2, 1996).
10.20*   Shareholder's Agreement dated as of July 17, 1995 between NUWAVE
         Engineering, Inc. and its Common Stockholders (See Exhibit 10.21 to
         Registration Statement on Form SB-2 filed with the Commission on April
         2, 1996).
10.21*   Form of Subscription Agreement between NUWAVE Engineering, Inc. and its
         Series A Preferred Stockholders through August 1995 (See Exhibit 10.22
         to Registration Statement on Form SB-2 filed with the Commission on
         April 2, 1996).

                                       51

<PAGE>

10.22*   Loan and Stock Purchase Agreement dated as of December 15, 1995
         between NUWAVE Engineering, Inc. and Helen Burgess (See Exhibit 10.23
         to Registration Statement on Form SB-2 filed with the Commission on
         April 2, 1996).
10.23*   Form of Indemnification Agreement between the Company and its
         directors, dated as of January 31, 1996 (See Exhibit 10.24 to
         Registration Statement on Form SB-2 filed with the Commission on April
         2, 1996).
10.24*   Form of Note entered into between the Company and the Initial Bridge
         Investor relating to the Initial Bridge Financing (See Exhibit 10.25 to
         Registration Statement on Form SB-2 filed with the Commission on April
         2, 1996).
10.25*   Form of 10% Promissory Note delivered by the Company in connection with
         the private placement of 80 Units (the "Private Placement Bridge"),
         each unit consisting of an unsecured 10% non-negotiable promissory
         note in the amount of $25,000 and 5,000 shares of Common Stock of the
         Company, during February and March of 1996 (See Exhibit 10.26 to
         Registration Statement on Form SB-2 filed with the Commission on April
         2, 1996).
10.26*   Form of Securities Registration Rights Agreement entered into between
         the Company and the purchasers of Common Stock in the Private Placement
         (See Exhibit 10.27 to Registration Statement on Form SB-2 filed with
         the Commission on April 2, 1996).
10.27*   Form of Registration Rights Agreement entered into between Company and
         the purchasers of its Series A Preferred Stock (See Exhibit 10.28 to
         Registration Statement on Form SB-2 filed with the Commission on April
         2, 1996).
10.28*   Form of Lock-up letter between the Company and certain holders of its
         Common Stock (See Exhibit 10.29 to Registration Statement on Form SB-2
         filed with the Commission on April 2, 1996).
10.29*   Lease Letter Agreement between the Company and Simon, Sarver &
         Rosenberg dated July 28, 1995 (See Exhibit 10.30 to Registration
         Statement on Form SB-2 filed with the Commission on April 2, 1996).
10.30*   Guaranty executed by the Company as of October 13, 1995 in
         connection with Standard Industrial Net Lease between Collins Tech RB
         and Rave Engineering, Inc. (See Exhibit 10.31 to Registration Statement
         on Form SB-2 filed with the Commission on April 2, 1996).
10.31*   Amendment to Employment Agreement dated as of September 11, 1995
         between NUWAVE Engineering, Inc. and Robert I. Webb dated June 3, 1996
         (See Exhibit 10.32 to Amendment No. 2 to Registration Statement on Form
         SB-2 filed with the Commission on July 3, 1996).
10.32*   Financial Consulting Agreement between Prime Technology, Inc. and
         Ernest Chu dated January 15, 1995 (See Exhibit 10.33 to Amendment No. 2
         to Registration Statement on Form SB-2 filed with the Commission on
         July 3, 1996).

                                       52

<PAGE>

10.33*   Letter Agreement concerning the Gaming Technology among the Company,
         Rave Engineering Corp. and Prime Technology, Inc. dated March 24, 1997
         (See Exhibit 10.34 to Annual Report filed with the Commission on April
         30, 1997).
10.34*   Non-Employee Director Stock Option Plan (See Exhibit 10.1 to Current
         Report on Form 8-K filed with the Commission on June 6, 1997).
10.35*   Form of Incentive Stock Option Agreement (See Exhibit 4.3 to
         Registration Statement on Form S-8 filed with the Commission on
         November 12, 1997).
10.36*   Form of Non-Employee Director Stock Option Agreement (See Exhibit 4.4
         to Registration Statement on Form S-8 filed with the Commission on
         November 12, 1997).
10.37*   Form of Non-Qualified Stock Option Agreement covering options not
         granted under either the 1996 Performance Incentive Plan or the
         Non-Employee Director Stock Option Plan (See Exhibit 4.5 to
         Registration Statement on Form S-8 filed with the Commission on
         November 12, 1997).
10.38*   Registration Rights Agreement, dated February 6, 1998, between NuWave
         Technologies, Inc. and ProFutures Special Equities Fund, L.P. (See
         Exhibit 4.1 to Current Report on Form 8-K filed with the Commission on
         February 18, 1998).
10.39*   Private Securities Subscription Agreement, dated as of February 6,
         1998, between NuWave Technologies, Inc. and ProFutures Special Equities
         Fund, L.P. (See Exhibit 10.1 to Current Report on Form 8-K filed with
         the Commission on February 18, 1998).
10.40*   Warrant, dated February 6, 1998, executed by NuWave Technologies, Inc.
         in favor of ProFutures Special Equities Fund, L.P., to purchase up to
         50,000 shares of Common Stock, par value $.01 per share, of NuWave
         Technologies, Inc. (See Exhibit 10.2 to Current Report on Form 8-K
         filed with the Commission on February 18, 1998).
10.41**  Component Purchase Agreement, dated December 31, 1997, between Thomson
         Consumer Electronics, Inc. and NuWave Technologies, Inc.
10.42**  Letter Agreement, dated March 3, 1998, between NuWave Technologies,
         Inc. and Janssen/Meyers Associates, L.P.
10.43**  Warrant, dated March 3, 1998, executed by NuWave Technologies, Inc. in
         favor of Janssen/Meyers Associates, L.P., to purchase up to 400,000
         shares of Common Stock, par value $.01 per share, of NuWave
         Technologies, Inc.
16.1*    Letter from Coopers & Lybrand L.L.P. to the Commission dated February
         16, 1998 (See Exhibit 16.1 to Current Report on Form 8-K filed with the
         Commission on February 18, 1998).
23.1**   Consent of Coopers & Lybrand L.L.P.
27.1**   Financial Date Schedule

                                       53

<PAGE>

*The exhibits thus designated are incorporated herein by reference as exhibits
hereto. Following the description of such exhibits is a reference to the copy of
the exhibit heretofore filed with the Commission, to which there have been no
amendments or changes.

**Filed herewith.


(b) REPORTS ON FORM 8-K:

              None.

<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                      NUWAVE TECHNOLOGIES, INC.
                                       (Registrant)



Date: March 25, 1997                  By: /s/ Gerald Zarin
                                          ------------------------------------
                                          Gerald Zarin
                                          Chairman of the Board, President and
                                          Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

SIGNATURE                        TITLE                         DATE

/s/ Gerald Zarin                 President, Chief Executive    March 25, 1998
----------------------------
Gerald Zarin                     Officer and Chairman of
                                 the Board (Principal
                                 Executive Officer)


/s/ Jeremiah F. O'Brien          Chief Financial Officer and   March 25, 1998
----------------------------
Jeremiah F. O'Brien              Secretary (Principal
                                 Financial Officer and
                                 Accounting Officer)


/s/ Ed Bohn                      Director                      March 25, 1998
----------------------------
Ed Bohn


/s/ Lyle Gramley                 Director                      March 25, 1998
----------------------------
Lyle Gramley


/s/ David Kwong                  Director                      March 25, 1998
----------------------------
David Kwong


/s/ Joseph A. Sarubbi            Director                      March 25, 1998
-----------------------------
Joseph A. Sarubbi

                                       55

<PAGE>

                                  EXHIBIT INDEX

Exhibit                                                                  Page
Number   Description                                                     Number
------   -----------                                                     ------

1.1*     Form of Underwriting Agreement (See Exhibit 1.1 to
         Registration Statement on Form SB-2 filed with the Commission
         on April 2, 1996).

3.1*     Articles of Incorporation of the Company (Delaware) (See
         Exhibit 3.1(a) to Registration Statement on Form SB-2 filed
         with the Commission on April 2, 1996).

3.2*     Certificate of Amendment to Articles of Incorporation of the
         Company (Delaware) (See Exhibit 3.1(b) to Registration
         Statement on Form SB-2 filed with the Commission on April 2,
         1996).

3.3*     Certificate of Authority (New Jersey) (See Exhibit 3.1(c) to
         Registration Statement on Form SB-2 filed with the Commission
         on April 2, 1996).

3.4*     Amended Certificate of Authority (New Jersey) (See Exhibit
         3.1(d) to Registration Statement on Form SB-2 filed with the
         Commission on April 2, 1996).

3.5*     Certificate of Amendment to Articles of Incorporation of the
         Company (Delaware) (See Exhibit 3.1(e) to Registration
         Statement on Form SB-2 filed with the Commission on April 2,
         1996).

3.6*     By-Laws of the Company (See Exhibit 3.2 to Registration
         Statement on Form SB-2 filed with the Commission on April 2,
         1996).

4.1*     Form of Common Stock Certificate (See Exhibit 4.1 to
         Amendment No. 2 to Registration Statement on Form SB-2 filed
         with the Commission on July 3, 1996).

