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, 2001

               [ ] 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,
                                 PUBLIC WARRANTS

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 past 12 months (or
for such shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.
Yes  [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]

State issuer's revenues for its most recent fiscal year:  $504,939

Aggregate market value of the voting stock held by non-affiliates based on the
last sale price for such stock at March 1, 2002:  $10,750,905

The number of shares of Common Stock outstanding as of March 15, 2002:
12,216,937

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


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                            NUWAVE TECHNOLOGIES, INC.
                                   FORM 10-KSB
                                      INDEX

PART I.......................................................................1

      ITEM 1.  DESCRIPTION OF BUSINESS.......................................1
      ITEM 2.  DESCRIPTION OF PROPERTIES.....................................9
      ITEM 3.  LEGAL PROCEEDINGS.............................................9
      ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........10

PART II.....................................................................10

      ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
               STOCKHOLDER MATTERS..........................................10
      ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
               OPERATION....................................................11
      ITEM 7.  FINANCIAL STATEMENTS.........................................19
      ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
               ACCOUNTING AND FINANCIAL DISCLOSURE..........................19

PART III....................................................................19

      ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
               CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
               OF THE EXCHANGE ACT..........................................19
      ITEM 10. EXECUTIVE COMPENSATION.......................................20
      ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
               AND MANAGEMENT...............................................20
      ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............20
      ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.............................21

SIGNATURES....................................................................

THIS FORM 10-KSB CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF 27A
OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934. THE ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN THE
FORWARD-LOOKING STATEMENTS. CERTAIN FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE
ARE DISCUSSED IN ITEM 6, "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION-CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS," WITHIN THIS REPORT.


<PAGE>


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

GENERAL

     During the second half of 2001 we began commercializing our patented
technologies, having been a development stage enterprise since our organization
in July 1995. Our mission is to identify, develop and commercialize high-margin,
proprietary technologies suited for high-volume, high-growth markets and, in
turn, achieve attractive long-term growth for our company. Our focus to date has
been and continues to be on unique technology related to image and video
enhancement designed to enrich picture and video output with clearer, more
defined detail in texture, color, contrast and tone, at low cost. Our initial
products can be used by original equipment manufacturers (OEM's) for placement
into products that produce images on display screens such as televisions or DVD
players, for supplementing and increasing video quality on existing television
monitors and video displays via set-top boxes containing our technology, and by
individuals over the Internet for improving their personal photographs. Our
patented high speed filtering technology removes approximately 70% of the
picture noise while retaining correct focus (the image and text in the image
does not blur). The three product lines based upon our proprietary technology
are: 1) the NUWAVE Video Processor (NVP) Technology, 2) Retail Products and 3)
Digital Filtering Technology.

NVP Technology

     The first technologies we are commercializing are in the fields of photo
and video-enhancement. We have developed proprietary video-enhancement
technology designed to significantly enhance video output devices with clearer,
sharper details and more vibrant colors when viewed on the display screen. This
is known as the NUWAVE Video Processor (NVP) technology. We are marketing this
technology in the form of ASIC chips (Application Specific Integrated Circuits)
directly to OEM's who by incorporating this enabling technology would improve
picture quality in their televisions, VCR's, DVD's, camcorders, set-top boxes
and other video output devices. This technology can also be licensed to the OEM
for incorporation onto their own ASIC design. The completed NVP 104 plastic
(silicon) chip is currently being offered for sale. We are planning to introduce
in June 2002 a step up ASIC chip, the "NVP 1104" which will be produced at not
only a lower cost for both NUWAVE and the potential OEM but will also allow for
easier design implementation for the OEM.

Retail Products

     During 2001 we completed development of the VGE set-top box for use with
video games and DVD's. This is our first retail product utilizing the NVP ASIC
chip. The VGE is a low-cost video game enhancer that provides home video
"gamers" with better video quality, to give game players an "edge" to improve
their scores. We know of no competitive device that is capable of similarly
enhancing a video game.

     In late June 2001 we began introducing the VGE 101 through select
distributors and manufacturer's representatives for placement in nationally
known retail chains. We also entered into a strategic sales and marketing
agreement with Partners in Europe ("PIE"), a Shannon, Ireland based firm to
establish a full-scale European distribution, sales, marketing and warehousing
operation for NUWAVE. In December we entered into a strategic alliance with
Gemini Industries (Gemini), a leading manufacturer and distributor of consumer
electronics accessories. Gemini was granted a five-year exclusive license to

<PAGE>

market and distribute NUWAVE's VGE in North America. We plan to introduce
several additional set top box video enhancement products to the retail market
during 2002.

Digital Software Technology

     During 2000, we completed the initial development of our first proprietary
digital photo and video software technology and launched the PicturePreptm 2000
product line. The initial PicturePrep technology was developed at the height of
the recent Internet frenzy for direct sale to consumers. With the downturn in
the Internet boom we refocused our digital technology direction. In March 2001,
this software was upgraded to PicturePrepTM Deluxe 2001 with new file management
and uploading capabilities. In October 2001 the digital filters used in
PicturePrep Deluxe were granted patent protection by the US Patent Office. These
filters remove graininess and digital artifacts while preserving proper focus
better than any other "real time" filters that are on the market today.

     We are concentrating our activities primarily on the sales of our ASIC line
of chips, the introduction and sales of our digital software technology and our
Internet presence to the OEM and professional video markets, the introduction of
additional video and image enhancement set-top boxes for retail distribution and
on the continuing development of our European sales presence.

     We believe this focused digital and analog image enhancement product
strategy will provide our company with a technology base, product line and
services we can offer to potential customers. This positions us to take full
advantage of the significant video and photo growth opportunity presented by the
converging PC, Internet, television, HDTV and telecommunication markets. We
believe that the capacity of our administrative and support systems is
sufficient to allow us to expand our business without significant additional
capital expenditures.

     Although we anticipate deriving increased revenues from the sale of our
ASIC chips and retail products and the licensing of our proprietary digital
software during 2002, no assurance can be given that these products will be
successfully marketed or that losses will not continue to occur during such
period. See "Liquidity and Capital Resources."

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 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 lower frequency
waves in the form of electrical currents in an electric circuit ("Analog Video
Waves"). That wave is transmitted to a receiver, where it is projected at the
standard broadcast rate of 30 frames per second ("fps") against a phosphorescent
screen. The screen then emits Analog Light Waves, making the image visible to
the human eye.


                                       2
<PAGE>


     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.

     Bandwidths 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.

     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 50 to 150, and to
significantly improve the quality of images transmitted over the Internet. We
believe 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 reduced 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 random salt and
pepper noise patterns.

OUR COMPANY'S VIDEO ENHANCEMENT PRODUCTS

The NVP Technology

     Our patented NVP controls, corrects and improves analog video signals using
digital control (software). The NVP first detects and replaces all important
picture synchronization and stability attributes. It then 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 printed circuit board, ASIC or a small portion of a
integrated circuit chip.


                                       3
<PAGE>


     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, 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 video 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.

     We have developed patented 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 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.

Digital Video and Photo Software Video Enhancement Technology

     We have developed a proprietary technology to remove noise, graininess in
pictures, to complement our clarity technology used in the NVP-104 ASIC. The
result of this development is a set of patented algorithms that remove 70% of
the picture noise while retaining correct focus (the image does not blur). In
addition, the NUWAVE algorithm process is three times faster than any other
known algorithm or filter thus allowing use in and during real time streaming
video.

     We believe our company has proprietary solutions for sale in both analog
and digital form to meet the continuing evolution and convergence of the PC to
television markets and the worldwide trend away from analog devices toward
digital devices.

Other Potential Products

     Our company, both internally and through the use of outside consultants,
continues to conduct investigation and research and development with respect to
other new technologies/products to address the digital, PC and internet markets,
which are new markets for us to participate in. We intend to continue to use
outside consultants to assure exposure to new ideas and technology. These
activities may give rise to additional products that we may commercialize.
However, there can be no assurance that our efforts will result in marketable
products or products that can be produced at commercially acceptable costs or
that the Company will have sufficient funds available to support the development
and commercialization of such products.

RESEARCH AND DEVELOPMENT

     Our Advanced Engineering Group currently operates to support the continuing
development of our products and related technology, and the identification of
additional sources of new technology. We utilize our Advanced Engineering Group
to create products and technology. These products and technology include the
NVP, a significant amount of the software included in each of its products and
new circuitry to allow this technology to be produced as an ASIC chip and the
proprietary digital software photo and video enhancement technology utilized in


                                       4
<PAGE>


our first Internet and retail software product PicturePrep. During 2001 we
completed development of the VGE set-top box utilizing the NVP ASIC chip for use
with video games and DVD's. This is our first retail product utilizing the NVP
ASIC chip. The VGE 101 is a low-cost video game enhancer that provides home
video "gamers" with better video quality, to give game players an "edge" to
improve their scores. In addition to the VGE, which utilizes the NVP 104 chip as
its core technology, our engineering group is finalizing development of five
additional NVP derivative set-top boxes for the consumer retail and professional
marketplaces. These products are expected to be available within the next six
months. We are also nearing completion of the NVP 1104 ASIC chip, a step up
product to the current NVP 104 ASIC. The NVP 1104 is expected to be completed in
June 2002.

     The Advanced Engineering Group consists of four of our employees, together
with outside consultant organizations who have on their respective staffs
engineers, technicians and support personnel who devote time to our company on
an as-needed project-by-project basis. We anticipate that the make-up of our
Advanced Engineering Group will change from time to time depending on our
current and anticipated development and commercialization plans. Our 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.

     During fiscal 2001 and 2000, $1,165,000 and $1,183,000, respectively, was
spent on research and development activities. During the year ending December
31, 2002, we estimate that we will spend approximately $700,000 on research and
development. Any increases or decreases to these research and development
expenditure estimates are expected to be directly related to revenues generated
from our current and forecasted product line-up.

MARKETING AND SALES

     Utilizing its proprietary technologies, the Company has completed
development of three product lines: 1) Retail Products; 2) the NUWAVE Video
Processor Technology and 3) Digital Software (PicturePreptm Technology). These
three product lines are currently being marketed to their respective
distribution channels as follows:

Retail Products

     In June 2001, we began introducing the VGE through select distributors and
manufacturer's representatives for placement in nationally known retail chains.
As a result of these initiatives, the VGE was placed in over 2,500 US retail
outlets during the second half of 2001. In December 2001 we entered into a
strategic alliance with Gemini Industries (Gemini), a leading manufacturer and
distributor of consumer electronics accessories. Gemini was granted a five-year
exclusive license to market and distribute NUWAVE's VGE in North America. As
part of the agreement, Gemini placed an initial order consisting of a
combination of finished goods inventory together with our proprietary ASICs
totaling 25,000 units. The agreement contains a minimum annual purchase quantity
of 100,000 units taken down on a monthly basis beginning in July 2002. Gemini,
which sells products under the Philips, Zenith and Magnavox brands, also
received the "right of first offer" on future versions of the VGE as well as
future video and image enhancement set-top boxes for retail distribution. Gemini
expects to begin marketing the VGE under the Zenith brand in July 2002. We
expect to offer several additional set-top box products to Gemini under their
right of first offer over the next six months.

     This alliance combines the respective strengths of each company. We will
license our proprietary technology to Gemini, who will then manufacture, market
and distribute the VGE to its customer base which covers approximately 17,000
retail locations in North America. The alliance supports our strategy to obtain


                                       5
<PAGE>


access to an established retail distribution channel for the specialized image
enhancement products we develop. Additionally, it allows us to allocate our time
and resources away from costly retail marketing and distribution processes, to
focus on developing innovative technologies and products for license to third
parties with established marketing and distribution channels.

