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, 1998

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

            For the transition period from ___________ to ___________

                         Commission file number 0-28606

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

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

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

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

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

                                      NONE

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

                          COMMON STOCK, $.01 PAR VALUE

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the 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:  $12,545

Aggregate market value of the voting stock held by  non-affiliates  based on the
last sale price for such stock at March 10, 1999: $17,757,327

The number of shares of Common Stock outstanding as of March 10, 1999: 8,356,389

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


<PAGE>


                            NUWAVE TECHNOLOGIES, INC.
                                   FORM 10-KSB
                                      INDEX


PART I........................................................................2

      ITEM 1.      BUSINESS...................................................2
      ITEM 3.      LEGAL PROCEEDINGS.........................................12
      ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......12

PART II......................................................................13

      ITEM 5.      MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                   STOCKHOLDER MATTERS.......................................13
      ITEM 6.      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
                   OPERATION.................................................15
      ITEM 7.      FINANCIAL STATEMENTS......................................32
      ITEM 8.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                   ACCOUNTING AND FINANCIAL DISCLOSURE.......................32

PART III.....................................................................33

      ITEM 9.      DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
                   PERSONS...................................................33
      ITEM 10.     EXECUTIVE COMPENSATION....................................34
      ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 
                   AND MANAGEMENT............................................38
      ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............41
      ITEM 13.     EXHIBITS AND REPORTS ON FORM 8-K..........................42

SIGNATURES...................................................................49



<PAGE>


                                     PART I

ITEM 1.  BUSINESS.

General

     The Company is a development  stage enterprise  organized in July 1995. The
Company  develops and intends to  manufacture  and market  products that improve
picture quality in set-top boxes,  TVs, VCRs,  DVDs,  camcorders and other video
devices  by  enhancing  and   manipulating   video  signals.   The   television,
telecommunications  and  computer  markets are  converging  and, in the process,
redefining  the way their  constituencies  interact.  The Company  believes that
video  display  is the  common  denominator  of that  interaction,  and that the
products it has developed and is developing  will allow it to participate in the
growth of the converging market.

     At the time of the initial public offering of the Company's Common Stock in
July 1996,  the Company had  produced  the  following  (together,  the  "Initial
Products"):

     o    an  operational   prototype  of  an  analog  video   processor   which
          significantly enhances video picture quality;

     o    an  operational  prototype of another video  enhancement  device which
          combined  the  analog  video  processor  with  digitally-based   frame
          extrapolation  video  noise  reduction  circuits  for use in  national
          television standard codes or phase alternate lines;

     o    an operational prototype of a time base corrector providing for analog
          to  digital  conversion  and  the  synchronization  of up  to 3  video
          sources; and

     o    an initial  prototype of a video editing  "studio"  mounted on printed
          circuit boards.

     After the initial public  offering,  the Company  established  the Advanced
Engineering  Group to support the  continuing  development  of its  products and
related  technology,  and  the  identification  of  additional  sources  of  new
technology.  The  Advanced  Engineering  Group is made up of the  Company's  own
employees  and   third-party   consultants  who  work  with  the  Company  on  a
project-by-project   basis   under  the   direction   of  the   Company's   Vice
President-Engineering. The Company uses the Advanced Engineering Group to create
products and  technology  which are  independent  of the Initial  Products.  See
"Management's Discussion and Analysis or Plan of Operation--General."

     Through the Advanced  Engineering  Group, the Company has developed,  among
others, the following products and technology:

     o    the  "NUWAVE  Video  Processor"  which  significantly  enhances  video
          images;

     o    a  software   called   "Softsets"   which   provides   end-users   and
          manufacturers  who use the NUWAVE Video  Processor  in their  products
          with an option to manipulate  the  attributes of video images to their
          own tastes or standards;


                                       2

<PAGE>


     o    a  significant  amount  of the  software  included  in  the  Company's
          products; and

     o    new  circuitry  to  allow  certain  of the  Company's  products  to be
          produced as chips.

     The Company originally  anticipated devoting  significant  resources to the
final  commercial  development  of  the  Initial  Products.  However,  with  the
introduction  and apparent  favorable  reception  of the NUWAVE Video  Processor
("NVP")  and   Softsets  by  original   equipment   manufacturers   ("OEM")  and
professional  and retail  markets and to best  capitalize  on the  expanding and
converging  markets,  the Company has determined to devote  substantially all of
its  personnel  and  economic  resources  it would have  devoted to the  Initial
Products  to the  final  commercial  development  and  marketing  of the NVP and
Softsets.