4.2*     Form of Public Warrant Agreement between the Company,
         American Stock Transfer & Trust Company and Rickel &
         Associates, Inc. (See Exhibit 4.2 to Amendment No. 1 to
         Registration Statement on Form SB-2 filed with the Commission
         on May 22, 1996).

4.3*     Form of Public Warrant Certificate (See Exhibit 4.3 to
         Amendment No. 2 to Registration Statement on Form SB-2 filed
         with the Commission on July 3, 1996).

4.4*     Form of Underwriter's Warrant Agreement (including Warrant
         Certificate) between the Company and Rickel & Associates (See
         Exhibit 4.4 to Amendment No. 1 to Registration Statement on
         Form SB-2 filed with the Commission on May 22, 1996).

4.5*     Selected Dealer Agreement among Rickel & Associates, Inc. and
         certain underwriters (See Exhibit 4.5 to Amendment No. 2 to

                                       56

<PAGE>

         Registration Statement on Form SB-2 filed with the Commission
         on July 3, 1996).

5.1*     Opinion of counsel to the Company concerning the legality of
         the securities offered in the Company's Initial Public
         Offering (See Exhibit 5.1 to Amendment No. 2 to Registration
         Statement on Form SB-2 filed with the Commission on July 3,
         1996).

5.2*     Opinion of Greenberg Taurig Hoffman Lipoff Rosen & Quentel,
         P.A. (See Exhibit 5.1 to Registration Statement on Form S-8
         filed with the Commission on November 12, 1997).

5.3*     Opinion of counsel to the Company concerning the legality of
         the securities being offered (See Exhibit 5 to Registration
         Statement on Form S-3 filed with the Commission on March 8,
         1998).

10.1*    Restated Employment Agreement dated as of July 20, 1995
         between NUWAVE Engineering, Inc. and Gerald Zarin (See
         Exhibit 10.1 to Registration Statement on Form SB-2 filed
         with the Commission on April 2, 1996).

10.2*    Employment Agreement dated as of September 11, 1995 between
         NUWAVE Engineering, Inc. and Robert I. Webb (See Exhibit 10.2
         to Registration Statement on Form SB-2 filed with the
         Commission on April 2, 1996).

10.3*    Consulting Agreement dated as of July 18, 1995 between NUWAVE
         Engineering, Inc. and Corporate Builders, L.P. (See Exhibit
         10.3 to Registration Statement on Form SB-2 filed with the
         Commission on April 2, 1996).

10.4*    Letter Agreement dated as of November 22, 1995 between NUWAVE
         Technologies, Inc. and Rickel & Associates, Inc. (See Exhibit
         10.5 to Registration Statement on Form SB-2 filed with the
         Commission on April 2, 1996).

10.5*    1996 Performance Incentive Plan (See Exhibit 10.6 to
         Registration Statement on Form SB-2 filed with the Commission
         on April 2, 1996).

10.6*    Exclusive Worldwide License Agreement dated as of July 21,
         1995 between NUWAVE Engineering, Inc. and Rave Engineering
         Corporation (See Exhibit 10.7 to Registration Statement on
         Form SB-2 filed with the Commission on April 2, 1996).

10.7*    Development Agreement dated as of July 21, 1995 between
         NUWAVE Engineering, Inc. and Rave Engineering Corporation
         (See Exhibit 10.8 to Registration Statement on Form SB-2
         filed with the Commission on April 2, 1996).

10.8*    Exclusive Agency Agreement dated as of July 21, 1995 between
         NUWAVE Engineering, Inc. and Prime Technology, Inc. (See
         Exhibit 10.9 to Registration Statement on Form SB-2 filed
         with the Commission on April 2, 1996).


                                       57

<PAGE>

10.9*    Assignment dated as of July 21, 1995 between NUWAVE
         Engineering, Inc., Prime Technology, Inc. and Rave
         Engineering Corporation (See Exhibit 10.10 to Registration
         Statement on Form SB-2 filed with the Commission on April 2,
         1996).

10.10*   Shareholders' Agreement dated as of July 21, 1995 (See
         Exhibit 10.11 to Registration Statement on Form SB-2 filed
         with the Commission on April 2, 1996).

10.11*   Finder's Agreement dated as of September 1, 1995 among NUWAVE
         Technologies, Inc., Prime Technology, Inc. and Harvest
         Technologies, Inc. (See Exhibit 10.12 to Registration
         Statement on Form SB-2 filed with the Commission on April 2,
         1996).

10.12*   Finder's Agreement dated as of January 16, 1996 among NUWAVE
         Engineering, Inc., Prime Technology, Inc. and Jay Vahl (See
         Exhibit 10.13 to Registration Statement on Form SB-2 filed
         with the Commission on April 2, 1996).

10.13*   Option Agreement for the Purchase of Common Stock dated as of
         July 17, 1995 between NUWAVE Engineering, Inc. and Jeremiah
         F. O'Brien (See Exhibit 10.14 to Registration Statement on
         Form SB-2 filed with the Commission on April 2, 1996).

10.14*   Option Agreement for the Purchase of Common Stock dated as of
         September 11, 1995 between NUWAVE Engineering, Inc. and
         Robert I. Webb (See Exhibit 10.15 to Registration Statement
         on Form SB-2 filed with the Commission on April 2, 1996).

10.15*   Option Agreement for the Purchase of Common Stock dated as of
         November 9, 1995 between NUWAVE Engineering, Inc. and Lyle E.
         Gramley (See Exhibit 10.16 to Registration Statement on Form
         SB-2 filed with the Commission on April 2, 1996).

10.16*   Option Agreement for Purchase of Common Stock dated as of
         March 1, 1996 between NUWAVE Technologies, Inc. and Jeremiah
         F. O'Brien (See Exhibit 10.17 to Registration Statement on
         Form SB-2 filed with the Commission on April 2, 1996).

10.17*   Option Agreement for Purchase of Common Stock dated as of
         July 20, 1995 between NUWAVE Technologies, Inc. and Gerald
         Zarin (See Exhibit 10.18 to Registration Statement on Form
         SB-2 filed with the Commission on April 2, 1996).

10.18*   Option Agreement for Purchase of Common Stock dated as of
         March 1, 1996 between NUWAVE Technologies, Inc. and Joseph A.
         Sarubbi (See Exhibit 10.19 to Registration Statement on Form
         SB-2 filed with the Commission on April 2, 1996).

10.19*   Option Agreement for Purchase of Common Stock dated as of
         March 1, 1996 between NUWAVE Technologies, Inc. and Ed Bohn
         (See Exhibit 10.20 to Registration Statement on Form SB-2
         filed with the Commission on April 2, 1996).


                                       58

<PAGE>

10.20*   Shareholder's Agreement dated as of July 17, 1995 between
         NUWAVE Engineering, Inc. and its Common Stockholders (See
         Exhibit 10.21 to Registration Statement on Form SB-2 filed
         with the Commission on April 2, 1996).

10.21*   Form of Subscription Agreement between NUWAVE Engineering,
         Inc. and its Series A Preferred Stockholders through August
         1995 (See Exhibit 10.22 to Registration Statement on Form
         SB-2 filed with the Commission on April 2, 1996).

10.22*   Loan and Stock Purchase Agreement dated as of December 15,
         1995 between NUWAVE Engineering, Inc. and Helen Burgess (See
         Exhibit 10.23 to Registration Statement on Form SB-2 filed
         with the Commission on April 2, 1996).

10.23*   Form of Indemnification Agreement between the Company and its
         directors, dated as of January 31, 1996 (See Exhibit 10.24 to
         Registration Statement on Form SB-2 filed with the Commission
         on April 2, 1996).

10.24*   Form of Note entered into between the Company and the Initial
         Bridge Investor relating to the Initial Bridge Financing (See
         Exhibit 10.25 to Registration Statement on Form SB-2 filed
         with the Commission on April 2, 1996).

10.25*   Form of 10% Promissory Note delivered by the Company in
         connection with the private placement of 80 Units (the
         "Private Placement Bridge"), each unit consisting of an
         unsecured 10% non- negotiable promissory note in the amount
         of $25,000 and 5,000 shares of Common Stock of the Company,
         during February and March of 1996 (See Exhibit 10.26 to
         Registration Statement on Form SB-2 filed with the Commission
         on April 2, 1996).

10.26*   Form of Securities Registration Rights Agreement entered into
         between the Company and the purchasers of Common Stock in the
         Private Placement (See Exhibit 10.27 to Registration
         Statement on Form SB-2 filed with the Commission on April 2,
         1996).

10.27*   Form of Registration Rights Agreement entered into between
         Company and the purchasers of its Series A Preferred Stock
         (See Exhibit 10.28 to Registration Statement on Form SB-2
         filed with the Commission on April 2, 1996).

10.28*   Form of Lock-up letter between the Company and certain
         holders of its Common Stock (See Exhibit 10.29 to
         Registration Statement on Form SB-2 filed with the Commission
         on April 2, 1996).
         
10.29*   Lease Letter Agreement between the Company and Simon, Sarver
         & Rosenberg dated July 28, 1995 (See Exhibit 10.30 to
         Registration Statement on Form SB-2 filed with the Commission
         on April 2, 1996).