     Also in June 2001, we entered into a strategic sales and marketing
agreement with Partners in Europe ("PIE"), a Shannon, Ireland based firm
offering complete business solutions to North American companies seeking to
establish or expand their European business. Under the agreement, PIE was to
establish a full-scale European distribution, sales, marketing and warehousing
operation for NUWAVE. The VGE was initially placed in over 500 retail locations
throughout the UK. VGE sales in Europe for the year 2001 amounted to $118,000
net of returns and were less than originally anticipated. An analysis of the
returns shows they are a direct result of the soft sell of the VGE experienced
by the UK retailers. To some degree we experienced similar results in the US.
This is directly attributable to the lack of consumer awareness of the VGE's
features, benefits and actual enhancement performance. We have determined that
this condition at retail was not caused by retail price point, competition, poor
product performance or defective products but solely that six to nine months is
not normally sufficient time to successfully introduce and develop consumer
awareness for a new product in a whole new product category as is engendered by
the VGE. To help ensure our European success and ensure better follow through
support at the local level, in February 2002 we retained Menno Buys who resides
in Amsterdam and who has a solid and successful business development background
to take charge of our European operations. We are looking for a strategic
partner or partners in Europe similar to Gemini in North America. There can be
no assurances that we will be successful in these endeavors.

NVP ASIC Technology

     We are marketing this technology in the form of ASIC chips (Application
Specific Integrated Circuits) directly to OEM's who by incorporating this
enabling technology would improve picture quality in their televisions, VCR's,
DVD's, camcorders, set-top boxes and other video output devices. This technology
can also be licensed to the OEM for incorporation onto their own ASIC design.
The completed NVP 104 plastic (silicon) chip is currently being offered for
sale. We have been concentrating our efforts to date on demonstrating and
marketing this technology to the large Asian consumer electronics OEM's in Japan
and China. We have retained David Kwong, a consultant to the Company, for the
sale and licensing of products in China and to maintain a sales office for the
Company on China. In August and September 2001, we received our first OEM orders
for the NVP 104 ASIC chips from a large Chinese electronics company that is
utilizing the chips in its DVD product line, which is now available in the
retail marketplace. We believe this is a significant step towards our goal of
making our technology a new standard in video equipment and expect other OEM's
to follow during 2002. Based on customer feedback we are planning to introduce
in June 2002 a step up ASIC chip, the "NVP 1104" which will be produced at not
only a lower cost for both NUWAVE and the potential OEM but will also allow for
easier design implementation for the OEM. At the same time it will have
additional features.

Digital Filtering Technology

     During 2000, we completed the initial development of our first proprietary
digital photo and video software technology and launched the PicturePreptm 2000
product line. The initial PicturePrep technology was developed at the height of
the recent Internet frenzy for direct sale to consumers. With the downturn in
the Internet boom we refocused our digital technology direction. In March 2001,
this software was upgraded to PicturePrepTM Deluxe 2001 with new file management
and uploading capabilities. In October 2001 the digital filters used in


                                       6
<PAGE>


PicturePrep Deluxe were granted patent protection by the US Patent Office. These
filters remove graininess and digital artifacts while preserving proper focus
better than any other "real time" filters that are on the market today.

     We plan to license the digital filtering technology associated with
PicturePrepTM Deluxe 2001 to OEM's for embedding in products such as PC's,
printers, scanners, camcorders and DVD's, among other digital imaging devices.
These patented filters are expected to be in demand for use in processing
digital video and movies used for streaming video over the Internet. The
PicturePreptm digital technology not only complements our proprietary analog
ASIC chip technology but can also work in conjunction with it to further improve
the resulting image quality.

     With the initial introduction and sales of our VGE retail product and our
ASIC chips occurring during 2001, our net sales for the year ended December 31,
2001 were $505,000 as compared to $14,000 for the prior year. See the discussion
of concentration of customers at page F-10 to Notes to Financial Statements. As
a result of the exclusive Gemini Agreement, thus we anticipate a substantial
reduction in our overall marketing and distribution costs of $638,000 in 2001 as
they will be responsible for marketing and selling to retail outlets in North
America. Although we anticipate deriving increased revenues from the sale of our
ASIC chips and retail products and the licensing of our proprietary digital
software during 2002, no assurance can be given that these products will be
successfully marketed during such period.

MANUFACTURING

     The Company does not contemplate that it will directly manufacture any of
its products. It has contracted with third parties to manufacture its NVP 104
ASIC and its VGE. It also may license to third parties the rights to manufacture
the products, through direct licensing, OEM arrangements or otherwise.

     The Company intends to produce the NVP ASIC chips in accordance with a
customer's requirements supported by firm commitments rather than producing and
storing in inventory ASIC chips in anticipation of applications required by
customers in the future.

PATENTS; PROPRIETARY INFORMATION

     To the extent practicable, the Company has filed and intends to file U.S.
patents and/or copyright applications for certain of its proposed products and
technology. The Company has also filed and intends to file corresponding
applications in key industrial countries worldwide.

     In April 1996, the Company filed two U.S. patent applications on behalf of
Rave Engineering Corporation ("Rave") for its Randall connector system. One
patent was received in November 1997 and the second one in January 1998. Under
the terms of the settlement agreement with Rave, the Company retains the
exclusive license rights to these patents.

     In April 1998, the Company filed three U.S. patent applications for certain
of its independently developed products: one for the NUWAVE Video Processor and
two for the Softsets, these patents were granted in November 2000, February 2001
and May 2001, respectively. In August 1999, the Company filed a patent
application for its digital software technology as used in PicturePrep product
line, this patent was granted in October 2001. There is no assurance that any
patent will afford us with commercially significant protection of our technology
or that we will have adequate resources to enforce our patents.

     The Company also sells its technology and products in foreign markets. As
such, it has filed for foreign patent protection in the countries forming the
European Common Union, Japan and Korea. The patent laws of other countries may
differ significantly from those of the United States as to the patentability of
the Company's products and technology. Moreover, the degree of


                                       7
<PAGE>

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
the patents are issued, if a non-publication request is timely made and the
applications are not foreign filed, and are otherwise published 18 months after
filing. Publication of discoveries in scientific or patent literature tends to
lag behind actual discoveries by several months. As a result, 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.

     Management believes that the products the Company intends to market and
sell do not infringe the patents or other proprietary rights of third parties.
Further, it is not aware of any patents held by competitors that will prevent,
limit or otherwise interfere with the Company's ability to make and sell its
products. However, it is possible that competitors 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. There is 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 it to cease selling its products.

     The Company also relies on unpatented proprietary technology. There is 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, advisors and collaborators to enter into confidentiality
agreements. The Company could be adversely affected in the event that these
agreements fail to provide meaningful protection for its trade secrets, know-how
or other proprietary information.

COMPETITION

     The markets that the Company intends to enter are characterized by intense
competition, and, particularly with respect to the market for video editing,
video production and video 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 Royal Philips 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.

EMPLOYEES

     The Company currently has nine full-time employees, of whom five are
executives or administrative and four are in the Advanced Engineering Group, 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. The Company also retains a varying
number of consultants on an as-needed basis.


                                       8
<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTIES

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 $5,800. 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. David
Kwong leases office space in China for the Company's use for a monthly rental
fee of $1,000.

ITEM 3.  LEGAL PROCEEDINGS

     None.


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<PAGE>


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

     On November 28, 2001, the Company held a special meeting of its
stockholders, to approve a contemplated private placement of shares of the
Company's Common Stock, including shares underlying any related warrants,
aggregating not more than 7,500,000 shares of Common Stock, to fulfill Nasdaq
Stock Market Rule 4350(i)(1)(D)(ii).

     The following table sets forth information regarding the number of votes
cast for and against, with respect to the matter presented at the meeting.

        FOR          AGAINST OR WITHHELD     ABSTENTIONS           UNVOTED

     5,445,677             147,080             107,749                0



                                     PART II

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

MARKET FOR COMMON EQUITY

     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" and "WAVEZ" for Common Stock 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. For information regarding possible delisting on NASDAQ, see
Risk Factor 17. 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       Warrants        Warrants
                                   Stock         Issued          Issued
                                               July 1996      May/June 1998
                               HIGH    LOW     HIGH   LOW      HIGH   LOW
QUARTERLY PERIOD ENDED

March 31, 2000                $5.75   $2.19   $3.19  $ .66    $2.56  $1.00
June 30, 2000                  4.13    1.66    1.75    .53     1.50    .75
September 30, 2000             2.44    1.59     .63    .34     1.13    .75
December 31, 2000              1.75     .69     .38    .06     1.00    .16
March 31, 2001                 1.44     .41     .25    .03      .50    .06
June 30, 2001                  1.02     .60     .28    .05      .38    .06
September 30, 2001             1.89     .55     .40    .18      .75    .14
December 31, 2001              1.43     .86     .22    .09      .45    .05

     As of March 15, 2002, there were approximately 220 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.


                                       10
<PAGE>


     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.

RECENT SALES OF UNREGISTERED SECURITIES

     During the three months ended December 31, 2001 there were no sales of
unregistered securities.

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONDITION AND RESULTS OF
          OPERATIONS

                          SUMMARY FINANCIAL INFORMATION

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

                                    YEAR ENDED     YEAR ENDED       YEAR ENDED
  STATEMENT OF OPERATIONS DATA     DECEMBER 31,   DECEMBER 31,     DECEMBER 31,
                                       2001           2000             1999

(in thousands, except share data)
Revenues                           $       505    $        14      $        17
Net Loss                           $     4,273    $     4,289      $     2,690
Net loss per common share          $     (0.40)   $     (0.42)     $     (0.32)
Weighted average number of shares   10,749,404     10,135,345        8,419,644


                                   DECEMBER 31,   DECEMBER 31,     DECEMBER 31,
    BALANCE SHEET DATA:                2001           2000             1999

Working capital                    $       895    $     3,767      $     1,833
Total assets                       $     2,133    $     4,885      $     3,180
Total liabilities                  $       846    $       417      $       275
Stockholders' equity               $     1,287    $     4,467      $     2,906

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 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, 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").


                                       11
<PAGE>


     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

     In 2001 we began commercializing our technologies, having been a
development stage enterprise since our organization in July 1995. Our mission is
to identify, develop and commercialize high-margin, proprietary technologies
suited for high-volume, high-growth markets and, in turn, achieve attractive
long-term growth for our company. We have been focusing on technology related to
image and video enhancement designed to enrich picture and video output with
clearer, more defined detail in texture, color, contrast and tone, at low cost.
Our initial products can be used by original equipment manufacturers (OEM's) for
placement into products that have or utilize display screens such as televisions
or DVD players, for supplementing and increasing video quality on existing
television monitors and video displays via set-top boxes containing our
technology, and by individuals over the Internet for improving their personal
photographs. Our patented high speed filtering technology removes approximately
70% of the picture noise while retaining correct focus (the image and text in
the image does not blur). We have developed and are currently marketing three
product lines based upon our proprietary technology. These products are: 1) the
NUWAVE Video Processor (NVP) Technology; 2) Retail Products and 3) Digital
Filtering Technology (see "Marketing and Sales").

RESULTS OF OPERATIONS

     Revenues for the year ended December 31, 2001 were $505,000 as compared to
$14,000 for the prior year. This was a direct result of the introduction and
sales of our VGE retail product and our ASIC chips. Cost of Sales for 2001 was
$308,000 versus $4,000 for 2000 also as a direct result of the increased sales.
Research and development costs for the year ended December 31, 2001 were
$1,165,000; a reduction of $18,000 from the prior year. This reduction included
a decrease in engineering salaries and outside consulting fees of $257,000 and
miscellaneous related costs of $10,000 primarily due the completion of the
initial development of our core technologies. These reduced development costs
were partially offset by an increase in amortization and write off of
development costs related to the PicturePrep software and the PicturePrepCub.com
website over 2000 of $249,000. General and administrative expenses for the year
ended December 31, 2001 were $$3,699,000; an increase of from the prior year.
Such increases were primarily a result of accounting treatment for performance
stock options granted during 2001 ($226,000), increased legal fees as a result
of additional SEC filings and contract work during 2001 ($144,000) and other
($15,000). Interest expense (net of interest income) for the year ended December
31, 2001 was $76,000 as compared to $264,000 for the prior year as a result of
lower cash balances throughout 2001 compared to 2000. During the year ended 2001
the Company showed a benefit arising from income taxes of $318,000 as compared
to a provision for income taxes in 2000 of $66,000. This change is a direct
result of estimates posted for the sale of state tax credits based on a special
New Jersey State program. As a result of the above the Company had a net loss
for the year ended December 31, 2001 of $4,273,000 compared to a net loss for
the year ended December 31, 2000 of $4,289,000, a decrease in losses of $16,000.