     During 1997, the Company began the introduction and premarketing of its NVP
as the "NUWAVE Video  Processor" and the "Crystal Wave Video(TM)"  circuit,  and
the  Softsets  as  "Crystal  Wave   Softsets,"   through   comprehensive   sales
presentations  to  prospective  customers.  Although  the  Company  is unable to
predict whether its marketing efforts will be successful, it believes based upon
its  presentations  that the  products  have been  well  received,  and  several
potential  customers have  indicated  their desire to continue  discussions.  In
January  1998,  the Company  entered into its first OEM  contract,  a multi-year
supply agreement with Thomson  Consumer  Electronics for the purchase of the NVP
ASIC chip.  Thomson is the  largest  manufacturer  and  marketer  of  television
receivers and related video  products in the U.S.  under the RCA, GE and ProScan
brands.  Thomson has recently informed the Company that it has not yet completed
the  development  of the product  that it intended to utilize the NVP ASIC chip,
and  therefore  orders are not expected  during 1999.  The Company also recently
announced  a  five-year   manufacturing   and  marketing   agreement  with  Terk
Industries,  Inc., a well-respected  brand name, to manufacture and market under
the Terk brand name a line-up of set-top boxes incorporating NUWAVE's technology
for existing televisions and video output products.

     During  March 1999 the Company  produced  its first NVP ASIC  chips.  After
evaluation  of these chips the Company  will launch a full-scale  sales  program
aimed at  obtaining  orders  initially  from those  customers  who have  already
evaluated  the  Company's  technology  and  wish to test  these  chips  in their
products.  The Company has  marketing  and sales  organizations  in place in the
U.S.,  Japan and China,  close to key prospective  customers,  to implement this
program.  For a discussion  relating to manufacturing of the Company's products,
see "Management's Discussion and Analysis or Plan of Operation--Manufacturing."

     The  technology  on which  the  Company's  Initial  Products  is based  was
originated  by Rave prior to the Company's  organization  and is licensed to the
Company by Rave pursuant to the License Agreement. The Company also entered into
the  Development  Agreement  with  Rave  pursuant  to  which  Rave  did  work in
connection  with  the  development  of the  Initial  Products.  The  Development
Agreement expired on October 1, 1998. See "Business--Research and Development."

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


                                       3

<PAGE>


History

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

     Negotiations  commenced in December 1994 and continued among Mr. Zarin, Mr.
Chu,  Mr.  Wong on  behalf of Prime and Mr.  Randy  Burnworth  on behalf of Rave
through  early July 1995.  As a result of these  negotiations,  the  Company was
organized in July 1995, at which time Prime  terminated  its  exclusive  license
arrangement  with Rave and the Company  entered into the License  Agreement.  In
addition,  Rave agreed to continue the  development  of the  technology  and the
Initial  Products  pursuant to the  Development  Agreement  and Prime became the
Company's  exclusive  agent to  sublicense  the products  covered by the License
Agreement  to third  parties  (subject in all cases to the  Company's  approval)
under  the  terms of the  Agency  Agreement.  See  "Risk  Factors--Unconditional
Obligation to Share Sublicense Fees" for a description of the Agency  Agreement.
Mr. Zarin became the Company's  President and Mr. Chu became the Chairman of its
Board of  Directors  and acting  Chief  Financial  Officer.  Mr.  Wong  became a
director of the Company.  The Company  also entered into a consulting  agreement
with Corporate Builders, L.P., a limited partnership controlled by Mr. Chu.

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

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

     Rave's  principal  activities  were to  provide  services  for the  Company
pursuant to the  Development  Agreement  which  expired on October 1, 1998.  See
"Management's  Discussion  and  Analysis  or  Plan  of  Operation--Research  and
Development" for a description of the services  provided 


                                       4

<PAGE>


by  Rave  pursuant  to the  Development  Agreement.  The  Development  Agreement
provided  that all results of  development,  including  unrelated  developments,
belong  to the  Company,  and that  Rave  would not  undertake  any  development
activities  for third  parties  without the consent of the Company.  The Company
believes  that Rave misled the Company about its ability to perform the services
required under the Development Agreement;  did not perform the required services
under the Development  Agreement;  and misled the Company about Rave's propriety
rights to the Rave Clarity Circuit.