                                       59

<PAGE>

10.30*   Guaranty executed by the Company as of October 13, 1995 in
         connection with Standard Industrial Net Lease between Collins
         Tech RB and Rave Engineering, Inc. (See Exhibit 10.31 to
         Registration Statement on Form SB-2 filed with the Commission
         on April 2, 1996).

10.31*   Amendment to Employment Agreement dated as of September 11,
         1995 between NUWAVE Engineering, Inc. and Robert I. Webb
         dated June 3, 1996 (See Exhibit 10.32 to Amendment No. 2 to
         Registration Statement on Form SB-2 filed with the Commission
         on July 3, 1996).

10.32*   Financial Consulting Agreement between Prime Technology, Inc.
         and Ernest Chu dated January 15, 1995 (See Exhibit 10.33 to
         Amendment No. 2 to Registration Statement on Form SB-2 filed
         with the Commission on July 3, 1996).

10.33*   Letter Agreement concerning the Gaming Technology among the
         Company, Rave Engineering Corp. and Prime Technology, Inc.
         dated March 24, 1997 (See Exhibit 10.34 to Annual Report
         filed with the Commission on April 30, 1997).

10.34*   Non-Employee Director Stock Option Plan (See Exhibit 10.1 to
         Current Report on Form 8-K filed with the Commission on June
         6, 1997). 10.35* Form of Incentive Stock Option Agreement
         (See Exhibit 4.3 to Registration Statement on Form S-8 filed
         with the Commission on November 12, 1997).

10.36*   Form of Non-Employee Director Stock Option Agreement (See
         Exhibit 4.4 to Registration Statement on Form S-8 filed with
         the Commission on November 12, 1997).

10.37*   Form of Non-Qualified Stock Option Agreement covering options
         not granted under either the 1996 Performance Incentive Plan
         or the Non-Employee Director Stock Option Plan (See Exhibit
         4.5 to Registration Statement on Form S-8 filed with the
         Commission on November 12, 1997).

10.38*   Registration Rights Agreement, dated February 6, 1998,
         between NuWave Technologies, Inc. and ProFutures Special
         Equities Fund, L.P. (See Exhibit 4.1 to Current Report on
         Form 8-K filed with the Commission on February 18, 1998).

10.39*   Private Securities Subscription Agreement, dated as of
         February 6, 1998, between NuWave Technologies, Inc. and
         ProFutures Special Equities Fund, L.P. (See Exhibit 10.1 to
         Current Report on Form 8-K filed with the Commission on
         February 18, 1998).

10.40*   Warrant, dated February 6, 1998, executed by NuWave
         Technologies, Inc. in favor of ProFutures Special Equities
         Fund, L.P., to purchase up to 50,000 shares of Common Stock,
         par value $.01 per share, of NuWave Technologies, Inc. (See
         Exhibit 
                                       60

<PAGE>

         10.2 to Current Report on Form 8-K filed with the Commission
         on February 18, 1998).

10.41**  Component Purchase Agreement, dated December 31, 1997,
         between Thomson Consumer Electronics, Inc. and NuWave
         Technologies, Inc.

10.42**  Letter Agreement, dated March 3, 1998, between NuWave
         Technologies, Inc. and Janssen/Meyers Associates, L.P.

10.43**  Warrant, dated March 3, 1998, executed by NuWave
         Technologies, Inc. in favor of Janssen/Meyers Associates,
         L.P., to purchase up to 400,000 shares of Common Stock, par
         value $.01 per share, of NuWave Technologies, Inc.

16.1*    Letter from Coopers & Lybrand L.L.P. to the Commission dated
         February 16, 1998 (See Exhibit 16.1 to Current Report on Form
         8-K filed with the Commission on February 18, 1998).

23.1**   Consent of Coopers & Lybrand L.L.P.

27.1**   Financial Date Schedule


*The exhibits thus designated are incorporated herein by reference as exhibits
hereto. Following the description of such exhibits is a reference to the copy of
the exhibit heretofore filed with the Commission, to which there have been no
amendments or changes.

**Filed herewith.
                                       61

<PAGE>

                           NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                         Index to Financial Statements


                                                                        Page(s)
                                                                        -------


Report of Independent Accountants...................................    F-2-F-3

Balance Sheet as of December 31, 1997...............................      F-4

Statements of Operations for the years ended December 31, 1996
     and December 31, 1997 and for the cumulative period
     from July 17, 1995 (inception) to December 31, 1997............      F-5

Statements of Stockholders' Equity for cumulative period from
     July 17, 1995 to December 31, 1997.............................    F-6-F-7

Statements of Cash Flows for the years ended December 31, 1996
     and December 31, 1997 and for the cumulative period from
     July 17, 1995 (inception) to December 31, 1997.................    F-8-F-9

Notes to Financial Statements.......................................   F-10-F-23

                                      F-1

<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
NUWAVE Technologies, Inc.
Fairfield, New Jersey

         We have audited the accompanying balance sheet of NUWAVE Technologies,
Inc. (a development stage enterprise) as at December 31, 1997, and the related
statements of operations, changes in stockholders' equity and cash flows for the
year ended December 31, 1997 and the amounts for such year included in the
period (inception) to December 31, 1997. 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 audit.

         We conducted our audit 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 audit provides a reasonable basis for our opinion.

         In our opinion, the financial statements enumerated above present
fairly, in all material respects, the financial position of NUWAVE Technolgies,
Inc. at December 31, 1997, and the results of their operations and their cash
flows for the year ended December 31, 1997 in conformity with generally accepted
accounting principles.


/s/ Richard A. Eisner & Company, LLP



Florham Park, New Jersey
March 2, 1998







                                       F-2
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders of
NUWAVE Technologies, Inc.

We have audited the accompanying  statement of operations,  stockholder's equity
and cash flows of NUWAVE Technologies, Inc. (a development Stage enterprise) for
the period from July 17, 1995 (inception) to December 31, 1997, and for the year
ended December 31, 1996. 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 or 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  results  of  operations  and cash flows of NUWAVE
Technologies, Inc. for the period from July 17, 1995 (inception) to December 31,
1997 and for the year ended December 31, 1996 included in the cumulative amounts
for the period from July 17, 1995  (inception) to December 31, 1997, and for the
year ended December 31, 1996, in conformity with generally  accepted  accounting
principles.


                                                       /s/ Coopers & Lybrand LLP


New York, New York                                   
March 26, 1997

                                       F-3
<PAGE>


                           NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                                  Balance Sheet

                                     ASSETS
                                                                  December 31,
                                                                       1997
                                                                 --------------

Current assets:

         Cash and cash equivalents                                  $ 1,692,788

         Inventory                                                       59,818

         Prepaid expenses and other current assets                      111,005
                                                                 --------------

                          Total current assets                        1,863,611

Property and equipment                                                  103,471

Restricted Cash                                                         221,481

Other assets                                                             82,200
                                                                 --------------

                      Total assets                                  $ 2,270,763
                                                                 ==============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

         Accounts payable and accrued liabilities                     $ 153,623
                                                                 --------------


Commitments and contingencies

Stockholders' equity:

         Series A Convertible Preferred Stock, noncumulative,  
         $.01 par value; authorized 400,000 shares; issued and
         outstanding -none as of December 31, 1997

         Preferred stock, $.01 par value; authorized 1,000,000
         shares; issued and oustanding - none as of December 31,
         1997.(Such preferences and rights to be designated by 
         the Board of Directors)

         Common stock, $.01 par value; authorized 20,000,000
         shares:  issued and outstanding 5,348,334 shares as
         of December 31, 1997                                            53,483

         Additional paid in capital                                  11,253,213

         Deficit accumulated during the development stage            (9,189,556)
                                                                 --------------

                    Total stockholders' equity                        2,117,140
                                                                 --------------

                    Total liabilties and stockholders' equity       $ 2,270,763
                                                                 ==============

   The accompanying notes are an integral part of these financial statements.

                                      F-4
<PAGE>


                            NUWAVE TECHNOLOGIES, INC
                        (A Development Stage Enterprise)

                            Statements of Operations



                                                               Cumulative from
                                                                July 17, 1995
                                    Year           Year          (inception)
                                   ended           ended             to
                                 December 31    December 31      December 31
                                    1996           1997             1997
                                -------------  -------------   ----------------

Net sales                                      $     10,275    $       10,275

Cost of Sales                                        (4,214)           (4,214)
                                               -------------   ----------------

                                                       6,061             6,061
                                               -------------   ----------------

Operating expenses:

Research and development
  expenses                        $ (1,620,594)   (1,697,084)       (3,808,800)

General and administrative
 expenses                           (1,808,567)   (2,336,000)       (4,562,231)
                                   ------------ -------------  ----------------

                                    (3,429,161)   (4,033,084)       (8,371,031)
                                   ------------ -------------  ----------------

           Loss from operations     (3,429,161)   (4,027,023)       (8,364,970)
                                   ------------ -------------  ----------------

Other income (expense):

           Interest income             172,539       178,707           355,116

           Interest expense           (325,867)                       (331,542)
                                   ------------ -------------  ----------------

Total other income (expense)          (153,328)      178,707            23,574
                                   ------------ ------------- ----------------
Net loss before extraordinary item  (3,582,489)   (3,848,316)       (8,341,396)