     The net loss for the year ended December 31, 2000 of $4,289,000 compared to
a net loss for the year ended December 31, 1999 of $2,691,000, an increase in
losses of $1,598,000. The increased losses for the year ended 2000 were
primarily attributable to increases in advertising and trade show expenses of
$581,000 relating to the introduction of the PicturePrep 2000 product and the
opening of the Company's photo portal PicturePrepClub.com; an increase in
payroll costs of approximately $130,000 relating to the addition of two
marketing personnel; an increase in amortization charges relating to the
issuance of stock options to third party consultants of $107,000; increases in
Research and Development Costs of $244,000 and a reduction in the Company's


                                       12
<PAGE>


provision for income tax benefits of $975,000. The increase in research and
development costs of $244,000 was principally related to the final stages of
development of the NVP 104 chip, development of Picture Prep technology and
costs related to the development of the Company's on-line photo portal. These
increases were partially offset by an increase in interest income of $100,000
and one-time charges of $339,000 incurred during 1999 relating to the results of
an arbitration settlement with Rave Engineering Corp.

     Although we anticipate deriving increased revenues from the sale of our
ASIC chips and retail products and the licensing of our proprietary digital
software during 2002, no assurance can be given that these products will be
successfully marketed or that losses will not continue to occur during such
period. See "Liquidity and Capital Resources."

LIQUIDITY AND CAPITAL RESOURCES

     From its inception until the IPO in 1996, 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 ("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 6, 1998, the
Company issued 253,485 shares of its Common Stock for an aggregate purchase
price of $1,000,000 to a Private Limited Partnership. Between May 19, 1998 and
June 9, 1998, pursuant to a placement agency agreement with Janssen-Meyers
Associates, L.P. ("Janssen-Meyers"), the Company issued 2,742,904 shares of the
Company's Common Stock and 2,057,207 Class A Redeemable Warrants for an
aggregate purchase price of $7,280,546.

     On March 14, 2000, the Company completed a private placement with
Janssen-Meyers whereby the Company issued 2,088,608 shares of the Company's
Common Stock and 1,044,304 Redeemable Common Stock Purchase Warrants for an
aggregate purchase price of $6,600,000.

     During the period, beginning August 28, 2001 and ending November 12, 2001,
the Company issued a total of 844,922 of its shares at a reduced exercise price
of $1 to the holders of certain of its placement agent warrants. These warrants
were originally issued to the placement agent in connection with two private
placements of the Company's equity in May 1998 and March 2000 at exercise prices
of $3.24 and $3.95 respectively. As a special incentive offer to the holders of
the placement agent warrants, the original exercise prices was reduced during
the period August 15, 2001 to January 15, 2002.

     On February 5, 2002, the Company entered into a private placement agreement
with investors whereby the Company issued 600,000 shares of its Common Stock for
an aggregate purchase price of $330,000. On February 27, 2002 the Company
entered into an agreement with an investor whereby the Company issued 214,286
shares of Common Stock and warrants to purchase up to 50,000 shares of Common
Stock for an aggregate purchase price of $150,000. The warrants have an exercise
price of $1.00 per share with exercise period of five years expiring February
27, 2007.

     On April 15, 2002 the Company entered into a $3 million Equity Line of
Credit with a qualified investor (the "Purchaser"). Provided it is in compliance
with the terms of the agreement, including the effective registration of shares
to be sold, the Company may, at its option, require the investor to purchase up
to $300,000 per month of the Company's Common Stock (the "put shares") up to a
maximum of $3 million over the two years immediately following the effective
date of the registration statement. The purchase price of the put shares will be
97% of the the closing bid price. In addition the Company has issued as a fee to
the Purchaser approximately 242,000 shares of restricted stock with a fair value
of $150,000. Upon the initial Put and all subsequent Puts, the Purchaser shall
receive directly from escrow cash compensation equal to 4% of the gross proceeds
of the Put.


                                       13
<PAGE>


     We anticipate that with our cash currently on hand and the completion of an
effective registration statement relating to the Equity Line of Credit, we will
be able to satisfy contemplated cash requirements for at least through the next
twelve months. In their report on the audit of NUWAVE's financial statements for
the year ended December 31, 2001, our independent auditors included an
explanatory paragraph in their report because of the uncertainty that the
Company could continue in business as a going concern. In the event the Company
is unable to complete a registration and sale of its Common Stock pursuant to
this agreement, there would be substantial doubt about the ability of the
Company to continue as a going concern.

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.   WE HAVE PRIMARILY BEEN A DEVELOPMENT STAGE ENTERPRISE WITH ONLY A
     LIMITED OPERATING HISTORY.

     Until June of 2001 we were a development stage enterprise. At that time we
shifted to commercialization and thus have had only a limited operating history.
Since our inception in July 1995, we have been engaged primarily in raising
funds and directing, supervising, and coordinating the activities of our
Advanced Engineering Group, made up of our own employees and third-party
consultants who work with us on a project-by-project basis, in the continuing
development of the NUWAVE Video Processor (NVP) Technology, retail products
utilizing the NVP technology and our digital image enhancement software filters.
During the second half of 2001 we began producing and selling the NVP Video
Processor in an ASIC (Application Specific Integrated Chip) format for the OEM
market and our first set top box product utilizing the NVP technology the VGE
for the retail market (See Marketing and Sales). Although we have experienced
some early success with these products, our prospects must be considered in
light of the risks associated with the establishment of a new and small
capitalized business in the evolving electronic video industry. In our case this
is particularly so, as further risks will be encountered in our shift from the
development to the commercialization of new products based on innovative
technology. There can be no assurance that we will be able to generate
significant revenues or achieve profitable operations.

2.   WE HAVE A HISTORY OF INCURRING LOSSES AND WE ANTICIPATE THAT WE WILL
     CONTINUE TO INCUR LOSSES.

     To date, we have received only limited revenue from the sale of our
products. There can be no assurance that our technology and products will be
able to compete successfully in the marketplace and/or generate significant
revenue. We have incurred significant costs in connection with the development
of our technologies and proposed products and there is no assurance that it will
achieve sufficient revenues to offset anticipated operating costs. As of
December 31, 2001, we had an accumulated deficit of approximately $24,440,000.
Although we anticipate deriving revenues from the sale of our VGE and NVP (Video
Processor) and related products and digital software products within the next
twelve months, no assurance can be given that these products will be
successfully marketed. Management anticipates that we may continue to incur
losses for at least the next twelve months. Included in such former and future
losses are research and development expenses, marketing costs, and general and
administrative expenses. We anticipate that our losses will continue until we
are able to generate sufficient revenues to support our operations.

3.   OUR CONTINUED DEVELOPMENT EFFORTS AND FUTURE GROWTH DEPEND UPON OUR
     ABILITY TO RAISE ADDITIONAL CAPITAL WHICH MAY NOT BE AVAILABLE TO US WHEN
     NEEDED OR ON ACCEPTABLE TERMS.

     Our capital requirements in connection with our development activities have
been significant. We have been dependent upon the proceeds of sales of our
securities to private investors to fund our initial development activities.
Since our initial public offering in July 1996, we have obtained needed capital
through private placements of our securities. We anticipate, based on our


                                       14
<PAGE>


current proposed plans and assumptions relating to our operations, that we will
require additional capital in order to implement our business plan (see
Liquidity and Capital Resources and Plan of Operation). On April 15, 2002, the
Company entered into a $3 million Equity Line of Credit with a qualified
investor (the "Purchaser"). Provided it is in compliance with the terms of the
agreement, including the effective registration of shares to be sold, the
Company may, at its option, require the investor to purchase up to $300,000 per
month of the Company's Common Stock (the "put shares") up to a maximum of $3
million over the next two years from the effective date. The purchase price of
the put shares will be 97% of the then Market Price. In their report on the
audit of NUWAVE's financial statements for the year ended December 31, 2001, our
independent auditors included an explanatory paragraph in their report because
of the uncertainty that the Company could continue in business as a going
concern. In the event the Company is unable to complete a registration and sale
of its Common Stock pursuant to this agreement, there would be substantial doubt
about the ability of the Company to continue as a going concern. To the extent
that any future financing involves the sale of our equity securities, our
existing stockholders could be substantially diluted.

4.   WE DEVELOP TECHNOLOGY AND PRODUCTS USING NEW CONCEPTS, SO THERE IS
     UNCERTAINTY ABOUT MARKET ACCEPTANCE OF OUR PRODUCTS, AND WE HAVE LIMITED
     MARKETING EXPERIENCE.

     We develop technology and products using new concepts and designs in video
imagery and processing. Our prospects for success will depend on our ability to
successfully sell our products to key manufacturers and distributors who may be
inhibited from doing business with us because of their commitment to their own
technologies and products or because of our relatively small size and lack of
sales and production history. As a result, demand and market acceptance for our
technology and products are subject to a high level of uncertainty. We currently
have limited financial, personnel and other resources to undertake the extensive
marketing activities that will be necessary to market our technology and
products once their development is completed. No assurance can be given that any
of our potential customers will enter into any arrangements with us. Further,
there is no assurance that our marketing efforts will be successful.

5.   WE DEPEND ON THE MANUFACTURERS OF PRODUCTS WHO WISH TO INCLUDE OUR NVP
     VIDEO PROCESSOR TO MAKE DESIGN MODIFICATIONS NECESSARY TO INCORPORATE OUR
     TECHNOLOGY INTO THEIR PRODUCTS.

     Commercialization of the NVP Video Processor 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 NVP Video Processor meets the various video broadcast standards, we
anticipate that manufacturers wishing to use the NVP Video Processor will make
such modifications because of the benefits derived from the improved performance
of their products and the relative simplicity of such modifications. However,
there is no assurance that such modifications will be made. Also, the cost of
such modifications may inhibit or prevent their adoption. Our ability to sell
and/or license our products would be adversely affected if designers and
manufacturers fail to make such modifications.

6.   WE WILL RELY ON OTHERS TO MANUFACTURE OUR DEVICES, AND WE MAY NOT BE ABLE
     TO MEET CUSTOMER DEMAND IF OUR SUPPLIERS CANNOT MEET OUR QUANTITY AND
     QUALITY REQUIREMENTS.

     We do not plan to directly manufacture any of our products. We contract
with third parties to manufacture our NVP Video Processor and related retail
products. We may also license to third parties the rights to manufacture our
products, either through direct licensing, original equipment manufacturer
arrangements or otherwise.

     We are dependent on third parties to manufacture our NVP ASIC (the
application specific integrated circuit-based NVP Video Processor) and related
products as well as future products we may choose to commercialize. There can be
no assurance that our current suppliers will dedicate sufficient production
capacity to satisfy our requirements within scheduled delivery times, or at all.
Failure or delay by our suppliers in fulfilling our anticipated needs would have
an adverse effect on our ability to develop and market our products. In
addition, we will be dependent on third-party vendors for many of the components


                                       15
<PAGE>


necessary for the final assembly of our products. We may have difficulty in
obtaining contractual agreements with suppliers of these materials due to, among
other things, possible material shortages or possible lack of adequate
purchasing power. While our management believes that these components are
available from multiple sources, it is anticipated that we will obtain certain
of them from a single source, or limited number of sources, of supply. In the
event that certain of these suppliers are unable or unwilling to provide us with
these 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 our operations.

7.   COMPETITION

     Intense competition exists in the markets that we are in. Further, with
respect to the market for video editing, video production and video processing
products, significant price erosion over the life of a product exists. Our
products will directly compete with those of numerous well-established
companies, including the following companies, which design, manufacture and/or
market video technology and other products: Sony Electronics, Inc., Panasonic
Division of Matsushita Electric Industrial Co., Motorola, Inc., Mitsubishi
International Corp., and Royal Philips Electronics, NV.

     All of the above companies have substantially greater financial, technical,
personnel and other resources than we do for production and innovation of
products, and for marketing and sales. Further, each has established a
reputation for success in the development, licensing, sale and service of its
products and technology. In addition, 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.

8.   OUR INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGES AND
     AGGRESSIVE COMPETITION.

     Rapid changes characterize the markets for our technology and products.
Further, evolving industry standards often result in product obsolescence or
short product life cycles. Certain companies may be developing technologies or
products which may be functionally similar, or superior, to some or all of our
proposed products. As a result, our ability to compete will depend on our
ability to, among other things: complete development and introduce to the
marketplace in a timely and cost-competitive manner our products and technology;
continually enhance and improve our products and technology; adapt our products
to be compatible with specific products manufactured by others; and successfully
develop and market new products and technology.