     On November 13, 1998,  pursuant to the provisions of the License  Agreement
and the Development  Agreement,  the Company commenced an arbitration proceeding
(the "Arbitration") under the American  Arbitration  Association Rules of Patent
Arbitration against Rave and Randy Burnworth. Such proceeding seeks: damages due
to  Rave's  and  Burnworth's  breaches  of  their  contractual  and  common  law
obligations to the Company,  including but not limited to those described above;
and a  determination  that,  among  other  things,  Rave is not  entitled to any
royalties or other  payments with respect to the Company's  technology  and that
the Company continues to have exclusive license rights to the "Licensed Product"
and "Licensed Process" under the License Agreement.

     Prime was  organized  in 1993 and, at that time,  substantially  all of its
activities  related to proposed  licensing of Rave's products and technology and
the organization of the Company.  The exclusive  licensing  arrangement  between
Rave and Prime  relating  to the  technology  used in the Initial  Products  was
terminated in October 1998.

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.

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

     Band widths  available for satellite video  transmission are limited by the
Federal  Communications  Commission  ("FCC").  These  limitations  significantly
restrict the amount of 


                                       5

<PAGE>


information  that can be  transmitted  in any time  interval  and  require  most
information to be transmitted in a compressed digitized format.

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

     Given the physical  limitations of satellite,  cable and telephone systems,
and their  increasing  interactivity,  ever  more  emphasis  is being  placed on
compression  technology as a means to allow more data to be  transmitted  in any
time interval. Using a variety of techniques,  portions of a digital description
of an image are omitted in the transmission of information, and, by mathematical
formula or inference, most of the omitted data is then replaced after reception.
The result of this  compression  technology  has been to increase  the number of
channels  available for digital  satellite  broadcasting  from 50 to 150, and to
significantly  improve the quality of images transmitted over the Internet.  The
Company  believes that  improvements in the amount of compression  possible will
continue. However, as the amount of compression increases, more data will likely
be lost, and the quality of the image will deteriorate.

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

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

The Company's Video Enhancement Products

The NVP and Softsets

     The NVP  controls,  corrects  and  improves  analog  video  signals' use of
digital  control  (software).  The NVP first  detects and replaces all important
picture synchronization and stability attributes. It then separates and corrects
the color and black and white  information.  The NVP enhances fine details of an
image and reduces distortions  incurred in the course of transmitting the image,
corrects  the pure  black  content  of images  and  adjusts  perceived  light on
projected images.  Fine detail 


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<PAGE>


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.

     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 capture board,  a device  enabling
the computer to convert standard  broadcast video signals into a digitized form.
This enables the image to be enhanced prior to digitization.

     Through its  Advanced  Engineering  Group,  the Company has  developed  the
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.

     During  1997,  the Company  began  marketing  the NVP as the "NUWAVE  Video
Processor"  and the  "Crystal  Wave  Video(TM)"  circuit,  and the  Softsets  as
"Crystal Wave Softsets" through comprehensive sales presentations to prospective
customers.

The Initial Products

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


                                       7

<PAGE>


The Company's Other Potential Products

     The  Company  intends to  continue  to use  outside  consultants  to assure
exposure  to new  ideas  and  technology.  The  Company,  through  its  Advanced
Engineering Group and agreements with third parties, is conducting investigation
and   research   and   development   activities   with   respect  to  other  new
technologies/products to address the digital, PC and internet markets, which are
new markets for the Company to participate in. These activities may give rise to
additional  products that may be commercialized by the Company.  However,  there
can be no  assurance  that its  efforts  will result in  marketable  products or
products that can be produced at commercially acceptable costs.

Research and Development

     Research and  development  activity with respect to the  Company's  Initial
Products was carried out by Rave prior to July 21, 1995, the date upon which the
Company  and  Rave  entered  into  the  License  Agreement  and the  Development
Agreement. The Company's Initial Products were based on technology originated by
Rave prior to the  Company's  organization  and  licensed to the Company by Rave
pursuant to the License  Agreement.  Although it was the Company's  intention to
utilize Rave as its primary source for research and development activities,  the
Company has become  dissatisfied  with Rave's  performance under the Development
Agreement and has found it necessary to utilize its Advanced  Engineering  Group
as its primary means for product development.  On October 1, 1998 the three year
term of the  Development  Agreement  between the Company and Rave  expired.  The
Company paid Rave an aggregate of (i) $2,731,906 for development services,  (ii)
$541,593  for  equipment  which  was  supposed  to be used in  conjunction  with
development  services  which were  required  and (iii)  $125,913  for  materials
intended to be used in conjunction  with the development  services.  The Company
has also guaranteed an additional  $76,078 for related  equipment lease payments
to be made on Rave's behalf.