           Extraordinary item         (848,160)                       (848,160)
                                   ------------ -------------  ----------------
           Net loss                $(4,430,649)  $(3,848,316)      $(9,189,556)
                                  ============= =============  ================

Basic and diluted loss per share:

           Weighted average
           number of common 
           shares outstanding        3,767,403     5,343,348
                                  ============= ============

           Basic and diluted
           loss per share before
           extraordinary item       $    (0.95)   $    (0.72)

           Basic and diluted
           loss per share on
           extraordinary item       $    (0.23)   $        -
                                  ------------- ------------

           Basic and diluted
           loss per share           $    (1.18)   $    (0.72)
                                  ============= ============

     The accompanying notes are an integral part of these fnancal statments

                                      F-5
<PAGE>
<TABLE>
                                                     NUWAVE TECHNOLOGIES, INC.
                                                 (A Development Stage Enterprise)

                                                 Statement of Stockholders' Equity
<CAPTION>
                                                                                                                Deficit
                                              Series A                                                        Accumulated
                                            Convertible                               Additional  Deferred    During the
                                          Preferred Stock         Common Stock         Paid-in     Equity     Development
                                        ------------------- -----------------------     
                                          Shares    Amount     Shares      Amount      Capital     Costs         Stage       Total
                                        ---------  -------- -----------  ----------  ----------- ---------   ------------- ---------
<S>                                     <C>        <C>        <C>        <C>            <C>        <C>       <C>           <C>

Common shares issued in
   connection with the 
   formation of the
   company.........................                           2,060,000  $  20,600                                         $ 20,600

Common shares returned 
   and retired without
   consideration...................                            (125,000)    (1,250)     $ 1,250

Sale of Series A convertible 
   preferred stock for 
   cash of $1.50 per share.........     600,000    $ 6,000                              894,000                             900,000

Common shares issued with
   initial bridge notes 
   payable for cash of
   $1.50 per share.................                              70,000        700      104,300                             105,000

Costs incurred in 
   connection with
   equity financing................                                                              $ (38,400)                 (38,400)

Net loss for the period
   from July 17, 1995
   (inception) to
   December 31, 1995...............                                                                          $ (910,591)   (910,591)
                                       --------    -------    ---------   --------     --------  ----------  -----------  ----------

Balance at December 31, 1995.......     600,000      6,000    2,005,000     20,050      999,550    (38,400)   (910,591)      76,609

Common shares issued 
  in connection with the
  exchange of the initial
  bridge notes for 14 
  bridge units.....................                              70,000        700      139,300                             140,000

Common shares issued 
   with bridge notes 
   payable for cash 
   of $2.00 per share..............                             330,000      3,300      656,700                             660,000

Costs incurred in 
   connection with the 
   private placement 
   offering relating to
   the equity financing............                                                    (134,000)   $ 13,400)               (120,600)

Common shares issued
   in connection with 
   the initial public 
   offering for cash of
   $5.00 per share.................                           2,300,000     23,000   11,477,000                          11,500,000

2,530,000 common stock
   purchase warrants issued
   in connection with the
   initial public offering
   for cash of $0.10 per
   warrant.........................                                                     253,000                             253,000

220,000 common stock 
   purchase warrants and 
   220,000 redeemable 
   warrants issued to 
   the underwriter in
   connection with the
   initial public offering
   for cash of $10.00..............                                                          10                                  10

Conversion of 600,000
   preferred shares into
   600,000 common shares in
   connection with the initial
   public offering.................    (600,000)    (6,000)     600,000      6,000                                                -

                             The accompanying notes are an integral part of these financial statements

                                                                F-6
</TABLE>
<PAGE>
<TABLE>
                                                     NUWAVE TECHNOLOGIES, INC.
                                                 (A Development Stage Enterprise)

                                                 Statement of Stockholders' Equity

<CAPTION>
                                                                                                                Deficit
                                          Series A                                                        Accumulated
                                        Convertible                               Additional  Deferred    During the
                                      Preferred Stock         Common Stock         Paid-in     Equity     Development
                                    ------------------- -----------------------     
                                      Shares    Amount     Shares      Amount      Capital     Costs         Stage         Total
                                    ---------  -------- -----------  ----------  ----------- ---------   ------------- ------------
<S>                                 <C>        <C>          <C>           <C>    <C>            <C>         <C>          <C>

Costs incurred in 
   connection with the
   initial public offering.....                                                  (2,214,582)    25,000                   (2,189,582)

Common shares issued
   in connection with the 
   exercise of 20,000
   stock options for cash
   of $1.50 per share..........                             20,000        200        29,800                              30,000

Net loss for the 
   year ended
   December 31, 1996...........                                                               (4,430,649)   (4,430,649)
                                   ---------- --------- ----------- ----------  -----------  ------------  ------------ -----------

Balance at December 31, 1996...                $ -        5,325,000   $ 53,250  $11,206,778   $ -          $(5,341,240) $ 5,918,788

Common shares issued in
   connection with the 
   exercise of 23,334
   stock options for 
   cash of  $2.00 per
   share.......................                              23,334        233       46,435                                  46,668

Net loss for the year ended
   December 31, 1997...........                                                                             (3,848,316)  (3,848,316)

                                   ========== ========= =========== ==========  ===========   =========   ============= ===========
Balance at December 31, 1997...        -       $ -        5,348,334   $ 53,483  $11,253,213   $ -         $ (9,189,556) $ 2,117,140
                                   ========== ========= =========== ==========  ===========   =========   ============= ===========

                             The accompanying notes are an integral part of these financial statements

                                                                F-7
</TABLE>
<PAGE>

                            NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                            Statements of Cash Flows
                Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
                                                                                               Cumulative
                                                                                                  from
                                                                                              July 17, 1995
                                                                    Year           Year        (inception)
                                                                    ended          ended           to
                                                                 December 31,   December 31,  December 31,
                                                                    1996           1997           1997
                                                                -------------- -------------- --------------
<S>   <C>                                                        <C>            <C>            <C>
Cash flows from operating activities:

      Net loss                                                   $ (4,430,649)  $ (3,848,316)  $ (9,189,556)

      Adjustments to reconcile net loss to net cash
      used in operating activities:

      Extraordinary item                                              848,160                       848,160

      Depreciation expense                                             18,856         42,354         62,070

      Amortization of unamortized debt discount                       163,103                       168,778

      Amortization of deferred financing costs                         89,062                        89,062

      Issuance of common stock for services rendered                                                 20,600

      Increase in inventory                                                          (59,818)       (59,818)

      Increase in prepaid expenses and other
      current assets                                                  (70,218)       (19,096)      (111,005)

      Increase (decrease)  in accounts payable and
      accrued liabilities                                             274,066       (219,487)       153,623

      Increase in other assets                                        (68,275)        (9,925)       (82,200)
                                                                -------------- -------------- --------------

                    Net cash used in operating activities          (3,175,895)    (4,114,288)    (8,100,286)
                                                                -------------- -------------- --------------

Cash flows from investing activities:

      Purchase of property and equipment                              (80,892)       (76,052)      (165,541)
                                                                -------------- -------------- --------------

                    Net cash used in investing activities             (80,892)       (76,052)      (165,541)
                                                                -------------- -------------- --------------

Cash flows from financing activities:

      Proceeds from sales of Series A Convertible
      Preferred Stock                                                                               900,000

      Proceeds from issuance of initial bridge units                                                350,000

      Proceeds from issuance of bridge units, net of
      exchange of initial bridge notes                              1,650,000                     1,650,000

    The accmpanying notes are an integral part of these financial statements

                                       F-8

</TABLE>
<PAGE>

                            NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                            Statements of Cash Flows
                Increase (decrease) in cash and cash equivalents

<TABLE>
<CAPTION>

                                                                                               Cumulative
                                                                                                   from
                                                                                              July 17, 1995
                                                                    Year           Year         (inception)
                                                                    ended          ended            to
                                                                 December 31,   December 31,   December 31,
                                                                    1996           1997            1997
                                                                -------------- -------------- --------------
<S>   <C>                                                          <C>           <C>         <C>

      Proceeds from IPO                                            11,753,010                    11,753,010

      Repayment of notes issued in connection with
      initial bridge notes                                         (2,000,000)                   (2,000,000)

      Costs incurred for equity offerings                          (2,310,182)                   (2,348,582)

      Issuance of common stock in connection with
      exercise of stock options                                        30,000         46,668         76,668

      Increase in restricted cash                                                   (221,481)      (221,481)

      Deferred financing costs                                       (180,900)                     (201,000)
                                                                -------------- -------------- --------------

      Net cash provided (used in) by financing activities           8,941,928       (174,813)     9,958,615
                                                                -------------- -------------- --------------

      Net increase (decrease) in cash and cash equivalents          5,685,141     (4,365,153)     1,692,788

Cash and cash equivalents at the beginning of the period              372,800      6,057,941              -

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

      Cash and cash equivalents at the end of the period          $ 6,057,941    $ 1,692,788    $ 1,692,788
                                                                ============== ============== ==============

Supplemental disclosure of cash flow information:

      Interest paid during the period                                $ 73,702                      $ 73,702
                                                                ==============                ==============

Supplemental disclosure of non cash investing and
     financing activities:

Deferred financing costs incurred in connection with the
exchange of the initial bridge notes for 14 bridge units            $ 140,000                     $ 140,000
                                                                ==============                ==============

Deferred equity costs charged to additional paid in
      capital in connection with the PPO                             $ 13,400                      $ 13,400
                                                                ==============                ==============

Deferred financing costs charged to additional paid-in capital in
      connection with the IPO                                        $ 25,000                      $ 25,000
                                                                ==============                ==============

600,000 Series A Convertible Preferred Stock converted
      into Common Stock                                               $ 6,000                       $ 6,000
                                                                ==============                ==============

</TABLE>

      The accompanying notes are an integral part of these financial statements

                                         F-9

<PAGE>

                            NUWAVE TECHNOLOGIES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

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

1. ORGANIZATION AND BUSINESS:

     NUWAVE Technologies,  Inc. (the "Company"), a development stage enterprise,
was  incorporated  in  Delaware  on July 17,  1995.  It was  formed to  develop,
manufacture  and market products which improve picture quality in set-top boxes,
televisions,  VCR's,  camcorders  and  other  video  devices  by  enhancing  and
manipulating  video signals,  and  facilitate  the  production of  sophisticated
consumer and professional  videos.  It has had only a limited  operating history
and has had only limited  sales of its products to date.  Since its inception in
July 1995, the Company has been engaged  primarily in raising funds,  directing,
supervising and coordinating Rave Engineering  Corporation  ("Rave") and its own
Advanced  Engineering  Group  in the  continuing  development  of its  products,
pre-marketing  activities,  the commencement of  comprehensive  marketing of the
NUWAVE  Video   processor  and  the  recruitment  of  management  and  technical
personnel,  including  members of the Advanced  Engineering  Group.  The Company
conducts its operations primarily in the United States.

     There is no  assurance  that the  Company's  research and  development  and
marketing  efforts  will  be  successful,   that  the  Company  will  ever  have
commercially  accepted  products,  or that the Company will achieve  significant
sales of any such  products.  The Company has  incurred  net losses and negative
cash flows  from  operations  since its  inception.  In  addition,  the  Company
operates in an  environment  of rapid change in technology and is dependent upon
the services of its employees and its  consultants.  If the Company is unable to
successfully  market its NUWAVE  Video  Processor  and  related  products  it is
unlikely the Company could continue its business.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

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 amount of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial  statements,  and
the reported  amounts of revenue and expenses during the reporting  period.  The
most significant  estimates relate to the valuation allowance in connection with
deferred tax assets. Actual results could differ from those estimates.


Cash and Cash Equivalents

     Cash  and  cash  equivalents  include  all  cash  balances,   money  market
instruments,  and other highly liquid  investments with  insignificant  interest
rate risk and original maturities of three months or less.


Inventory

     Inventory is stated at the lower of cost  (first-in,  first-out  method) or
market.

                                      F-10

<PAGE>

                            NUWAVE TECHNOLOGIES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

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

Property and Equipment

     Property and equipment are recorded at cost.  The cost of  maintenance  and
repairs is charged against results of operations as incurred.

     Depreciation  is charged  against  results of operations by an  accelerated
method over the estimated useful lives of the related assets.

     Sales and retirements of depreciable  property are recorded by removing the
related cost and accumulated  depreciation from the accounts. Gains or losses on
sales and  retirements of property and equipment are reflected in the results of
operations.


Research and Development Expenses

     Expenditures for research and development are expensed as incurred.


Advertising Expenses

     The  Company  expenses   advertising   costs  which  consist  primarily  of
promotional items and print media.  Advertising and promotional expenses charged
to  operations  for the  cumulative  period  from July 17, 1995  (inception)  to
December 31, 1997 amounted to $421,124 and for the years ended December 31, 1997
and December 31, 1996 amounted to $289,892 and $131,232, respectively.


Concentration of Credit Risk

     The Company's  financial  instruments that are exposed to concentrations of
credit risk consist of cash and cash  equivalents.  The Company  places its cash
and cash  equivalents in a commercial  bank with three types of accounts,  1) an
operating  account  where the cash  balance  is in excess of the FDIC  insurance
limit, 2) a money market fund which invests only in U.S. Government  securities,
3) Certificates of Deposit.

Per Share Data

     The  Company  has adapted the  standards  set by the  Financial  Accounting
Standards Board and computes earnings per share data in accordance with SFAS No.
128  "Earnings  per  Share".  The basic per share data has been  computed on the
basis of the loss for the period divided by the historic weighted average number
of shares of common stock outstanding.


Income Taxes

     The Company recognizes deferred tax liabilities and assets for the expected
future tax  consequences  of events  that have been  included  in the  financial
statements  or tax returns.  Under this method,  deferred  tax  liabilities  and
assets are determined on the basis of the  differences  between the tax basis of
assets  and  liabilities  and  their  respective   financial  reporting  amounts
("temporary  differences") at enacted tax rates in effect for the years in which
the differences are expected to reverse.


                                      F-11

<PAGE>

                            NUWAVE TECHNOLOGIES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

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

3. INVENTORY

         Inventory consists of the following:

                                            December 31,
                                               1997
                                            ------------

      Finished goods . . . . . . .             $ 46,316
         Work in process . . . . .                13,502
                                            ------------
                                               $ 59,818
                                            ============

4. PROPERTY AND EQUIPMENT:

   Property and equipment consist of the following:

                                Useful Lives      December 31,
                                  in Years           1997
                               --------------    ------------
   Furniture and Fixtures . .        10            $  4,323
   Computers  . . . . . . . .         5             100,954
   Equipment  . . . . . . . .         5              60,264
                                               ------------
                                                   $165,541

       Less, accumulated
        depreciation . . . .                         62,070
                                               ------------
                                                   $103,471
                                               ============


5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

   Accounts payable and accrued expenses consist of the following:

                                               December 31,
                                                   1997
                                               ------------

     Accounts payable . . . .                     $ 36,964
     Legal and accounting
        fees  . . . . . . . .                       90,908
     Accrued payroll. . . . .                       18,399
     Payroll taxes payable. .                        7,352
                                              ------------
                                                  $153,623
                                              ============

6. CAPITAL TRANSACTIONS:

Common Stock

     On July 17, 1995, the Company issued 2,060,000 shares of common stock for a
fair market value of $.01 per share as  consideration  for services  rendered in
connection with the formation of the Company, as follows:

                                      F-12

<PAGE>

                            NUWAVE TECHNOLOGIES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

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

o     1,090,000  shares  to Prime  Technologies,  Inc.  ("Prime").  Rave and two
      members of the Company's  Board of Directors have  ownership  interests in
      Prime of 22%, 22% and 16%, respectively;

o     450,000 shares to the Company's President;

o     450,000  shares to three  entities  affiliated  with an individual who was
      then a member of the Company's Board of Directors  (125,000 of such shares
      were subsequently returned and retired without consideration); and

o     70,000 shares to individuals who were either  employees of, or consultants
      to, the Company.

     On April 30, 1996,  the board of directors and the  Company's  stockholders
authorized  the  increase  in the shares of common  stock to  20,000,000  common
shares, par value $.01 per share.

In July 1996 the  Company  completed  an IPO in which it sold  2,300,000  common
shares and 2,530,000  Redeemable Common Stock Purchase Warrants (the "Warrants")
to purchase an additional  2,530,000 common shares. The Warrants are exercisable
at $5.50 per share  commencing on July 3, 1997,  and have an expiration  date of
July 3, 2001. The Warrants are redeemable by the Company at any time  commencing
twelve  months  after  date of the IPO on not less  than 30 days  prior  written
notice  to the  holders  of the  Warrants,  provided  the  average  closing  bid
quotation of the Common Stock as reported on the NASDAQ Stock Market,  if traded
thereon, or if not traded thereon,  the average closing sale price of the Common
Stock if listed on a national  securities  exchange (or other  reporting  system
that  provides  last sale  prices),  has been at least 150% of the then  current
exercise price of the Warrants (initially,  $8.25 per share), for a period of 20
consecutive  trading days ending on the third day prior to the date on which the
Company gives notice of redemption.  The Warrants will be exercisable  until the
close  of  business  on  the  day  immediately  preceding  the  date  fixed  for
redemption. The Underwriter will receive from the Company a Warrant Solicitation
fee of five percent (5%) of the aggregate  exercise price of the Warrants if the
market  price of the Common  Stock is  greater  than the  exercise  price of the
Warrants on the date of exercise.

     Also in connection with the IPO, the Company issued to the Underwriter, for
an aggregate purchase price of $10.00, 220,000 warrants to purchase Common Stock
and 220,000  Redeemable  Warrants to purchase 220,000  Redeemable  Warrants (the
"Underwriter's  Warrants").   Thereafter,  for  a  period  of  four  years,  the
Underwriter's  Warrants  will be  exercisable  at an  amount  of 165%  above the
offering price of the Common Stock and Warrants.  The warrants expire five years
after the date of issue.


Preferred Stock

     During July and August 1995,  the Company  sold 600,000  shares of Series A
Convertible  Preferred Stock for $900,000 to several investors,  one of whom was
the purchaser of the initial bridge notes. The preferred

                                      F-13

<PAGE>

                            NUWAVE TECHNOLOGIES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

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

shares were convertible into common shares on a one-for-one basis, either at the
option of each holder or automatically upon the effective date of an IPO.