     There is no assurance that we will be able to compete successfully or that
our competitors will not develop similar or competitive technologies or products
that render our products and technology obsolete or less marketable. Further,
there is no assurance that we will be able to successfully enhance our proposed
products or technology or adapt them satisfactorily.

9.   TO THE EXTENT PRACTICABLE, WE HAVE FILED U.S. PATENTS AND/OR COPYRIGHT
     APPLICATIONS, BUT THERE IS NO ASSURANCE THAT ANY PATENT OR COPYRIGHT
     WILL AFFORD US COMMERCIALLY SIGNIFICANT PROTECTION.

     To the extent practicable, the Company has filed and intends to file U.S.
patents and/or copyright applications for certain of its proposed products and
technology. The Company has also filed and intends 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. One patent was received in November 1997 and
the second one in January 1998. Under the terms of the settlement agreement with
Rave, the Company retains the exclusive license rights to these patents. In


                                       16
<PAGE>


April 1998, the Company filed three patent applications for certain of its
independently developed products: one for the NUWAVE Video Processor and two for
the Softsets, these patents were granted in November 2000, February 2001 and May
2001, respectively. In August 1999, the Company filed a patent application for
its digital software technology as used in PicturePrep product line, this patent
was granted in October, 2001. There is no assurance that any patent will afford
us with commercially significant protection of our technology or that we will
have adequate resources to enforce our patents.

     Management believes that the products the Company intends to market and
sell do not infringe the patents or other proprietary rights of third parties.
Further, it is not aware of any patents held by competitors that will prevent,
limit or otherwise interfere with the Company's ability to make and sell its
products. However, it is possible that competitors 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. There is 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 it to cease selling its products.

10.  NO DIVIDENDS

     We have not paid any cash dividends to date. Payment of dividends on our
Common Stock is within the discretion of our board of directors and will depend
upon our earnings, capital requirements and financial condition, and other
relevant factors. We do not intend to declare any dividends on our common stock
in the foreseeable future. Instead, we plan to retain any earnings we receive
for development of our business operations.

11.  LIMITATION ON TAX LOSS CARRYFORWARDS

     As of December 31, 2001, we had available unused net operating loss
carryforwards aggregating approximately $23,100,000 to offset future federal
taxable income. The unused net operating loss carryforwards expire in various
years from 2010 to 2021. Under Section 382 of the Internal Revenue Code of 1986,
utilization of prior net operating loss carryforwards is limited after an
ownership change. We may be subject to limitations on the use of our net
operating loss carryforwards as provided under Section 382 by reason of prior
placements of our securities and future transactions. Accordingly, there can be
no assurance that a significant amount of the existing net operating loss
carryforwards will be available to use. In the event that we achieve
profitability, as to which there can be no assurance, such limitation would have
the effect of increasing our tax liability and reducing our net income and
available cash resources in the future.

12.  LIMITATION ON LIABILITY OF DIRECTORS AND OFFICERS

     Our company's certificate of incorporation provides that we will indemnify
any of our directors, officers, employees or agents against actions, suits or
proceedings relating to our company and, subject to certain limitations, a
director shall not be personally liable for monetary damages for breach of his
fiduciary duty. In addition, we have entered into an indemnification agreement
with each of our directors. Such indemnification agreement provides that a
director is entitled to indemnification to the fullest extent permitted by law.



                                       17
<PAGE>


13.  WE MUST ATTRACT AND RETAIN KEY PERSONNEL IN ORDER TO REMAIN COMPETITIVE
     WHICH MAY BE DIFFICULT GIVEN OUR SMALL SIZE AND LIMITED RESOURCES COMPARED
     TO MANY OF OUR COMPETITORS.

     Our operations depend largely on the continued employment of Mr. Gerald
Zarin, Chairman of the Board, President and Chief Executive Officer. If Mr.
Zarin or other members of management or key personnel resign or otherwise leave
our company, our business and financial condition could be materially adversely
affected.

14.  PROVISIONS IN THE EMPLOYMENT CONTRACT OF OUR PRESIDENT AND IN THE
     SEVERANCE AGREEMENTS OF OUR EXECUTIVE OFFICERS ARE TRIGGERED BY A CHANGE
     IN CONTROL, WHICH ALSO COULD DISCOURAGE UNSOLICITED TAKEOVER ATTEMPTS.

     Provisions in the employment contract of our President and in the severance
agreement of one executive officer providing for various termination benefits
are triggered by certain changes in control of our company. Such provisions
could have the effect of discouraging, delaying or preventing unsolicited
takeover attempts.

15.  PROVISIONS IN OUR COMPANY'S CERTIFICATE OF INCORPORATION COULD DISCOURAGE
     UNSOLICITED TAKEOVER ATTEMPTS WHICH COULD DEPRESS THE MARKET PRICE OF OUR
     COMMON STOCK.

     Provisions of our company's certificate of incorporation and by-laws and of
Delaware law could discourage potential acquisition proposals and could delay or
prevent a change in control. Such provisions could diminish the opportunities
for a stockholder to participate in tender offers, including tender offers at a
price above the then-current market value of our common stock. Such provisions
may also inhibit fluctuations in the market price of our common stock that could
result from takeover attempts. In addition, our board of directors, without
further stockholder approval, may issue preferred stock that could have the
effect of delaying or preventing a change in control. The issuance of preferred
stock could also adversely affect the voting power of the holders of common
stock, including the loss of voting control to others.

16.  MARKET PRICE FLUCTUATIONS

     The trading price of our 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, recommendations by analysts and other events.

17.  OUR COMMON STOCK COULD BE DELISTED FROM THE NASDAQ SMALLCAP MARKET IF WE
     DO NOT MEET THE MINIMUM REQUIREMENTS FOR CONTINUED LISTING.

     The National Association of Securities Dealers maintains requirements for
the continued listing on the Nasdaq SmallCap Market that include the following:
the listed shares of common stock have a minimum bid price of $1.00 per share;
companies with listed shares have net tangible assets of $2,000,000 (effective
November 1, 2002 this will change to $2,500,000 in net equity) or market
capitalization of $35,000,000 or net income (in the latest fiscal year or in two
of the last three fiscal years) of $500,000; and that the market value of the
public float of our common stock be at least $4,000,000. Since January 4, 2002,
the minimum bid price of our stock has been less than $1.00. The Company has
been notified by Nasdaq that it has been provided until August 19, 2002 to
regain compliance under the minimum bid rule to avoid a delisting notification.
At December 31, 2001 the Company had net tangible assets of $1,287,000. During
February 2002, the Company raised approximately $450,000 through two private


                                       18
<PAGE>


equity placements. The Company intends to raise additional cash through equity
financing to regain compliance under the Net Tangible Asset rule. Additional
equity financing may involve substantial dilution to the interests of the
Company's then existing shareholders. There can be no assurance that such
additional capital will be available to the Company on commercially reasonable
terms or at all.

18.  OUR COMMON STOCK COULD BECOME SUBJECT TO "PENNY STOCK" RESTRICTIONS UNDER
     FEDERAL SECURITIES LAWS, WHICH COULD REDUCE THE LIQUIDITY OF OUR COMMON
     STOCK.

     The SEC has adopted regulations, which generally define penny stocks to be
an equity security that has a market price less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to certain exemptions. On
March 1, 2001, the closing bid price for our common stock, as quoted on the
Nasdaq SmallCap Market, was $0.88 per share and therefore, our common stock is
designated a "Penny Stock." As a penny stock, our common stock may become
subject to Rule 15g-9 under the Exchange Act or the Penny Stock Rule. This rule
imposes additional sales practice requirements on broker-dealers that sell such
securities to persons other than established customers and "accredited
investors" (generally, individuals with a net worth in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses). For
transactions covered by Rule 15g-9, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. As a result, this rule may
affect the ability of broker-dealers to sell our securities and may affect the
ability of purchasers to sell any of our securities in the secondary market.

     For any transaction involving a penny stock, unless exempt, the rules
require delivery, prior to any transaction in a penny stock, of a disclosure
schedule prepared by the SEC relating to the penny stock market. Disclosure is
also required to be made about sales commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stock.

     The penny stock restrictions will not apply to our common stock if we
continue to meet a $2,000,000 minimum net tangible assets and a $1.00 market
price. There can be no assurance that our common stock will continue to qualify
for exemption from the penny stock restrictions. In any event, even if our
common stock were exempt from the penny stock restrictions, we would remain
subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the
authority to restrict any person from participating in a distribution of penny
stock, if the SEC finds that such a restriction would be in the public interest.

ITEM 7.   FINANCIAL STATEMENTS

     The information required by this item is incorporated by reference to pages
F-1 through F-18 of this Annual Report on Form 10-KSB.

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

     Not applicable.


                                       19
<PAGE>

                                    PART III

      ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS


        Set forth below are the names as of March 1, 2002 and the business
experience of the directors and executive officers of the Company:

            NAME              AGE                        POSITION
---------------------       -------       --------------------------------------
Gerald Zarin                  61          Chairman of the Board of Directors,
                                          President and Chief Executive
                                          Officer
Edward Bohn                   56          Director
Richard E. Ekstract           71          Director
Lyle E. Gramley               75          Director
Joseph A. Sarubbi             73          Director
Jeremiah F. O'Brien           55          Vice President, Secretary and Chief
                                          Financial Officer
Robert Webb                   65          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 1993 to July 1995, he was President
and Chief Executive Officer at AMD Consulting, Inc., a business-consulting firm.
From June 1991 until January 1993, Mr. Zarin was the Chairman, President and
Chief Executive Officer of Emerson Radio Corporation ("Emerson Radio"), which
designs and sells consumer electronics products. 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., 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.

        EDWARD BOHN has been a Director of and a consultant to NUWAVE
Technology, Inc., since July 1995. Since March 2001, he has been Chief Financial
Officer of Nova Corp., which constructs and manages the construction of data
centers serving the telecommunications (Internet) industry both domestically and
internationally, after having been a Director and Consultant since December
1999. Since February 1995, he has been a Director and Consultant of Jennifer
Convertibles, a furniture distributor. Since September 1994, 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, including from March 1993 to March 1994, as Senior Vice President-Special
Projects; and from March 1991 to March 1993, as Chief Financial Officer and
Treasurer/Vice President of Finance. Prior to March 1991, he was Vice President
of Finance and Treasurer.

        Prior to Emerson he held positions as and Officer and Assistant
Controller of Jersey Central Power and Light, was Coordinator of Internal
Auditing for the GPU System, controller of a multi-million food manufacturing
company, and held various positions in a public accounting firm.


                                       20
<PAGE>

        RICHARD E. EKSTRACT has been a Director of the Company since September
1999. Since 1959, Mr.Ekstract has created, financed and launched more than
twenty periodicals about the consumer electronics industry, including Audio
Times, Consumer Electronics Monthly, Consumer Electronics Show Daily, Autosound
and Communications, Satellite Retailing, Video Business, Video Review, TWICE,
CARS, and License! Mr. Ekstract is also founder and chairman of the Home Office
Association of America and the creator of the Audio Hall of Fame and Video Hall
of Fame. He is about to launch a new magazine for consultants called Consult!

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

        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.

        JEREMIAH F. O'BRIEN has been Vice President and Secretary of NUWAVE
Technologies since July 1995. Mr. O'Brien has been the Chief Financial Officer
of NUWAVE since January 1996. Prior to joining NUWAVE, Mr. O'Brien held a
six-year post as CFO and Executive Vice President for Cardiac Resuscitator
Corporation, a medical electronic manufacturer. From September 1989 to 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. Mr. O'Brien has also held a Corporate
Controller's position for Andin International, a jewelry manufacturing company.
Mr. O'Brien has also acted as an acted as an independent financial consultant to
various private corporations.

        ROBERT WEBB has served as Vice President of marketing for NUWAVE since
September 1995. From June 1995 to September 1995, Mr. Webb acted as an
independent consultant to various private corporations. From July 1994 to March
1995, he was Vice President of new product development for Studio Magic, Inc.
From October 1973 to October 1993, he was employed by and succeeded to General
Manager, GSD of Grass Valley/Tektronix, a company that produces broadcast
television equipment. Mr. Webb began his career as an engineer designing
television systems for the United States government and was on the design team
that completed the first digital television. He was also Founder and President
of World Video, the first company to produce a monitor using the Trinton picture
tube.