     The Company's Advanced  Engineering Group currently operates to support the
continuing development of the Company's products and related technology, and the
identification of additional sources of new technology. The Company utilizes its
Advanced Engineering Group to create products and technology  independent of the
"Licensed  Product" and "Licensed Process" as outlined in the License Agreement.
These  independently  developed  products  and  technology  include  the NVP,  a
significant  amount of the  software  included in each of its  products  and new
circuitry to allow certain of the products to be produced as ASICs. The Advanced
Engineering  Group also  developed  the  Softsets for the NVP and certain of the
enhancements  to it.  Utilizing this  technology,  the Company has developed the
ProWave NVP 2.2 that is currently  available as a stand-alone unit or a PC board
with software.  The Advanced  Engineering  Group is also currently  developing a
commercial video retail product which utilizes the NVP technology.

     As of December 31, 1998, the Advanced  Engineering  Group consisted of 5 of
the Company's  employees and outside consultant  organizations who have on their
respective  staffs engineers,  technicians and support personnel  (totaling more
than  30   personnel)   who  devote  time  to  the   Company  on  an   as-needed
project-by-project  basis.  The  Company  anticipates  that the  make-up  of its
Advanced  Engineering  Group  will  change  from time to time  depending  on its
current and anticipated  development and commercialization  plans. The Company's
strategy with respect to new products and technologies is to continue to utilize
the Advanced  Engineering Group as well as other independent third party sources
and to increase its internal technical and engineering staff as appropriate.


                                       8

<PAGE>


     From July 17, 1995 to December 31, 1998, the Company  incurred  expenses of
$5,378,892 on research and development,  of which  approximately 63% was paid to
Rave  pursuant  to the  Development  Agreement.  During  fiscal  1997 and  1998,
$1,697,084 and $1,572,364,  respectively,  was spent on research and development
activities.  During the next 12 months, the Company estimates that it will spend
approximately  $850,000 in support of the  commercialization of its products and
on  research  and  development.  In the event the  Company  is able to  generate
sufficient  revenues  from sales of its Softsets  and NVP  products  during such
12-month  period,  it anticipates it will increase its  expenditures on research
and development and the identification of new sources of technology.

     For a  discussion  regarding  disputes  under the  License  Agreement,  see
"Management's  Discussion  and  Analysis  or  Plan  of  Operation--Research  and
Development."

Marketing and Sales

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

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

     The Crystal Wave Division's potential customer base includes  manufacturers
of products  that can  utilize  the NVP ASIC  including  the  following  product
categories:  TV, VCR, camcorder,  digital camera,  set-top box, large screen TV,
LCD TV, plasma LCD TV,  audio/video  receivers,  direct TV (DSS systems) and web
TV. Manufacturers of such products include Thomson, Sony, Matsushita,  Phillips,
Mitsubishi,  Sharp, Sanyo,  Samsung, JVC, Zenith,  General Instruments,  Packard
Bell, Compaq, IBM, Dell Computers and LSI Logic.

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


                                       9

<PAGE>


     In January 1998,  the Company  entered into a multi-year  supply  agreement
with  Thomson  for the  purchase  of its NVP ASIC  chip.  Thomson  has  recently
informed  the  Company  that it has not yet  completed  the  development  of the
product  that will  utilize  the NVP ASIC  chip,  and  therefore  orders are not
expected  during 1999.  During March,  1999 the Company  produced the first ASIC
chips which,  subsequent to testing and  modification,  will be used to launch a
full-scale commercial marketing and sales program aimed at obtaining orders from
those customers who have already evaluated the Company's  technology and wish to
test these chips in their products.

     During  the  second  quarter  of  1998,  the  Company  opened  a sales  and
engineering  office in Osaka,  Japan to maintain  ongoing  discussions,  provide
in-person demonstrations of the Company's technology and directly participate in
technical due diligence sessions with potential customers who are evaluating the
Company's  technology.  During the third quarter of 1998,  the Company  opened a
sales and engineering  office in Beijing,  China for its products and technology
to be sold into the Chinese domestic market,  which is equal in size to the U.S.
market.