     On April 30, 1996,  the board of directors and the  Company's  stockholders
authorized an additional  1,000,000 shares of preferred  stock,  $.01 par value,
which may have  such  preferences  and  rights  as the  board of  directors  may
designate.

     On July 3, 1996,  the  effective  date of the IPO, the Series A Convertible
Preferred Stock consisting of 600,000 shares was converted to common shares on a
one for one basis.

Bridge Units

     On  December  15,  1995,  the  Company  issued  to a Series  A  Convertible
Preferred  stockholder  14 initial  bridge  units,  each unit  consisting of the
Company's unsecured initial bridge notes in the principal amount of $25,000 with
a stated interest rate of 10% per annum and 5,000 shares of the Company's common
stock with a fair  market  value of $1.50 per share for  proceeds  of  $350,000.
After  giving  effect to the  amortization  of the  initial  bridge  notes  debt
discount,  the effective  interest rate of the initial  bridge notes was 33% per
annum.

     On March 1, 1996, based upon an offer from the Company,  the initial bridge
noteholder elected to exchange the 14 initial bridge units for 14 bridge units.

     On March 1 and March 27, 1996, the Company sold and exchanged to accredited
investors an accumulative  total of 80 units (the "bridge units")  respectively,
in  its  PPO.  Each  bridge  unit   consisted  of  (i)  a  senior   subordinated
non-negotiable  promissory  note  ("Bridge  Notes") in the  principal  amount of
$25,000,  with a stated interest rate of 10% per annum, and (ii) 5,000 shares of
common stock with a fair market value of $2.00 per share. After giving effect to
the amortization of the Bridge Notes debt discount,  the effective interest rate
of the Bridge Notes was 49%.

     On July 9, 1996,  the  aggregate  principal  amount of the Bridge  Notes of
$2,000,000 and accrued interest of $73,652 was repaid upon the consummation, and
out of the proceeds, of the IPO.


Stock Options

     The  accompanying  financial  position  and  results of  operations  of the
Company have been prepared in accordance with APB Opinion No. 25, Accounting for
Stock  Issued to  Employees  ("APB No.  25").  Under APB No. 25,  generally,  no
compensation  expense is recognized in the accompanying  financial statements in
connection with the awarding of stock option grants to employees  provided that,
as of the  grant  date,  all terms  associated  with the award are fixed and the
quoted  market price of the Company's  stock,  as of the grant date, is not more
than the amount an employee  must pay to acquire the stock as defined;  however,
to the extent  that stock  options are  granted to non  employees,  for goods or
services,  the fair value of these options are included in operating  results as
an expense.

                                      F-14

<PAGE>

                            NUWAVE TECHNOLOGIES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

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

 A summary of the Company's stock option activity,  and related information,  is
as follows:

                      Number       Exercise        Weighted -
                        of           Price         Average          Number of
                      Common       Range per      Exercise           Shares
                      Shares         Share          Price          Exercisable
                    ------------------------------------------------------------

Outstanding at
December 31, 1995    315,000        $ 1.50         $ 1.50           260,714
                                                                    =======
Granted               67,000   $ 2.00 - $ 5.75     $ 2.67

Exercised            (20,000)       $ 1.50         $ 1.50
                   ---------
Outstanding at
December 31, 1996    362,000   $ 1.50 - $ 5.75     $ 1.72           311,524
                   ---------                                        =======
Granted              192,500   $ 5.78 - $ 6.88     $ 6.54

Exercised            (23,334)       $ 2.00         $ 2.00
                   ---------
Cancelled            (25,000)  $ 6.38 - $6.81      $ 6.64
                   ---------
Outstanding at
December 31, 1997    506,166   $ 1.50 - $6.88      $ 2.92          401,000
                   ---------                                       =======

     During 1995,  the Company  granted  options to purchase  315,000  shares of
Common Stock ,  exercisable  at $1.50 per share.  The options vested as follows:
260,714 at date of grant,  27,143 in 1996 and 27,143 in 1997. The options expire
as follows: 240,714 in 2000, 27,143 in 2001 and 27,143 in 2002.

     During  1996,  the Company  granted  options to purchase  55,000  shares of
Common Stock ,  exercisable  at $2.00 per share.  The options vested as follows:
31,667 at date of grant, 11,667 in 1997 at 11,666 in 1998. The options expire as
follows: 8,333 in 2001, 11,667 in 2002 and 11,666 in 2003.


Performance Incentive Stock Option Plan

     On January 31, 1996,  the Company  adopted its 1996  Performance  Incentive
Stock Option Plan (the "Plan"). Under the Plan, incentive and nonqualified stock
options,  stock  appreciation  rights and restricted stock may be granted to key
employees  and  consultants  (the   "Participants")  by  certain   disinterested
directors of the Board of Directors. Any incentive option granted under the Plan
will have an exercise  price of not less than 100% of the fair  market  value of
the  shares on the date on which  such  option is  granted.  With  respect to an
incentive  option  granted to a Participant  who owns more than 10% of the total
combined  voting  stock of the  Company  or of any parent or  

                                      F-15

<PAGE>

                            NUWAVE TECHNOLOGIES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

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

subsidiary of the Company,  the exercise  price for such option must be at least
110% of the fair market value of the shares subject to the option on the date on
which the option is granted. A nonqualified option granted under the Plan (i.e.,
an option to purchase the common  stock that does not meet the Internal  Revenue
Code's  requirements  for incentive  options) must have an exercise  price of at
least the par value of the stock.  Stock  appreciation  rights may be granted in
conjunction with the grant of an incentive or nonqualified option under the Plan
or independently of any such stock option.  The directors  determine the vesting
of the options under the Plan at the date of grant. A maximum of 260,000 options
can be awarded  under the Plan.  As of  December  31,  1996 no options  had been
issued.  During  1997,  192,500  options  were  granted and 25,000  options were
cancelled under the plan.


Non-Employee Director Stock Option Plan

      On November 25, 1996,  the Company  established  a  Non-Employee  Director
Stock Option Plan (the  "Director's  Plan").  The Director's  Plan provides that
each member of the Board of Directors (an "Eligible Director") who otherwise (1)
is not  currently  an employee of the Company,  or (2) is not a former  employee
still  receiving  compensation  for prior services  (other than benefits under a
tax-qualified  pension  plan) shall be eligible  for the grant of stock  options
under the Director's Plan. Each Eligible Director at the time of his election to
the Board of Directors,  shall be granted an option to purchase  3,000 shares of
the Company's  common stock at an exercise  price equal to closing price of such
common stock at close of business at the date of such grant, such option to vest
immediately and to expire five years from the date of such grant.

     Beginning with the annual meeting of the  stockholders  of the Company held
on May 29,1997 and provided that a sufficient  number of shares remain available
under the  Director's  Plan,  each year  immediately  following  the date of the
annual  meeting  of the  Company  there  automatically  will be  granted to each
Eligible  Director who is then serving on the Board an option to purchase  5,000
shares of the Company  Common Stock.  The first 1,000 options vest  immediately,
the  remainder  vest equally over the next four years from the date of grant and
are  exercisable at the closing price of such shares of common stock at the date
of grant. Such options expire five years from the date of vesting.

     On November 25, 1996, four Eligible Directors were each granted 3,000 stock
options at an exercise price of $5.75 per share.  On May 29, 1997, four Eligible
Directors  were each granted 5,000 stock  options at an exercise  price of $5.75
per share.  The maximum  number of shares of Common  Stock with respect to which
options  may be  granted  under  the  Director's  Plan is 80,000  shares.  As of
December 31, 1997,  there are 48,000 stock options  reserved for issuance in the
Director's Plan.

     Disclosures  required by Statement of Financial  Accounting  Standards  No.
123,  Accounting for Stock-Based  Compensation  ("SFAS No. 123"),  including pro
forma  operating  results had the Company  prepared its financial  statements in
accordance  with the fair  value  based  method of  accounting  for  stock-based
compensation are shown below.

     Exercise prices and  weighted-average  contractual  lives for stock options
outstanding as of December 31, 1997 are as follows:

                                      F-16
<PAGE>

                            NUWAVE TECHNOLOGIES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

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

                       Options Outstanding                Options Exercisable
             ---------------------------------------   -------------------------
                              Weighted
                               Average      Weighted                   Weighted
Range of                      Remaining      Average                   Average
Exercise        Number       Contractual    Exercise      Number     Exercisable
 Prices      Outstanding        Life          Price    Exercisable      Price
--------     -----------     -----------    --------   -----------   -----------
$ 1.50 -
$ 2.00         326,666            3.4        $ 1.55      315,000       $ 1.53

$ 5.75 -
$ 6.88         179,500            5.6        $ 6.47       86,000       $ 6.16


     The  following  table  summarizes  the pro forma  operating  results of the
Company had compensation  costs for the stock options granted been determined in
accordance  with the fair  value  based  method of  accounting  for stock  based
compensation  as prescribed by SFAS No. 123. Since certain option grants awarded
during 1996 and 1997 vest over several years and additional  awards are expected
to be issued in the future,  the pro forma results noted below are not likely to
be  representative of the effects on future years of the application of the fair
value based method.