                                       21
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

                       COMPENSATION OF EXECUTIVE OFFICERS

        The following table sets forth the annual compensation paid by the
Company for services performed on the Company's behalf for the fiscal years
ended December 31, 1999, 2000 and 2001, with respect to those persons who were,
as of December 31, 2001, 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
                                                                    OTHER         OPTIONS
          NAME AND                                                 ANNUAL         (NUMBER       ALL OTHER
     PRINCIPAL POSITION          YEAR      SALARY      BONUS     COMPENSATION   OF SHARES)    COMPENSATION
     ------------------          ----      ------      -----     ------------   ----------    ------------
<S>                              <C>     <C>         <C>               <C>       <C>                <C>
Gerald Zarin, President and      2001    $ 144,000       0             $0        200,000            $0
Chief Executive Officer          2000    $ 140,000   $  50,000         $0              0            $0
                                 1999    $ 120,000   $  25,000         $0         50,000            $0
Don Legato,*                     2001    $ 158,000       0             $0              0            $0
Vice President, Sales            2000    $ 150,000   $   7,500         $0              0            $0
                                 1999    $ 150,000   $   5,000         $0         10,000            $0
Jeremiah F. O'Brien, Chief       2001    $ 108,000       0             $0         50,000            $0
Financial Officer, Vice          2000    $ 114,000   $  25,000         $0              0            $0
President and Secretary          1999    $ 100,000   $  10,000         $0         20,000            $0
Robert Webb, Vice President,     2001    $ 125,000       0             $0              0            $0
Marketing/Technical              2000    $ 119,000   $  25,000         $0              0            $0
Development                      1999    $ 108,000   $  10,000         $0         20,000            $0
</TABLE>

* Mr.Legato's employment terminated in February 2002.


                                       22

<PAGE>


                       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 2001.

                 OPTION GRANTS FOR YEAR ENDED DECEMBER 31, 2001

                       (INDIVIDUAL GRANTS IN FISCAL YEAR)
<TABLE>
<CAPTION>
                               NUMBER OF      PERCENT OF
                               SECURITIES    TOTAL OPTIONS      EXERCISE
                               UNDERLYING      GRANTED TO         PRICE           EXPIRATION
            NAME                 OPTIONS       EMPLOYEES      PER SHARE (1)          DATE
            ----               ----------    ------------     -------------      -----------

<S>                             <C>             <C>             <C>          <C>
Gerald Zarin                    150,000          42.8            $0.79          June 12, 2006
                                 50,000          14.3            $0.79        December 31, 2001

Robert Webb                           0

Don Legato                       55,000          15.7            $1.16        December 31, 2001
                                 10,000           2.9            $1.16        November 15, 2001

Jeremiah F. O'Brien              50,000          14.3            $0.79          June 12, 2006

                                -------         -----
TOTAL                           315,000         87.1%
                                =======         =====
(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 2001 by any of the Named
Executive Officers. The following table sets forth, as of December 31, 2001, 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, 2001
                           AND YEAR-END OPTION VALUES
<CAPTION>
                                     NUMBER OF SECURITIES             VALUE OF UNEXERCISED
                                    UNDERLYING UNEXERCISED         IN-THE-MONEY OPTIONS (1)
             NAME                OPTIONS AT DECEMBER 31, 1998         AT DECEMBER 31, 1998
             ----                ----------------------------     ----------------------------
                                 EXERCISABLE    UNEXERCISABLE     EXERCISABLE    UNEXERCISABLE

<S>                                 <C>                <C>         <C>               <C>
Gerald Zarin                        785,000            0           $35,000           $0
Robert Webb                         110,000            0              $0             $0
Don Legato                          120,000            0              $0             $0
Jeremiah F. O'Brien                 175,000            0           $13,000           $0
                                   ---------                       -------
TOTAL                              1,190,000                       $48,000
                                   =========                       =======
</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 price of the option at fiscal year-end.


                                       23
<PAGE>

DIRECTORS' COMPENSATION

             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. Each director is also
reimbursed for expenses incurred in connection with attendance at meetings of
the Board of Directors. For the fiscal year ended December 31, 2001, Messrs.
Ekstract, Bohn, Gramley and Sarubbi received compensation of $1,500 for
attendance at non-telephonic board meetings and $2,500 as the annual board fee.

EMPLOYMENT AGREEMENTS

             Mr. Zarin entered into an employment agreement with the Company,
dated as of April 1, 2000, pursuant to which he agreed to serve as the Company's
President and Chief Executive Officer through December 31, 2007 after which time
the Employment Agreement shall automatically continue for additional one year
periods (the "Renewal Terms") unless either Zarin or the Corporation notifies
the other at least six months prior to the end of the initial or any Renewal
Term. The agreement provided for an initial salary of $120,000 per year which
was increased to $150,000 on May 11, 2000. Mr. Zarin is also entitled to an
annual bonus based on the performance of the Corporation equal to (i) 50% of his
base compensation if the Company's net profits before taxes are equal to
projections to be approved by the Company's Board of Directors, (ii) 75% of his
base compensation if the Company's net profits before taxes are equal to 105% of
such projections, and (iii) 100% of his base compensation if the Company's net
profits before taxes are equal to 115% of such 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 elects not to renew the
Agreement and has given proper notification, Mr. Zarin will receive on the date
of termination an amount equal to 150% of his base compensation, his entitled
performance bonus and an amount equal to the average of any discretionary bonus
paid for the preceding two calendar years (the "Termination Bonuses"). If the
Company otherwise terminates the agreement without cause, or otherwise
materially breaches the agreement prior to December 31, 2005, 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, an additional
two years base compensation and any termination bonuses. If the Company
otherwise terminates the agreement without cause, or otherwise materially
breaches the agreement after December 31, 2005, 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, an additional three years base
compensation and any termination bonuses. Pursuant to an earlier employment
agreement Mr. Zarin was granted an option to purchase 200,000 shares of Common
Stock at $1.50 per share. The option expires December 31, 2005 and terminates if
Mr. Zarin voluntarily leaves the Company or the employment agreement is
terminated by the Company for good cause

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
therein with respect to the shares of Common Stock beneficially owned, as of the
April 15, 2002 (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 of the Company, (iii) each executive officer of the Company, and
(iv) all executive officers and directors of the Company as a group.


                                       24
<PAGE>
<TABLE>
<CAPTION>
                                                                               PERCENTAGE OF
                                                AMOUNT AND NATURE OF        OUTSTANDING SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER (1)        BENEFICIAL OWNERSHIP(2)            OWNED
----------------------------------------        ----------------------      -----------------
<S>                                                <C>                             <C>
Gerald Zarin                                       1,238,000(3)                     9.52%

Edward Bohn                                          107,000(4)                      .87

Lyle Gramley                                          63,000(5)                      .51

Richard E. Ekstract                                   92,000(6)                      .75

Joseph A. Sarubbi                                     78,000(7)                      .64

Jeremiah F. O'Brien                                  183,000(8)                     1.48

Robert Webb                                          110,000(9)                      .89

All executive officers and directors as a          1,871,000(10)                   13.86
group (8 persons)

</TABLE>

        (1)    Unless  otherwise  noted,  the address of the  beneficial  owner
is: c/o NUWAVE Technologies, Inc., One Passaic Ave., Fairfield, NJ 07004.

        (2)    The number of shares of Common Stock beneficially owned by each
person is determined in accordance with 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 April 15, 2002 through the exercise of any stock option, warrant 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.

        (3)    Includes 785,000 shares subject to exercisable options.

        (4)    Includes 102,000 shares subject to exercisable options.

        (5)    Includes 43,000 shares subject to exercisable options.

        (6)    Includes 78,000 shares subject to exercisable options.

        (7)    Includes 43,001 shares subject to exercisable options.

        (8)    Includes (i) 125,000 shares subject to exercisable options and
(ii) 2,500 shares subject to exercisable warrants held by Mr. O'Brien's wife, as
to which Mr. O'Brien disclaims beneficial interest.

        (9)    Includes 110,000 shares subject to exercisable options.

        (10)   See footnotes (3) through (9) above.

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        Since 1996, Edward Bohn, a director of the Company, has been acting as a
consultant to the Company from time to time on matters specified by the
Company's President. In March 1997, Mr. Bohn entered into a consulting agreement
with the Company pursuant to which he agreed to act as the Company's consultant
at a rate of $1,000 per day with a maximum of $2,750 per week regardless of the
actual time spent on the Company's behalf. For the years ended December 31, 2001
and 2000, Mr. Bohn received $0 and $2,800 respectively, on account of such
consulting services.

        Since 1996, Joseph A. Sarubbi, a director of the Company, has been
acting 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 years ended December 31, 2001 and
2000, Mr. Sarubbi received $0 and $3,000, respectively, on account of such
consulting services.


                                       25
<PAGE>

        On April 30, 2001, the Company granted Richard Ekstract, a director of
the Company, an option to purchase 100,000 shares of the Company's Common Stock
at an exercise price of $.61 per share, subject to certain performance-based
vesting rules, in consideration for certain advisory and referral services to be
rendered by him to the Company. The option vests to the extent of 25,000 option
shares for each sales order obtained as a result of Mr. Ekstract's efforts, up
to a maximum of four such orders or an aggregate of 100,000 option shares. Upon
the establishment of a public relations program within the Company as a result
of the Mr. Ekstract's efforts 25,000 option shares shall vest. As of December
31, 2001, 25,000 of these options had vested. The remaining 75,000 options will
expire on April 30, 2002.


                                       26

<PAGE>



ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)   EXHIBITS

EXHIBIT     DESCRIPTION

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).
10.1*       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).

10.2*       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).

10.3*       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).



                                       27
<PAGE>

10.4*       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).

10.5*       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).

10.6*       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).

10.7*       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).

10.8*       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).

10.9*       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).

10.10*      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).

10.11*      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).

10.12*      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).

10.13*      Letter Agreement, dated March 3, 1998, between NuWave Technologies,
            Inc. and Janssen/Meyers Associates, L.P. (See Exhibit 10.41 to
            Annual Report on Form 10-KSB filed with the Commission on March 25,
            1998).

10.14*      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. (See Exhibit 10.41 to Annual Report on Form
            10-KSB filed with the Commission on March 25, 1998).

10.15*      Placement Agency Agreement, dated as of May 11, 1998, between
            Janssen-Meyers Associates, L.P. and NuWave Technologies, Inc. (See
            Exhibit 10.1 to Current Report on Form 8-K filed with the Commission
            on June 11, 1998).

10.16*      Warrant Agreement, dated May 15, 1998, between NuWave Technologies,
            Inc. and American Stock Transfer & Trust Company (See Exhibit 10.3
            to Current Report on Form 8-K filed with the Commission on June 11,
            1998).

10.17*      Form of Warrant Certificate (See Exhibit 10.4 to Current Report on
            Form 8-K filed with the Commission on June 11, 1998).

10.18*      Form of Placement Agent Warrant Certificate (See Exhibit 10.6 to
            Current Report on Form 8-K filed with the Commission on June 11,
            1998).


                                       28
<PAGE>


10.19*      Form of Subscription Agreement (See Exhibit 10.7 to Current Report
            on Form 8-K filed with the Commission on June 11, 1998).

10.20*      Agreement, dated February 1, 1999, between NuWave
            Technologies, Inc. and Terk Technologies Corp.  (See Exhibit
            10.54 to Annual Report on Form 10-KSB filed with the
            Commission on March 31, 1999).

10.21*      Option Agreement for Purchase of Common Stock dated as of
            September 28, 1999 between NUWAVE Technologies, Inc. and
            Richard E. Ekstract.  (See Exhibit 10.55 to Annual Report on
            Form 10-KSB filed with the Commission on March 30, 2000).

10.22*      Placement Agency Agreement, dated as of February 14, 2000, between
            Janssen-Meyers Associates, L.P. and NUWAVE Technologies, Inc. (See
            Exhibit 10.56 to Annual Report on Form 10-KSB filed with the
            Commission on March 30, 2000).