     During  1997,  the  Company  formed  its  ProWave  Division  for  sales and
marketing of the ProWave NVP 2.2 and related products to the professional  video
marketplace.  The Company's  potential  customer base in this division fall into
three  major  categories:  (1)  integrated  systems  dealers;  (2)  professional
security  and  surveillance  dealers;  and (3) medical  imaging  dealers.  These
dealers will sell to the  ultimate  user of the  product.  The Company  plans to
utilize  independent  commissioned  sales  representatives  along  with  its own
internal staff and  management  team to manage,  oversee,  train and support the
sales effort of the dealers.  In November 1997, the Company  contracted with The
LACOM Group to help the Company activate a national  independent sales "rep" and
dealer network to support the launch of this Division.  To date, the Company has
sold  limited   quantities  of  the  ProWave  NVP  2.2   (primarily   for  sales
demonstration  purposes  until the ASIC chip is  available  to replace  the more
expensive printed circuit board).

     The Company is currently  developing  retail  products for consumers who do
not have NUWAVE enabled  products for their TV's but want to improve the picture
quality of their home viewing.  The Company's  CWave  Division will market these
products.  The Company has  determined  that the most effective way to introduce
these  products  into the  retail  marketplace  during  1999 is to work  through
distributors  who will  manufacture and sell to retailers,  including those with
whom they are  currently  doing  business.  The  Company  recently  announced  a
five-year  manufacturing and marketing  agreement with Terk Industries,  Inc., a
well-respected brand name, to manufacture and market under the Terk brand name a
line-up  of  set-top  boxes  incorporating   NUWAVE's  technology  for  existing
televisions  and video  output  products.  At present,  there are three  hundred
million  non-enhanced  televisions in the United States alone. See "Management's
Discussion and Analysis or Plan of Operation--Marketing and Sales."

     In addition to product  sales,  the Company may license the  manufacture of
its products and use of its technology in situations in which such  arrangements
are to its economic advantage. However, because its emphasis has been on product
sales and OEM manufacturing,  it has not yet developed a comprehensive licensing
program,  established  proposed royalties or otherwise  determined the terms and
conditions of the  arrangements  it may want to make with proposed  licensees or
others.

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


                                       10

<PAGE>


Manufacturing

     For a discussion relating to manufacturing of the Company's  products,  see
"Management's Discussion and Analysis or Plan of Operation--Manufacturing."

Patents; Proprietary Information

     To the extent  practicable,  the Company has filed and intends to file U.S.
patent 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.

     Under the License  Agreement,  the Company has exclusive  license rights to
all patents and  copyrights  obtained or to be  obtained  for the  products  and
technology  licensed under the License Agreement.  For a discussion  relating to
the  License   Agreement  and  the  exclusivity   provisions   thereunder,   see
"Management's Discussion and Analysis or Plan of Operation--Certain Factors That
May Effect Future  Results--License." In April 1996, the Company filed on behalf
of Rave two patent  applications  for its Randall  connector system and received
one patent in respect  thereof in November 1997 and the second patent in respect
thereof in January 1998.

     For a discussion  relating to the rejections of the patent applications for
the Rave Clarity Circuit,  see "Management's  Discussion and Analysis or Plan of
Operation--Research  and Development." For a discussion  relating to patents for
the Company's  independently  developed products and risks related thereto,  see
"Management's Discussion and Analysis or Plan of Operation--Certain Factors That
May Effect  Future  Results  --Enforceability  of Patents  and  Similar  Rights;
Possible Issuance of Patents to Competitors; Trade Secrets."

Competition

     For a discussion  relating to the  competition  that the Company  faces and
risks related  thereto,  see  "Management's  Discussion  and Analysis or Plan of
Operation--Certain  Factors That May Effect Future  Results  --Competition"  and
"--Rapid Changes to Industry Standards; Product Obsolescence."

Management Information Systems

     The Company  believes that the capacity of its existing data processing and
management  information systems is sufficient to allow the Company to expand its
business without significant  additional capital expenditures.  In addition, the
Company has  conducted a review of its systems to identify  those  systems  that
could be affected by the year 2000 problem and  modifications  to the  Company's
systems have been made. Testing of these modifications was completed January 31,
1999.  See  "Management's  Discussion  and  Analysis or Plan of  Operation--Year
2000."

Employees

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


                                       11

<PAGE>


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 $5,950. The lease is on a month-to-month  basis.
The Company's  subleased  portion of the facility is approximately  2,500 square
feet and the sublease entitles the Company to share certain common areas.