                                                1996              1997
                                             -----------       -----------

Pro forma net loss                           $ 4,496,349      $ 4,029,183

Pro forma basic and
Diluted loss per share                           $ (1.19)          $ (.75)


     For the purpose of the above pro forma information, the fair value of these
options  was  estimated  at the date of grant  using  the  Black-Scholes  option
pricing model.  The  weighted-average  fair value of the options  granted during
1996 and 1997 was $.84 and $1.75,  respectively.  The following weighted-average
assumptions  were used in computing the fair value of option grants for 1996 and
1997:  weighted-average risk-free interest rates of 5.32% for 1996 and 5.64% for
1997;  zero dividend yields for both years;  volatility of the Company's  Common
Stock of 50% for both years;  and an  expected  life of the options of two years
for 1996 and 1997, respectively.

7. INCOME TAXES

     There is no  provision  for  federal,  state or local  income taxes for the
years ended  December  31, 1997 and  December  31,  1996,  since the Company has
incurred  operating losses. In addition,  the Company has fully reserved the net
potential future tax benefits  resulting from its  organization  costs and a net
operating loss carryforwards.

                                      F-17

<PAGE>

                            NUWAVE TECHNOLOGIES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

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

The tax effect of temporary differences consists of the following:

                                                   December 31,
                                                      1997
                                                   -----------
Deferred tax assets:
   Organization costs . . . . . . . . .            $ 2,130,610
   Property and equipment . . . . . . .                 24,828
   Net operating loss carryforward. . .              1,504,585
                                                   -----------
                                                     3,660,023
   Valuation allowance. . . . . . . . .              3,660,023
                                                   -----------
                                                   $        --
                                                   -----------


     Certain costs in the statement of operations  have been  capitalized  under
Internal  Revenue Code and will be amortized over five years commencing with the
date the Company  begins its trade or business,  as defined by Internal  Revenue
Service  regulations.  The valuation  allowance  offsets all of the deferred tax
assets as of December 31, 1997.

     As of  December  31,  1997,  the  Company  has  unused net  operating  loss
carryforwards  of $3,761,463  available for income tax purposes.  The unused net
operating loss carryforwards expire in various years from 2010 to 2012.



8. COMMITMENTS AND CONTINGENCIES:

License and Development agreements


     Pursuant to the terms of the License  Agreement  dated July 21,  1995,  the
Company is obligated to pay to Rave  royalties  ("Royalties")  of (i) 2 1/2 % of
net sales  ("Sales  Royalties"),  as defined,  of  products  sold by the Company
utilizing Rave's  technology and (ii) 25% of any  sublicensing  fees received by
the Company  from  sublicenses  of the products  and  technology  covered by the
License Agreement. Payments of Sales Royalties will commence upon the earlier of
(i)  accumulated  net sales of  licensed  products  and  technology  sold by the
Company or its future sublicensees reaching an aggregate of $50,000,000, or (ii)
the  Company's  aggregate  net  profits  from  sales of  licensed  products  and
technology equaling $5,000,000, whichever comes first.

     In March 1997 the  Company  agreed  with Rave to exclude  from the  License
Agreement  certain  video  transmission  technology  which Rave may  develop for
application in the video game industry ("the Video Game  Technology") In return,
Rave  agreed to pay the Company  2.5% of net sales of  products  using the Video
Game Technology and 25% of any fees it receives from licensing such  technology.
The Video Game Technology is not used in any of the Company's  current products,
and the Company has no current plans to develop it.

     The License  Agreement  became  effective on July 21, 1995 and continues in
force until either (1) the  expiration of the last patent rights or (2) July 21,
2012, whichever is later.

                                      F-18

<PAGE>

                            NUWAVE TECHNOLOGIES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

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

     The Company has entered  into a  development  agreement  (the  "Development
Agreement")  with  Rave,   pursuant  to  which  the  Company  has  formulated  a
development plan (the  "Development  Plan") extending through October 1998, with
annual  renewals,  subject to one year's written notice.  The  Development  Plan
focuses principally on the development of the products,  as defined, and will be
revised from time to time to provide for the  development of additional  related
products.  The  Development  Agreement  provides  for the  payment  to Rave of a
monthly  fee which,  when  aggregated  with the  Royalties  provided  for in the
License  Agreement,  must equal at least $65,000 per month. The Development Plan
is to be revised by October 2, 1998 and on each anniversary  thereafter for each
year the Development  Agreement  remains in effect.  The  Development  Agreement
terminates on October 2, 1998. The Development  Agreement also provides for Rave
to receive additional payments under certain conditions  aggregating $850,000 to
purchase or lease  equipment  for use in  developing  the Licensed  Products and
Technology.  The payments were originally to be made in monthly installments not
to exceed  $23,611  with a lump sum  payment of $283,336  due in March 1998,  if
certain  conditions  were met. In this regard,  on April 22,  1997,  the Company
deposited $300,000 into a certificate of deposit. The certificate of deposit has
been pledged as collateral for an irrevocable standby letter of credit opened by
the Company to guarantee monthly equipment lease payments (not to exceed $23,611
per  month)  to be  made by the  Company  on  behalf  of  Rave  pursuant  to the
Development  Agreement.  The  balance of the  standby  letter of credit  will be
reduced by any payments  made and any cash  restriction  on the  certificate  of
deposit is  limited to the  balance  of the  standby  letter of credit.  Through
December  30,  1997,  the  Company had made  payments  of  $386,657  against the
$850,000  of  equipment  purchases  and at that  date had  $221,481  pledged  as
collateral to guarantee the monthly  equipment lease  payments.  Expenditures of
the remaining $241,862 of the $850,000 will depend on finalizing mutually agreed
plans for the  development of additional  products for evaluation by the Company
during the remaining term of the Development Agreement.


     The Rave  research and  development  expenses  charged to the  statement of
operations for the cumulative  period from July 17, 1995 (inception) to December
31, 1997 amounted to  $2,657,355;  and for the years ended December 31, 1997 and
December 31, 1996 amounted to $1,096,903 and $1,143,825, respectively.

Agency Agreement

     In order to assist it in obtaining  sublicensing  revenue,  the Company has
entered into an Agency Agreement (the "Agency Agreement") with Prime. The Agency
Agreement provides that Prime will be the Company's exclusive agent for entering
into sublicenses with respect to the licensed  products and technology.  Because
its products are not fully developed,  the Company has not developed a licensing
program,  established  proposed royalties,  or otherwise determined the terms or
conditions of the  arrangements  it may want to make with proposed  licensees or
others.  These programs will be developed in conjunction  with product  research
and  development,  and with  Prime  pursuant  to the Agency  Agreement.  For its
services,  with respect to the first  $50,000,000  of aggregate net sales of the
Company's licensees and sublicensees, after subtracting the payments to Rave and
licensing  expenses,  Prime will receive 35% of net sublicense  fees received by
the Company,  and thereafter 45%.  Because the Company has retained the right 

                                      F-19

<PAGE>

                            NUWAVE TECHNOLOGIES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

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

to enter into licenses and sublicenses  independently,  payments to Prime are to
be made regardless of whether the relevant  sublicenses are entered into through
Prime's  efforts or by the  Company  itself.  Prime will  receive an  additional
agency  fee of up to  $1,500,000,  of which  (i)  $400,000  has been  paid  (ii)
$400,000 is payable out of the Company's first sublicensing  royalties and (iii)
$700,000 is payable out of the Company's portion of sublicensing  royalties when
net sublicensing sales exceed  $200,000,000.  The Agency Agreement provides that
Prime will  contribute  its  royalty  participation  to pay Rave in any month in
which the Company,  after making reasonable commercial effort, is unable to make
the $65,000 Rave Minimum Payment  necessary to maintain the License Agreement on
an exclusive basis with such amounts to be repaid by the Company to Prime out of
the Company's next available  royalty payment or 12 months from the date of such
advance.


     The  Agency  Agreement  terminates  upon  the  termination  of the  License
Agreement or upon a default, as defined in the Agency Agreement.


     The agency fee charged to operations  for the  cumulative  period from July
17, 1995 (inception) to December 31, 1997 amounted to $400,000 and for the years
ended  December 31, 1997 and December 31, 1996 amounted to $70,000 and $330,000,
respectively.

     The minimum  annual  commitments  under the Rave  License  and  Development
Agreements, and the Agency Agreement, as of December 31, 1997 are as follows:

For the Year   Royalty and
   Ended       Development    Consulting      Equipment
December 31,      Fees          Fees          Financing       Total
------------  ------------   ------------    -----------   ------------

   1998         $650,000        $35,000       $463,342      $1,148,342
             =============   ============    ===========   ============


Employment Agreements

     The  Company  entered  into an  employment  agreement  with  its  President
originally  expiring  December 31, 2000.  In December  1997,  the  agreement was
extended for two years to December 31, 2002. The employment  agreement  provides
for a minimum  annual  salary,  and bonus  incentives,  based  upon the  Company
meeting  profit levels to be set by the Board of Directors.  The agreement  also
provides for termination payments to the President under certain  circumstances.
The minimum  annual  salary  commitment as of December 31, 1996 and December 31,
1997, excluding bonus arrangements, amounted to $120,000 per annum.