10.23*      Warrant Agreement, dated March 13, 2000, between NUWAVE
            Technologies, Inc. and American Stock Transfer & Trust
            Company.  (See Exhibit 10.57 to Annual Report on Form 10-KSB
            filed with the Commission on March 30, 2000).

10.24*      Form of Warrant Certificate.  (See Exhibit 10.58 to Annual
            Report on Form 10-KSB filed with the Commission on March 30,
            2000).

10.25*      Form of Subscription Agreement.  (See Exhibit 10.59 to Annual
            Report on Form 10-KSB filed with the Commission on March 30,
            2000).

10.26*      Placement Agent Warrant Agreement, dated March 13, 2000, between
            NUWAVE Technologies, Inc. Janssen-Meyers Associates, L.P. (See
            Exhibit 10.60 to Annual Report on Form 10-KSB filed with the
            Commission on March 30, 2000).

10.27*      Restated Employment Agreement dated as of April 1, 2000,
            between NUWAVE Technologies, Inc. and Gerald Zarin.  (See
            Exhibit 10.27 to Annual Report on Form 10-KSB filed with the
            Commission on April 2, 2001).

10.28*      Restated sublease agreement dated September 18, 2000, between
            NUWAVE Technologies, Inc. and Simon, Sarver & Rosenberg.
            (See Exhibit 10.28 to Annual Report on Form 10-KSB filed with
            the Commission on April 2, 2001).

10.29*      Agreement dated April 7, 2000, between NUWAVE Technologies,
            Inc. and Eastman Kodak.  (See Exhibit 10.29 to Annual Report
            on Form 10-KSB filed with the Commission on April 2, 2001).

10.30**     Option Agreement for Purchase of Common Stock dated as of
            August 14, 2001 between NUWAVE Technologies, Inc., and
            Andrew Chan

10.31**     Option Agreement for Purchase of Common Stock dated as of
            April 30, 2001 between NUWAVE Technologies, Inc., and Richard
            Ekstract.

10.32**     Option Agreement for Purchase of Common Stock dated as of
            June 12, 2001 between NUWAVE Technologies, Inc., and Gerald
            Zarin.

10.33**     Option Agreement for Purchase of Common Stock dated as of
            June 12, 2001 between NUWAVE Technologies, Inc., and Jeremiah
            F. O'Brien.

10.34**     Form of Warrant Agreements, dated February 5, 2002.

10.35**     Form of Warrant Agreements, dated February 27, 2002.

10.36**     Agreement, effective December, 2001 between the Company and
            Gemini Industries, Inc.

10.37**     Sales Representation & Fulfillment Agreement, effective
            June 15, 2001, between the Company and L.B.E. Limited T/A
            Partners In Europe (PIE)

10.38**     Stock Purchase Agreement, dated as of February 5, 2002

10.39**     Stock Purchase Agreement, dated as of February 27, 2002

10.40**     Equity Line of Credit Agreement, dated as of April 15, 2002,
            between the Company and Cornell Capital Partners, LP


                                       29
<PAGE>


23.1**      Consent of Richard A. Eisner & Co., LLP.


*  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



                                       30
<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: April 15, 2002                By:   /s/ Gerald Zarin
                                       -------------------------------
                                          Gerald Zarin
                                    Chairman of the Board, President
                                    and Chief Executive Officer

                                POWER OF ATTORNEY

     Each director and/or officer of the Company whose signature appears below
hereby appoints Gerald Zarin and Jeremiah O'Brien, and each of them, as his
attorney-in-fact to sign in his name and behalf, in any and all capacities
stated below and to file with the Commission any and all amendments, including
post-effective amendments, to this Annual Report.

     In accordance with the Exchange Act, 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    April 15, 2002
Gerald Zarin                  Officer and Chairman of
                              the Board (Principal
                              Executive Officer)

/s/ Jeremiah F. O'Brien       Chief Financial Officer and   April 15, 2002
Jeremiah F. O'Brien           Secretary (Principal
                              Financial Officer and
                              Accounting Officer)

/s/ Ed Bohn                   Director                      April 15, 2002
Ed Bohn

/s/ Richard Ekstract          Director                      April 15, 2002
Richard Ekstract

/s/ Lyle Gramley              Director                      April 15, 2002
Lyle Gramley

/s/ Joseph A. Sarubbi         Director                      April 15, 2002
Joseph A. Sarubbi


                                       31
<PAGE>


                                  EXHIBIT INDEX

EXHIBIT                                                           PAGE
NUMBER      DESCRIPTION                                           NUMBER
------      -----------                                           ------
10.30**     Option Agreement for Purchase of Common Stock dated     A-1
            as of August 14, 2001 between NUWAVE Technologies,
            Inc., and Andrew Chan

10.31**     Option Agreement for Purchase of Common Stock dated     A-2
            as of April 30, 2001 between NUWAVE Technologies,
            Inc., and Richard Ekstract.

10.32**     Option Agreement for Purchase of Common Stock dated     A-3
            as of June 12, 2001 between NUWAVE Technologies,
            Inc., and Gerald Zarin.

10.33**     Option Agreement for Purchase of Common Stock dated     A-4
            as of June 12, 2001 between NUWAVE Technologies,
            Inc., and Jeremiah F. O'Brien.

10.34**     Form of Warrant Agreements, dated February 5, 2002.     A-5

10.35**     Form of Warrant Agreements, dated February 27, 2002.    A-6

10.36**     Agreement, effective December, 2001 between the         A-7
            Company and Gemini Industries, Inc.

10.37**     Sales Representation & Fulfillment Agreement,           A-8
            effective June 15, 2001, between the Company and
            L.B.E. Limited T/A Partners In Europe (PIE)

10.38**     Stock Purchase Agreement, dated as of February 5,       A-9
            2002

10.39**     Stock Purchase Agreement, dated as of February 27,      A-10
            2002

10.40**     Equity Line of Credit Agreement, dated as of            A-11
            April 15, 2002, between the Company and Cornell
            Capital Partners, LP

23.1**      Consent of Richard A. Eisner & Co., LLP.                A-12


** Filed herewith.


                                       32
<PAGE>


                           NUWAVE TECHNOLOGIES, INC.

                          INDEX TO FINANCIAL STATEMENTS

                                                                      PAGE(S)

Report of Independent Auditor........................................   F-2

Balance Sheet as of December 31, 2001................................   F-3

Statements of Operations for the two years ended
  December 31, 2001 .................................................   F-4

Statement of Stockholders' Equity for two years ended
  December 31, 2001..................................................   F-5

Statements of Cash Flows for the two years ended
  December 31, 2001..................................................   F-6

Notes to Financial Statements........................................F-8 - F-18


                                      F-1
<PAGE>


REPORT OF INDEPENDENT ACCOUNTANTS

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


We have audited the accompanying balance sheet of NUWAVE Technologies, Inc as of
December 31, 2001, and the related statements of operations, stockholders'
equity and cash flows for each of the years in the two-year period ended
December 31, 2001. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NUWAVE Technologies, Inc. as of
December 31, 2001, and the results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.


Richard A. Eisner & Company, LLP


Florham Park, New Jersey
March 5, 2002

With respect to the last paragraph of Note 1
April 15, 2002


                                      F-2
<PAGE>


                            NUWAVE TECHNOLOGIES, INC.

                                  BALANCE SHEET
                        (In thousands, except share data)


                     ASSETS

                                                                 December 31,
                                                                     2001
                                                                -------------

Current assets:

     Cash and cash equivalents                                    $  1,011

     Accounts receivable, net                                          138

     Inventory                                                         413

     Prepaid expenses and other current assets                         179
                                                                  --------

                Total current assets                                 1,741

Property and equipment                                                  82

Other assets                                                            30

Deferred tax benefit                                                   280
                                                                  --------

                Total assets                                      $  2,133
                                                                  ========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

     Accounts payable and accrued liabilities                     $    846
                                                                  --------
                Total liabilities                                      846
                                                                  --------
Commitments and contingencies

Stockholders' equity:

     Series A Convertible Preferred Stock,
        noncumulative, $.01 par value;
        authorized 400,000 shares; none issued

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

     Common stock, $.01 par value;
        authorized 40,000,000 shares;
        11,402,651 shares issued and
        outstanding at December 31, 2001                               114

     Additional paid in capital                                     25,613

     Accumulated deficit                                           (24,440)
                                                                  --------
                Total stockholders' equity                           1,287
                                                                  --------
                Total liabilties and stockholders' equity         $  2,133
                                                                  ========


   The accompanying notes are an integral part of these financial statements


                                      F-3
<PAGE>


                            NUWAVE TECHNOLOGIES, INC.

                            STATEMENTS OF OPERATIONS
                 (In thousands, except share and per share data)

                                                       Year          Year
                                                       ended         ended
                                                    December 31,  December 31,
                                                       2001          2000
                                                    -----------  -----------

Net sales                                                $ 505         $ 14
Cost of sales                                             (308)          (4)
                                                    -----------  -----------
                                                           197           10
                                                    -----------  -----------
Operating expenses:
Research and development expenses                       (1,165)      (1,183)
General and administrative expenses                     (3,699)      (3,314)
                                                    -----------  -----------
                                                        (4,864)      (4,497)
                                                    -----------  -----------
        Loss from operations                            (4,667)      (4,487)
                                                    -----------  -----------

Other income (expense):
        Interest income                                     88          274
        Interest expense                                   (12)         (10)
                                                    -----------  -----------
                                                            76          264
                                                    -----------  -----------

Net loss before benefit (provision) for income taxes    (4,591)      (4,223)
        Benefit (provision) for income taxes               318          (66)
                                                    -----------  -----------
        Net loss                                      $ (4,273)    $ (4,289)
                                                    ==========   ==========

Basic and diluted loss per share:

        Weighted average number of
        common shares outstanding                   10,749,404   10,135,345
                                                    ==========   ==========
        Basic and diluted loss per share               $ (0.40)     $ (0.42)
                                                    ==========   ==========


   The accompanying notes are an integral part of these financial statements


                                      F-4
<PAGE>


                            NUWAVE TECHNOLOGIES, INC.

                        STATEMENT OF STOCKHOLDERS' EQUITY
                        (In thousands, except share data)
<TABLE>
<CAPTION>
                                                                       ADDITIONAL                    TOTAL
                                                    COMMON STOCK        PAID-IN     ACCUMULATED   SHAREHOLDERS'
                                                 SHARES      AMOUNT     CAPITAL       DEFICIT        EQUITY
                                              -----------  ----------  -----------  -----------   -------------

<S>                                            <C>              <C>      <C>         <C>            <C>
   Balance at December 31, 1999                8,468,889        $ 85     $ 18,699    $ (15,878)     $ 2,906

2,088,608 Common shares issued with
   1,044,304  warrants to
   purchase common shares in connec-
   tion with a private placement.........      2,088,608          21        6,579                     6,600

Costs incurred in connection with
   private placement.....................                                  (1,107)                   (1,107)

Warrants to purchase common stock
   issued in connection with
   consulting agreements.................                                     311                       311

Options issued at less than market.......                                      45                        45

232 Common shares issued in
   connection with the exercise of
   stock warrants........................            232                        1                         1

Net loss for the year ended
   December 31, 2000.....................                                               (4,289)      (4,289)

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

   Balance at December 31, 2000               10,557,729      $  106     $ 24,528   $  (20,167)     $ 4,467

Common shares issued in
   connection with the exercise of
   844,922 warrants......................        844,922           8          837                       845

Options and warrants to purchase
   common stock issued in connection
   with consulting agreements............                                     248                       248

Net loss for the year ended
   December 31, 2001.....................                                               (4,273)      (4,273)

                                             -----------  ----------  -----------  -----------  -----------
Balance at December 31, 2001.............     11,402,651       $ 114     $ 25,613    $ (24,440)     $ 1,287
                                             ===========  ==========  ===========  ===========  ===========
</TABLE>


                                      F-5
<PAGE>

                            NUWAVE TECHNOLOGIES, INC.