ITEM 3.   LEGAL PROCEEDINGS

     On November 13, 1998,  pursuant to the provisions of the License  Agreement
and the Development  Agreement,  the Company commenced an arbitration proceeding
under the American  Arbitration  Association Rules of Patent Arbitration against
Rave and Randy Burnworth.  Such proceeding seeks (a) damages for the injuries to
the Company caused by Rave's and Burnworth's  breaches of their  contractual and
common law  obligations to the Company and (b) a declaration  that,  among other
things,  Rave is not entitled to any royalties or other payments with respect to
the  Company's  technology  and that the  Company  continues  to have  exclusive
license rights to the "Licensed Product" and "Licensed Process" (each as defined
in the License Agreement). See "Risk Factors--License."

         Rave has filed an  amended  counterclaim  against  the  Company  in the
Arbitration,   alleging  breaches  of  the  License  Agreement  and  Development
Agreement,  trade libel,  tortious  interference  and conspiracy,  and seeking a
declaration  that Rave is  entitled to the return and  exclusive  use of its own
technology. Rave claims that it is entitled to $65,000 per month for the life of
any patents on  products it  developed  for the Company  (approximately  15 more
years),  as well as damages in excess of $4 million on the various  claims.  The
Company believes that Rave's claims are completely without merit; accordingly no
liability has been recorded for this claim.

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

     The Company  had a special  meeting of its  stockholders  on March 19, 1999
(the "Special  Meeting").  The meeting was convened for the purpose of ratifying
the private placement of the Company's securities by Janssen-Meyers  between May
19 and June 9 of 1998 (the "Private Placement").

     Shareholder ratification was required in order to comply with the corporate
governance  rules of NASDAQ SmallCap Market  ("Nasdaq").  These rules require an
issuer to obtain  stockholder  approval for the sale or issuance of common stock
(or securities convertible into or exercisable for common stock) equal to 20% or
more of the  common  stock  outstanding  before the  issuance  for less than the
greater of book or market value of the stock. Because the Company did not obtain
shareholder  approval prior to the Private  Placement,  it was necessary for the
Company to obtain  shareholder  ratification of the Private  Placement after the
fact.


                                       12

<PAGE>


     On March 19,  1999,  the  Special  Meeting  was held to ratify the  Private
Placement.  Because  the vote  related  to  post-effective  ratification  of the
Private Placement, holders of shares issued in the Private Placement or issuable
upon exercise of warrants issued in the Private  Placement  ("Private  Placement
Shares") were not entitled to vote such Private  Placement Shares. As such, only
the  holders of record of shares  other  than  Private  Placement  Shares on the
record date,  February 3, 1999, were entitled to vote. There were 5,613,485 such
shares  outstanding  and  entitled  to vote on the  ratification  of the Private
Placement  at the Special  Meeting.  3,459,307  shares were voted at the Special
Meeting,  constituting  61.62% of the shares  eligible to vote. Of those shares,
3,394,619  were voted in favor of the proposal to ratify the Private  Placement,
and  64,688  shares  were  voted   against  the  proposal.   There  were  20,425
abstentions. As such, the Private Placement was ratified at the Special Meeting.


                                     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" for Common  Stock  Warrants.  Prior to that
time, there was no public market for the Common Stock or Warrants. The following
table sets forth the range of high and low  closing  sale  prices for the Common
Stock as  reported  on the  NASDAQ  SmallCap  Stock  Market  during  each of the
quarters presented.  The quotations set forth below are inter-dealer quotations,
without  retail  mark-ups,  mark-downs  or  commissions  and do not  necessarily
represent actual transactions.

                                  COMMON STOCK

QUARTERLY PERIOD ENDED                           HIGH                      LOW

March 31, 1997                                  $9.75                     $6.50

June 30, 1997                                    8.50                      5.63

September 30, 1997                               8.13                      4.50

December 31, 1997                                6.38                      3.68

March 31, 1998                                   6.63                      3.88

June 30, 1998                                    4.50                      2.94

September 30, 1998                               3.50                      1.38

December 31, 1998                                4.19                      0.66


                                       13

<PAGE>


     As of March 12, 1999, there were approximately 212 holders of record of the
Company's Common Stock.  This number does not include  beneficial  owners of the
Common  Stock whose  shares are held in the names of various  dealers,  clearing
agencies, banks, brokers and other fiduciaries.