     On February 10, 1997, the Company entered into an employment agreement with
its Vice  President - Sales.  As part of the agreement,  the Company  granted to
this individual,  under the Company's Plan, options to purchase 60,000 shares of
common stock at $6.875 per share,  the underlying  value of the Company's common
stock at the date of grant. 5,000 options vested immediately; 5,000 options vest
on June 10, 1997;  20,000 options vest on February 10, 1998; 30,000 options vest
on February 10, 1999.


                                      F-20

<PAGE>

                            NUWAVE TECHNOLOGIES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

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

Consulting and Representative Agreements

     The Company has a  consulting  agreement  with a Limited  Partnership  (the
"Consultant")  rendering  business  advice.  One of the general  partners of the
Consultant is a former member of the Company's Board of Directors.  In addition,
this general partner was a partner in two other  affiliated  entities.  Together
the  Consultant  and the two other  affiliated  entities  (which  also  provided
services to the Company)  received  450,000 shares of the Company's common stock
for an aggregate consideration of $4,500 (see Note 6). The term of the agreement
was initially for two years and has been orally extended for one additional year
to June  30,1998.  The  Consultant  received  fees of $7,500 per month until the
completion of the IPO. Once the IPO was completed, the fee was reduced to $5,000
per month  until the  agreement  terminates.  The total  consulting  fee per the
consulting  agreement  charged to the statement of operations for the cumulative
period from July 17, 1995  (inception) to December 31, 1997 amounted to $175,000
plus  out-of-pocket  expenses;  and for the years  ended  December  31, 1997 and
December 31, 1996  amounted to $60,000 and $77,500 plus out of pocket  expenses,
respectively.  The  total  aggregate  consideration  charged  to  operations  in
connection with the services rendered by the principal of the Consultant and his
affiliated  entities for the cumulative period from July 17, 1995 (inception) to
December  31, 1997  amounted to $264,998;  and for the years ended  December 31,
1997 and December 31, 1996 amounted to $66,329 and $110,367, respectively.

     Effective  August  1,1995,  the Company  entered into an  agreement  with a
consultant  whereby the  consultant  provided to the Company on a  non-exclusive
basis, certain services, among others:  evaluation of the Company's technologies
and  products,  assistance  in  product  development  and the  development  of a
marketing  strategy and plan, and the recommendation of candidates for marketing
and sales positions. On April 7, 1997, the Company entered into a Representative
Agreement with this same  consultant  whereby the consultant was appointed as an
exclusive  sales  representative  for  selected  accounts,   identified  in  the
agreement,  to obtain Strategic  Alliance  Contracts for the Company and to sell
Products  during the term of the  Agreement.  The term of the Agreement was from
April 7,  1997 to  November  30,1997.  Under  the  terms of the  Agreement,  the
consultant or his designees  will receive  options to purchase  shares of common
stock of the Company for each  Strategic  Alliance  Contract the Company  enters
into through the efforts of the Representative and/or his designees. For options
granted,  the options  price is equal to the fair market value as of the date of
the grant and will expire five years after the date of grant.  In addition,  the
Company shall pay the  Representative  a commission on net sales of all products
sold by the Company solely through the efforts of the Representative  and/or his
designees if the Representative and/or his designees made substantial efforts to
sell the  Products  to the  purchaser  during  the term of this  Agreement.  The
commission  rate is based on the type of sale and  timing of the  sale.  For all
purchase  orders  accepted  by the  company  during the period  April  7,1997 to
November 15, 2001, the Company will also pay to the  Representative a commission
of three  percent  of net sales of active  and/or  passive  presets  and  device
drivers whether or not the  representative  made any effort to sell these items.
As of December 31, 1997, no  commissions  had been earned and 45,000 options had
been granted  pursuant to this  Agreement.  Since inception to December 31, 1997
the Company has incurred $376,122;  and for the years ended December 31,1997 and
December 31, 1996, $143,657 and $195,968,  respectively,  of 


                                      F-21
<PAGE>

                            NUWAVE TECHNOLOGIES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

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

consulting fees and out of pocket  expenses for this consultant  which have been
charged to operations.

     On November 12,1997, the Company contracted with Adaptive Miro-Ware, Inc to
work with TEC (see below) in the design and  development of a custom  integrated
circuit ("ASIC") in accordance with the Company's specifications. The total cost
of the project was  estimated to be $179,550 to be paid in intervals  based upon
milestones.  The contract is expected to be  completed  during the first half of
1998. At December 31,1997 $17,500 had been paid under the terms of the contract.

     On November 14,1997, the Company contracted with The Engineering Consortium
("TEC") to design and develop a custom integrated circuit ("ASIC") in accordance
with the Company's  specifications.  The total cost of the project was estimated
to be $130,000 to be paid in intervals  based upon  milestones.  The contract is
expected to be completed  during the first half of 1998. At December  31,1997 no
payments had been made under the terms the contract.

     On  December 3, 1997,  the  company  contracted  with  Lippert/Heilshorn  &
Associates,  Inc.  ("LHA")  to provide  various  Investor  Relations  and Public
Relations  services  for the  Company.  In return for such  services the Company
granted to the LHA 30,000 options for the purchase of the Company's common stock
at $5.78 per share  (market  price on date of grant.  In  addition  the  Company
agreed to pay LHA a fee of $7,500 per month plus normal business  expenses.  The
contract  terminates on March 31,1998,  at which time the contract will continue
on a month-to-month  basis.  However, the Company may terminate the agreement at
any time after March 31,1998 upon 60 days notice to LHA.

     The Company has entered into numerous sales representation  agreements with
various  organizations  whereby  the  Company  will  pay to  the  representative
organization  commissions  based  on the type of sale and  timing  of sale.  The
commission  rates vary from 2% to 16%. No  commissions  had been earned  through
December 31,1997 pursuant to these agreements.


Leases

     The Company  leases  shared  office space on a  month-to-month  basis for a
monthly rental of $5,400.  Rent expense incurred for the cumulative  period from
July 17, 1995 (inception) to December 31, 1997 amounted to $122,348; and for the
years ended  December  31, 1997 and  December  31, 1996  amounted to $78,496 and
$37,452,respectively.  In addition, the Company is a guarantor on lease payments
of $4284 per month regarding Rave's facility. The lease expires on June 14,1998.


9.     EXTRAORDINARY ITEM

     The terms of the Bridge  Notes of the  Company  contained  early  repayment
provisions  in the  event  the  Company  completed  an IPO.  As a result  of the
Company's  completing an IPO in July 1996,  the Bridge Notes were repaid and the
unamortized  financing  costs of $251,938 and the  unamortized  debt discount of
$596,222 as of that date, totaling $848,160, were written off and recorded as an
extraordinary item for the year ended December 31, 1996.


                                      F-22
<PAGE>

                            NUWAVE TECHNOLOGIES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

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

10.     SUBSEQUENT EVENT

     On February 6, 1998, the Company entered into a two-year  agreement with an
investor whereby the Company issued 253,485 shares of the Company's Common Stock
for an aggregate purchase price of $1,000,000.  In addition,  subject to certain
conditions,  the agreement provides that, from time to time over the life of the
agreement  the Company  shall issue "Puts" to the  investor  whereby the Company
shall issue for each Put and the investor  shall  purchase a minimum of $250,000
and a maximum of $750,000 of the  Company's  common stock.  The total  aggregate
value of the Puts over the life of the agreement must be a minimum of $1,000,000
and cannot exceed $5,000,000.  The purchase price of the stock will be at 88% of
the fair  market  value of the  stock  at the  time of the  Put.  The  following
restrictions  apply  beginning with the second Put: 1) there must be 20 business
days between Puts; 2) the average  trading volume in the Company's  Common Stock
for the 30 trading  days prior to the Put date must be at least  20,000;  3) The
minimum bid price for the Company's  Common Stock on the trading day immediately
preceding  the put date must be at least $2.50;  4) unless the  investor  agrees
otherwise,  no put can be made which cause the investor to own more than 9.9% of
the Company's then outstanding stock.

     In  connection  with the  agreement  the  Company  issued  to the  investor
warrants to purchase an aggregate of 50,000 shares of Common Stock at a purchase
price of $6.41 per share.  The warrants  may be exercised at any time  beginning
August  6,1998 and ending three years  thereafter.  Also,  in the event that the
market price as of the effective date of the  registration  statement filed with
the Securities and Exchange  Commission on March 3,1998  regarding the resale of
the underlying securities is less than $3.95, then the Company will issue to the
investor a supplemental  warrant to purchase  50,000 shares of Common stock at a
stick price of $3.95.  The  supplemental  warrant may be  exercised  at any time
beginning 5 days after the effective date and ending 5 years thereafter.

     On March 3,1998,  the Company  entered into a consulting  agreement with an
organization (the  "Consultant")  whereby the Consultant will perform consulting
services relating to corporate finance and other financial services matters.  As
compensation for the services  described in paragraph 1 above, the Company shall
pay the  consultant  $5,000 per month  during an initial  term ending  September
3,1999  subject to automatic  one-year  terms  unless  either the Company or the
Consultant  shall have given written notice at least 30 days prior to the end of
the initial or subsequent terms.

     In connection  with this  agreement,  the Company  issued to the Consultant
400,000  common stock  purchase  warrants.  The  warrants  The warrants  have an
exercise price of $4 and are exercisable  after September  3,1999.  The warrants
expire on March 3, 2003.


                                      F-23