                            STATEMENTS OF CASH FLOWS
                                 (In thousands)

                                                       Year          Year
                                                       Ended         Ended
                                                    December 31,   December 31,
                                                       2001          2000
                                                    ------------   -----------
Cash flows from operating activities:

      Net loss                                       $ (4,273)     $ (4,288)

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

      Provision for doubtful accounts                      43

      Depreciation expense                                 48            72

      Amortization and impairment of website
        development costs                                 144            35

      Amortization and impairment of software
        development costs                                 152

      Increase in accounts receivable                    (181)

      Increase in inventory                              (368)           (4)

      Decrease (increase) in prepaid expenses
        and other current assets                          113          (196)

      Decrease in other assets                             25            10

      (Increase) decrease in deferred tax benefits        (40)          668

      Increase in accounts payable and accrued
        liabilities                                       429           143

      Extension of expiration date of stock options
        at less than current market price                                45

      Issuance of options and warrants in
        connection with consultant agreements             248           311

                                                    ------------   -----------
           Net cash used in operating activities       (3,660)       (3,204)
                                                    ------------   -----------

Cash flows from investing activities:

      Purchase of property and equipment                  (21)          (80)

      Capitalized software and website
      development costs                                                (331)
                                                    ------------   -----------
           Net cash used in investing activities          (21)         (411)
                                                    ------------   -----------


                                      F-6
<PAGE>


                            NUWAVE TECHNOLOGIES, INC.

                            STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                    Year Year
<TABLE>
<CAPTION>
                                                                 Ended          Ended
                                                              December 31,   December 31,
                                                                 2001           2000
                                                              -----------    -----------
Cash flows from financing activities:

<S>                                                            <C>              <C>
   Proceeds from equity offering                                                6,600

   Costs incurred for equity offerings and warrants                            (1,108)

   Issuance of common stock in connection with
   exercise of warrants                                            845              1
                                                              -----------    -----------

   Net cash provided by financing activities                       845          5,493

   Net (decrease) increase in cash and cash equivalents         (2,836)         1,878

Cash and cash equivalents at the beginning of the period         3,847          1,969
                                                              -----------    -----------

   Cash and cash equivalents at the end of the period          $ 1,011       $  3,847
                                                              ===========    ===========
Supplemental disclosure of cash flow information:

   Interest paid during the period                             $    12       $     10
                                                              ===========    ===========
</TABLE>


                                      F-7


<PAGE>


1.   ORGANIZATION AND BUSINESS

     NUWAVE Technologies, Inc. (the Company) was incorporated in Delaware on
July 17,1995. Prior to 2001, the Company was a development stage enterprise. The
Company's focus to date has been and continues to be on unique technology
related to image and video enhancement designed to enrich picture and video
output with clearer, more defined detail in texture, color, contrast and tone,
at low cost. The Company's initial products can be used by original equipment
manufacturers (OEM's) for placement into products that produce images on display
screens such as televisions or DVD players, for supplementing and increasing
video quality on existing television monitors and video displays via set-top
boxes containing our technology, and by individuals over the Internet for
improving their personal photographs.

     The Company has developed proprietary video-enhancement technology designed
to significantly enhance video output devices with clearer, sharper details and
more vibrant colors when viewed on the display screen. This is known as the
NUWAVE Video Processor (NVP) technology. In addition the Company has developed
patented high speed filtering technology that removes approximately 70% of the
picture noise while retaining correct focus (the image and text in the image
does not blur). NUWAVE has recently completed development of three product lines
based upon its core proprietary technology. These are: 1) the NUWAVE Video
Processor (NVP) Technology, 2) Retail Products and 3) Digital Filtering
Technology. Each product line is currently being marketed to their respective
distribution channels. There is no assurance the Company will achieve
significant sales of any of its products or technology. 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 NVP and digital filtering technology and related
products it is unlikely that the Company could continue its business.

     The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplates continuation of the Company as a going concern and realization of
assets and settlement of liabilities and commitments in the normal course of
business. The Company has incurred substantial losses since its inception and
anticipates continued losses from operations. The Company will continue to
require infusion of capital (see below) until operation become profitable. In
the event, the Company is unable to complete a registration and sale of its
Common Stock pursuant to the agreement discussed below, there would be
substantial doubt about the ability of the Company to continue as a going
concern. These financial statements include no adjustments to assets and
liabilities reflecting this potential uncertainty.

     In addition to the capital transactions discussed in Note 9, on April 15,
2002 the Company entered into a $3 million Equity Line of Credit with a
qualified investor (the "Purchaser"). Provided it is in compliance with the
terms of the agreement including the effective registration of shares to be
sold, the Company may, at its option, require the investor to purchase up to
$300,000 per month of the Company's Common Stock (the "put shares") up to a
maximum of $3 million over the next two years. The purchase price of the put
shares will be 97% of the then Market Price (as defined in the Equity Line of
Credit). In addition the Company has issued as a fee to the Purchaser
approximately 242,000 shares of restricted common stock with a fair market value


                                      F-8
<PAGE>


of $150,000. Upon the initial Put and all subsequent Puts, the Purchaser shall
receive directly from escrow cash compensation equal to 4% of the gross proceeds
of the Put.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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. At December 31, 2001,
$1,011,000 of money market accounts and commercial checking accounts, the fair
value of which approximate cost, are included in cash and cash equivalents.

INVENTORY

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

PROPERTY AND EQUIPMENT

     Property and equipment are recorded at cost less accumulated depreciation.
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.

REVENUE RECOGNITION

     Revenue is recognized when products are shipped to customers.

RESEARCH AND DEVELOPMENT EXPENSES

     Expenditures for research and development are generally expensed as
incurred with the exception of website development costs of $179,000 and
software development costs of $152,000 which were capitalized in 2000. During
the year December 31, 2001, the Company determined that it would not recover its
investment in website and software development costs. Accordingly, the Company


                                      F-9
<PAGE>


wrote off the unamortized costs aggregating $156,000. Additionally, during the
years ended December 31, 2001 and December 31, 2000 amortization of the costs
aggregated $140,000 and $35,000, respectively.

ADVERTISING EXPENSES

     The Company expenses advertising costs which consist primarily of
promotional items, print and digital media. Advertising and promotional expenses
charged to operations for the years ended December 31, 2001 and December 31,
2000 amounted to $583,000 and $265,000, respectively.

CONCENTRATIONS

     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 high quality institutions 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 and 3) certificates of deposit.

     For the year ended December 31, 2001 three customers accounted for sales of
approximately $218,000 (43%), $86,000 (17%) and $61,000 (12%). The customer
representing 43% of sales was located in China and the customer representing 17%
of sales was located in the United Kingdom.

     For the year ended December 31, 2001, export sales, which were primarily
from the UK and China, amounted to approximately $334,000.

PER SHARE DATA

     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. All potentially dilutive securities have been excluded from the
computations since they would be antidilutive. Potentially dilutive securities
aggregate 10,648,320 and 11,157,242 shares as of December 31, 2001 and 2000,
respectively.

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.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations." SFAS No. 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. This statement
specifies that certain acquired intangible assets in a business combination be
recognized as assets separately from goodwill and that existing intangible


                                      F-10
<PAGE>


assets and goodwill be evaluated for these new separation requirements.
Management does not expect this statement to have a material impact on the
Company's financial position or results of operations.

     In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the accounting for goodwill from an amortization
method to an impairment-only approach. Amortization of goodwill, including
goodwill recorded in past business combinations, will cease upon adoption of
this statement. In addition, this statement requires that goodwill be tested for
impairment at least annually at the reporting unit level. Management does not
expect this statement to have a material impact on the Company's financial
position or results of operations.

     In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The Company is required to
implement SFAS No. 143 on January 1, 2003. Management does not expect this
statement to have a material impact on the Company's financial position or
results of operations.

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The statement retains the previously existing
accounting requirements related to the recognition and measurement of the
impairment of long-lived assets to be held and used while expanding the
measurement requirements of long-lived assets to be disposed of by sale to
include discontinued operations. It also expands the previously existing
reporting requirements for discontinued operations to include a component of an
entity that either has been disposed of or is classified as held for sale. The
Company implemented SFAS No. 144 on January 1, 2002. Management does not expect
this statement to have a material impact on the Company's financial position or
results of operations.

3.   PROPERTY AND EQUIPMENT

     Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                             USEFUL LIVES IN    DECEMBER 31,
                                                  YEARS             2001
                                             ---------------    ------------
<S>                                                <C>           <C>
Furniture and Fixtures....................         10            $   5,000
Computers.................................          5              252,000
Equipment.................................          5              100,000
Automobiles...............................          2               11,000
                                                                 ---------
                                                                 $ 368,000
   Less, accumulated depreciation.........                         286,000
                                                                 ---------
                                                                 $  82,000
                                                                 =========
</TABLE>


                                      F-11
<PAGE>


4.   ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

     Accounts payable and accrued liabilities consist of the following:

<TABLE>
<CAPTION>
                                                      DECEMBER 31,
                                                          2001
                                                      ------------
<S>                                                    <C>
Accounts payable..........................             $ 463,000
Advance payments from customers...........               183,000
Legal and accounting fees.................               164,000
Accrued payroll...........................                33,000
Payroll taxes payable.....................                 3,000
                                                       ---------
                                                       $ 846,000
                                                       =========
</TABLE>

5.   CAPITAL TRANSACTIONS

COMMON STOCK  AND WARRANTS

     On February 14, 2000 in a private equity transaction, the Company issued
2,088,608 shares of the Company's Common Stock and 1,044,304 Redeemable Common
Stock Purchase Warrants ("Common Stock Purchase Warrants") for an aggregate
purchase price of $6,600,000. Each Common Stock Purchase Warrant entitles the
holder thereof to purchase one share of Common Stock at an exercise price per
share of $3.95, commencing from March 14, 2000 and expiring on March 14, 2003.
The Common Stock Purchase Warrants are subject to redemption by the Company at
$.01 per Warrant on not less than 30 days prior written notice to the holders of
the Warrants, provided the average closing bid price of the Common Stock has
been at least 250% of the then current exercise price of the Warrants for a
period of thirty consecutive trading days ending within five days prior to the
date on which the Company gives notice of redemption. The placement agent
received a commission of 10% ($660,000) of the gross proceeds from the sale of
the Units, as well as a 3% non-accountable expense allowance ($198,000) and
reimbursement of other costs, including legal expenses relating to the offering
($54,399). In addition, it received as part of its compensation, warrants
exercisable until March 14, 2003 to purchase up to 522,152 shares of the
Company's Common Stock at a price per share of $3.95.

     In connection with its IPO, the Company issued 2,530,000 Redeemable Common
Stock Purchase Warrants (the "IPO Warrants") to purchase an additional 2,530,000
common shares. Initially, the IPO Warrants had an exercise price of $5.50 per
share and an expiration date of July 3, 2001. Also in connection with the IPO
the Company issued to the underwriter warrants to purchase ( i ) 220,000 shares
of Common Stock and ( ii ) 220,000 Redeemable Warrants to purchase Common Stock
(the "IPO Underwriter Warrants"). The IPO Underwriters Warrants were exercisable
at $8.25 with an expiration date of July 3, 2001. In May 2001, the Board of
Directors extended the expiration date for the IPO Warrants and the IPO
Underwriters Warrants for an additional year to July 3, 2002.

     As a result of subsequent dilutive transactions and in accordance with the
provisions of the Warrant Agreement adjustments have been made to the exercise
price of the IPO Warrants and to the number of shares issuable on exercise of
the Public Warrants. The exercise price has been reduced from $5.50 to $3.99. In
addition, for every share of Common Stock the warrant holders were entitled to
prior to these dilutive transactions (2,530,000 shares), the warrant holders are
now entitled to 1.378 shares (3,486,340 shares). Also, pursuant to the Warrant


                                      F-12
<PAGE>


Agreement, the Company can redeem the IPO warrants in the event that the average
closing price of the Company's Common Stock is at least 150% of the then current
exercise price of the IPO Warrants for a period of 20 consecutive trading days.

     In 1998 in connection with a consultant agreement, the Company issued
warrants to purchase 400,000 shares of common stock to the consultant. The
warrants have an exercise price of $4 per share and expire on March 3, 2003.
Also in 1998, in conjunction with a private equity placement the Company issued
2,057,207 Class A Redeemable Warrants (Class A Warrants) to purchase 2,057,207
shares of Common Stock at an exercise price of $3.24 per share. The Class A
Warrants expire on May 11, 2003.