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

Recent Sales of Unregistered Securities

     The  following  paragraphs  set forth certain  information  with respect to
securities sold by the Company within the past three years in transactions  that
were not  registered  under the  Securities  Act pursuant to the  provisions  of
Section 4(2) of the Securities Act and/or  Regulation D as promulgated under the
Securities Act.

     On  December 3, 1997,  the  Company  contracted  with  Lippert/Heilshorn  &
Associates,  Inc.  ("LHA")  to provide  various  investor  relations  and public
relations  services for the Company.  In return for such  services,  the Company
granted to LHA 30,000  options to purchase the  Company's  Common Stock at $5.78
per share (market price on date of grant).  In addition,  the Company  agreed to
pay LHA a fee of $7,500 per month plus normal  business  expenses.  The original
term of the  contract  terminated  on  March  31,  1998 and had  continued  on a
month-to-month  basis until  December,  1998,  at which point the  contract  was
terminated completely.

     On January 16,  1998,  the Company  entered  into a letter  agreement  (the
"Letter Agreement") with Trinity Capital Advisors,  Inc. ("Trinity") pursuant to
which  Trinity  agreed to  identify an  accredited  investor  who would  provide
financing to the Company by purchasing  shares of Common Stock from the Company.
In return for such service, the Company agreed to pay to Trinity a commission of
7% of the  principal  amount of the Common  Stock sold and  20,000  warrants  to
purchase Common Stock at $5.75 per share (market price on the date of grant). In
February 1998, Trinity identified Profutures as such an accredited investor (see
paragraph  below).  Pursuant  to the Letter  Agreement,  in February  1998,  the
Company paid a commission of $70,000  (i.e.,  7% of the principal  amount of the
Common Stock sold) and granted 20,000 warrants to Trinity.

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


                                       14

<PAGE>


     In  connection  with such  agreement,  the  Company  issued  to  Profutures
warrants to purchase an aggregate of 50,000 shares of Common Stock at a purchase
price of $6.41 per share and  supplemental  warrants to purchase an aggregate of
50,000  shares of Common  Stock at a  purchase  price of $3.95  per  share.  The
warrants  may be  exercised  at any time  beginning  August 6, 1998 and ending 3
years  thereafter.  The  supplemental  warrants  may be  exercised  at any  time
beginning April 19, 1998 and ending 5 years thereafter.

     On March 3, 1998, the Company  entered into the  Consulting  Agreement with
Janssen-Meyers  whereby  Janssen-Meyers  agreed to provide  consulting  services
relating  to  corporate  finance  and  other  financial  services  matters.   As
compensation for such services,  the Company agreed to pay Janssen-Meyers $5,000
per month during an initial term ending September 3, 1999,  subject to automatic
one-year  term  extensions  unless  either the Company or  Janssen-Meyers  gives
written  notice of  termination at least 30 days prior to the end of the initial
or subsequent terms. In connection with such Consulting  Agreement,  the Company
also  issued to  Janssen-Meyers  400,000  Consultant  Warrants.  The  Consultant
Warrants have an exercise price of $4 per share, are exercisable after September
3, 1999 and expire on March 3, 2003.

     On May 11, 1998, the Company entered into a placement agency agreement with
Janssen-Meyers  to act as the  Company's  placement  agent in a  private  equity
placement whereby the Company issued to certain accredited investors, as defined
under Regulation D as promulgated under the Securities Act,  2,742,904 shares of
the Company's Common Stock and 2,057,207 Class A Redeemable Warrants between May
19, 1998 and June 9, 1998 for an aggregate  purchase price of  $7,280,546.  Each
Class A Redeemable  Warrant entitles the holder thereof to purchase one share of
Common Stock at an exercise price per share of $3.24, subject to adjustment upon
the  occurrence of certain  events to prevent  dilution,  at any time during the
period  commencing  on June 9, 1998 and  expiring on May 11,  2003.  The Class A
Redeemable Warrants are subject to redemption by the Company at $.01 per warrant
12 months after the  effective  date of a  registration  statement  covering the
Class A Redeemable Warrants on not less than 30 days prior written notice to the
holders of the Class A Redeemable  Warrants,  provided  the average  closing bid
price of the Common  Stock has been at least 250% of the then  current  exercise
price of the Class A  Redeemable  Warrants  for a period  of thirty  consecutive
trading  days  ending  on the day prior to the day on which  the  Company  gives
notice of redemption.  The Class A Redeemable Warrants will be exercisable until
the  close of  business  on the day  immediately  preceding  the date  fixed for
redemption.