     In conjunction with the two private equity placements, the placement agent
received as part of its compensation 1,987,391 warrants to purchase common
shares (the "Placement Agent Warrants"). 1,465,239 Placement Agent Warrants were
exercisable at $3.24 with an expiration date of May 11, 2003. 522,152 Placement
Agent Warrants were exercisable at $3.95 with an expiration date of March 14,
2003.

     On August 16, 2001, the Company offered to the holders of its placement
agent warrants the opportunity to exercise such warrants at a reduced exercise
price of $1 per share of common stock. During the period, beginning August 28,
2001 and ending November 12, 2001, the Company received a total of $844,922 and
issued a total of 844,922 of its common shares to the holders of its placement
agent warrants, who chose to take advantage of this offer. On January 15, 2002
this reduced price offer expired and the original exercise price per share was
reinstated.

STOCK OPTIONS

     The Company accounts for stock options in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB
No. 25"). Under APB No. 25, generally, no compensation expense is recognized in
the 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 is included in
operating results as an expense.

     A summary of the Company's stock option activity under its plans (which are
discussed below), and related information, is as follows:

<TABLE>
<CAPTION>
                                                                            WEIGHTED
                                          NUMBER OF                         AVERAGE        NUMBER OF
                                           COMMON       EXERCISE PRICE      EXERCISE        SHARES
                                           SHARES       RANGE PER SHARE      PRICE        EXERCISABLE
                                           ------       ---------------      -----        -----------
<S>                                       <C>            <C>                 <C>          <C>
Outstanding at December 31, 1999....      1,394,500      $1.50 - $6.88       $3.02        1,199,338
                                                                                          =========
Granted.............................         57,500      $1.00 - $2.44       $1.42
Cancelled...........................        (60,000)     $1.50 - $2.50       $1.67
                                          ---------
Outstanding at December 31, 2000....      1,392,000      $1.00 - $6.88       $3.01        1,282,340
                                                                                          =========
Granted.............................        442,143      $0.61 - $1.16       $0.85
Cancelled...........................       (206,143)     $0.79 - $6.00       $2.28
                                          ---------
Outstanding at December 31, 2001....      1,628,000      $0.61 - $6.88       $2.52        1,492,171
                                          =========                                       =========
</TABLE>


     Exercise prices and weighted-average contractual lives for stock options
outstanding as of December 31, 2001 are as follows:


                                      F-13
<PAGE>


<TABLE>
<CAPTION>
                                OPTIONS OUTSTANDING               OPTIONS EXERCISABLE
                    ----------------------------------------    -----------------------
                                      WEIGHTED
                                      AVERAGE       WEIGHTED                   WEIGHTED
                                     REMAINING      AVERAGE                    AVERAGE
   RANGE OF           NUMBER        CONTRACTUAL     EXERCISE      NUMBER       EXERCISE
EXERCISE PRICES     OUTSTANDING         LIFE         PRICE      EXERCISABLE     PRICE
---------------     -----------     -----------     --------    -----------    --------
<S>                   <C>               <C>          <C>          <C>           <C>
$ 0.61 - $ 2.56       842,500           5.49         $1.29        706,671       $1.37
$ 3.00 - $ 3.25       653,000           1.40         $3.25        653,000       $3.25
$ 5.87 - $ 6.88       132,500           1.63         $6.68        132,500       $6.68
</TABLE>

     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 2001 and 2000 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.

<TABLE>
<CAPTION>
                                                                 YEAR ENDED
                                                 -----------------------------------------
                                                   DECEMBER 31, 2001   DECEMBER 31, 2000
                                                   -----------------   -----------------
<S>                                                  <C>                 <C>
Pro forma net loss..............................     $ (4,405,000)       $ (4,646,000)
Pro forma basic and diluted loss per share......     $       (.41)       $       (.55)
</TABLE>

     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
2001 and 2000 was $.78 and $1.18, respectively. The following weighted-average
assumptions were used in computing the fair value of option grants for 2001 and
2000: weighted-average risk-free interest rates ranged from 5.09% to 5.39% for
2001 and 5.24% to 6.66% for 2000; zero dividend yields for both years;
volatility of the Company's Common Stock of 110% for 2001 and 134% for 2000; and
an expected life of the options of ten years for both years.

     In 1999 the Company contracted with an investor relations firm to provide
various Investor Relations and Public Relations services for the Company. As
part of their compensation the Company granted it 300,000 options for the
purchase of the Company's Common Stock at $2.00 per share (market price on date
of grant). The estimated fair value of the options at date of issue was $342,286
and was amortized over twelve months. For the year ended December 31, 2000 the
Company recognized expense of $307,604, relating to this agreement. As a result
of performance incentive stock options granted and earned during 2001, the
Company incurred a charge to operations of $216,000.

     On May 4, 2000, the Company extended the expiration dates on certain
options granted to executive officers. At the time of the granting of the
extensions the market value of the Company's common stock exceeded the exercise
price of the options. Accordingly, the Company recognized an expense of $45,134
during 2000.

     At December 31, 2001, there were 10,703,177 shares of the Company's Common
Stock reserved for the exercise of warrants and options under the plans.


                                      F-14
<PAGE>


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 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 1,205,000 options
can be awarded under the Plan (as amended May 26, 1998).

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's 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.

     The maximum number of shares of Common Stock with respect to which options
may be granted under the Director's Plan (as amended May 26, 1998) is 235,000
shares.

6.   EMPLOYEE BENEFIT PLAN

     The Company maintains a noncontributory Employee Savings Plan, in
accordance with the provisions of Section 401(k) of the Internal Revenue Code.
Pursuant to the terms of the plan, participants can defer a portion of their
income through contributions to the Plan. During the year ended December 31,
2001, the Company contributed $38,000.


                                      F-15
<PAGE>


7.   INCOME TAXES

     The tax effect of temporary differences consists of the following:

<TABLE>
<CAPTION>
                                                        DECEMBER 31,
                                                            2001
                                                        ------------
          <S>                                           <C>
          Deferred tax assets:
             Start up costs........................     $  420,000
             Property, equipment and software......         67,000
             Research credits......................        199,000
             Net operating loss carryforward.......      8,438,000
                                                        ----------
                                                         9,124,000
             Valuation allowance...................     (8,844,000)
                                                        ----------
                                                        $  280,000
                                                        ==========
</TABLE>

     Income tax benefit (expense) as of December 31, 2001 and 2000 consists of
the following:

<TABLE>
<CAPTION>
                                                   2001        2000
                                                   ----        ----
          <S>                                   <C>         <C>
          State............................
             Current.......................     $ 278,000   $ 603,000
             Deferred......................        40,000    (668,000)
                                                ---------   ---------
                                                $ 318,000   $ (65,000)
                                                =========   =========
</TABLE>


     In accordance with New Jersey statues, the Company has entered into an
agreement to sell certain New Jersey net operating losses and research and
development credits accordingly, a state income tax benefit (expense) and
deferred tax asset has been recognized in 2001 and 2000.

     The increase in valuation allowances for the years ended December 31, 2001
and 2000 were $1,520,000 and $1,977,000, respectively.

     The difference between the statutory federal income tax rate and the
effective rate for the Company's income tax benefit (expense) for each of the
years ended December 31, 2001 and 2000, respectively, is summarized as follows:

<TABLE>
<CAPTION>
                                                          2001      2000
                                                          ----      ----
     <S>                                                  <C>       <C>
     Statutory federal income tax rate...............     34.0%     34.0%
     State income tax benefit (expense) net
       of federal tax effect.........................      4.6%     (1.0)%
     Increase in valuation allowance.................    (31.9)%   (33.8)%
     Miscellaneous...................................      0.2%     (0.8)%
                                                         -------   -------
     Effective income tax rate.......................      6.9%     (1.6)%
                                                         -------   -------
</TABLE>


     As of December 31, 2001, the Company has unused net operating loss
carryforwards of $23,100,000 available for federal income tax purposes. The
unused net operating loss carryforwards expire in various years from 2010 to
2021. The Company, in the future, may be subject to limitations on the use of
its NOL's as provided under Section 382 of the Internal Revenue Code.


                                      F-16
<PAGE>

8.   COMMITMENTS AND CONTINGENCIES

CONSULTING AND REPRESENTATIVE AGREEMENTS

     On July 22, 1998, the Company contracted with David Kwong ("consultant") to
sell and license products in China and to maintain a sales office for the
Company in China. The contract may be terminated, by either party, at any time
by giving the other party at least 90 days' notice of termination. In return for
such services the Company agreed to pay the consultant a monetary commission and
grant certain stock options upon attaining determined sales levels. In addition
the consultant will receive a monthly consulting fee. The Company further agreed
to pay the costs to establish and maintain an office in China within the limits
of an approved budget. For the year ended December 31, 2000 a total of $292,000
had been paid under the terms of the contract, representing consulting fees of
$120,000, office expenses of $121,000 and travel costs of $52,000. For the year
ended December 31, 2001 a total of $274,000 had been paid under the terms of the
contract, representing consulting fees of $91,000, travel of 111,000, marketing
costs of $34,000, commissions of $20,000 and office expenses of $18,000. No
stock options had been granted through December 31, 2001 pursuant to this
agreement.

LEASES

     The Company leases shared office space on a month-to-month basis. Rent
expense incurred for the years ended December 31, 2001 and December 31, 2000
amounted to $90,000 and $84,000, respectively.

EMPLOYMENT AGREEMENTS

     Mr. Zarin entered into an employment agreement with the Company, dated as
of April 1, 2000, pursuant to which he agreed to serve as the Company's
President and Chief Executive Officer through December 31, 2007 after which time
the Employment Agreement shall automatically continue for additional one year
periods (the "Renewal Terms") unless either Zarin or the Corporation notifies
the other at least six months prior to the end of the initial or any Renewal
Term. The agreement provided for an initial salary of $120,000 per year which
was increased to $150,000 on May 11, 2000. Mr. Zarin is also entitled to an
annual bonus based on the performance of the Corporation equal to (i) 50% of his
base compensation if the Company's net profits before taxes are equal to
projections to be approved by the Company's Board of Directors, (ii) 75% of his
base compensation if the Company's net profits before taxes are equal to 105% of
such projections, and (iii) 100% of his base compensation if the Company's net
profits before taxes are equal to 115% of such 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 elects not to renew the
Agreement and has given proper notification, Mr. Zarin will receive on the date
of termination an amount equal to 150% of his base compensation, his entitled
performance bonus and an amount equal to the average of any discretionary bonus
paid for the preceding two calendar years (the "Termination Bonuses"). If the
Company otherwise terminates the agreement without cause, or otherwise
materially breaches the agreement prior to December 31, 2005, 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, an additional
two years base compensation and any termination bonuses. If the Company
otherwise terminates the agreement without cause, or otherwise materially
breaches the agreement after December 31, 2005, 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, an additional three years base
compensation and any termination bonuses. Pursuant to an earlier employment


                                      F-17
<PAGE>


agreement Mr. Zarin was granted an option to purchase 200,000 shares of Common
Stock at $1.50 per share. The option expires December 31, 2005 and terminates if
Mr. Zarin voluntarily leaves the Company or the employment agreement is
terminated by the Company for good cause.

9.   SUBSEQUENT EVENTS

     On February 5, 2002 the Company entered into a private placement agreement
with investors whereby the Company issued 600,000 shares of the Company's common
stock for an aggregate purchase price of $330,000. In connection with this
agreement, the Company issued to the Placement Agent a Placement Agent Warrant,
exercisable to purchase up to 30,000 shares of Common Stock, representing five
percent of the total of the stock issued in the Offering. The warrants shall be
exercisable for a period of five years, expiring on February 5, 2007, at an
exercise price of $.55 per share. The Placement agent also received a cash
placement fee of eight percent of the purchase price and a non-accountable
allowance equal to two percent of the purchase price, totaling $33,000.

     On February 27, 2002 the Company entered into agreement with an investor
whereby the Company issued 214,286 shares of Common Stock at a purchase price of
$.70 per share for an aggregate purchase price of $150,000. In addition the
Company issued warrants to purchase up to 50,000 shares of Common Stock at an
exercise price of $1.00 per share with exercise period of five years expiring
February 27, 2007. Under the terms of the agreement a consultant was paid a
finder's fee of $1,500 representing one percent of the Purchase Price.


                                      F-18