     Janssen-Meyers  received for acting as placement  agent a commission of 10%
($728,055)  of the gross  proceeds from the sale of the Common Stock and Class A
Redeemable  Warrants,  as  well  as  a  3%  non-accountable   expense  allowance
($218,416) and  reimbursement of other costs,  including legal expenses relating
to the offering ($77,171).  In addition,  Janssen-Meyers received as part of its
compensation  Unit Warrants,  exercisable  until May 11, 2003, to purchase up to
(i) 688,084  shares of the  Company's  Common Stock at a price per share ranging
from $2.50 to $3.06 and (ii) 516,068 Class A Redeemable  Warrants to purchase up
to 516,068 shares of the Company's Common Stock at a price per share of $3.24.

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

                          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.


                                       15

<PAGE>


<TABLE>
<CAPTION>
                                                                                       July 17, 1995
                                           Year Ended              Year Ended         (Inception) to
    Statement of Operations Data:       December 31, 1997      December 31, 1998     December 31, 1998
<S>                                     <C>                    <C>                   <C>            
Revenues                                $     10,275           $     12,545          $        22,820
Net Loss                                $  3,848,316           $  3,998,271          $    13,187,827
Net loss per common share               $     (0.72)           $     (0.55)
Weighted average number of  shares         5,343,348              7,259,896

                                         December 31,           December 31,
         Balance Sheet Data:                 1997                   1998
Working capital                         $  1,709,988           $   4,904,765
Total assets                            $  2,270,763           $   5,515,352
Total liabilities                       $    153,623           $     261,201
Deficit accumulated during              $  9,189,556           $  13,187,827
   the development stage
Stockholders' equity                    $  2,117,140           $   5,254,151
</TABLE>

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 when required,
and the risk factors  detailed from time to time in the Company's  annual report
on Form  10-KSB and other  materials  filed  with the  Securities  and  Exchange
Commission ("SEC").

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

General

     The Company is a development  stage enterprise  organized in July 1995. The
Company  develops and intends to  manufacture  and market  products that improve
picture quality in set-top boxes,  TVs, VCRs,  DVDs,  camcorders and other video
devices by enhancing and manipulating  video signals.  In July 1996, the Company
completed  an initial  public  offering  ("IPO") of its Common  Stock and Public
Warrants from which it received net proceeds of $9,538,428 and repaid $2,000,000
principal amount of promissory notes issued in a previous financing. On February
11, 1998, the Company  received net proceeds of $859,347 for issuance of 253,485
shares of its Common Stock to  Profutures.  The Company 


                                       16

<PAGE>


also issued  warrants to  purchase up to 100,000  shares of its Common  Stock to
Profutures.  In  addition,  the  Company  may issue  Puts to  Profutures  over a
two-year period whereby  Profutures shall purchase a minimum of $1,000,000 up to
a maximum of  $5,000,000  of the  Company's  Common Stock  (valued at 88% of the
market  value  thereof).  Puts are for a minimum  of  $250,000  and a maximum of
$750,000 with certain  restrictions  applying  beginning with the second Put. On
May 11,  1998,  the Company  entered  into a  placement  agency  agreement  with
Janssen-Meyers  Associates,  L.P.  ("Janssen-Meyers")  to act  as the  Company's
placement  agent in a  private  equity  placement  whereby  the  Company  issued
2,742,904  shares of its Common Stock and 2,057,207 Class A Redeemable  Warrants
between  May 19,  1998 and June 9,  1998 for net  proceeds  of  $6,035,562.  See
"Management's  Discussion  and  Analysis  or  Plan of  Operation--Liquidity  and
Capital Resources."

     At the  time  of the  IPO,  the  Company  had  produced  and  tested  fully
operational working prototypes of certain of the Initial Products. Subsequent to
the IPO, the Company  established the Advanced  Engineering Group to support the
continuing  development  of  its  products  and  related  technology,   and  the
identification of additional sources of new technology. The Advanced Engineering
Group is made up of the Company's own employees and third party  consultants who
work with the Company on a project by project  basis.  The Advanced  Engineering
Group operates  under the direction of the Company's Vice  President-Engineering
(prior to September  1998, it operated under the direction of the Company's Vice
President-Marketing/Technical  Development).  The Company  utilizes its Advanced
Engineering Group to create products and technology independent of the "Licensed
Product" and "Licensed  Process" as outlined in the License Agreement with Rave.
These  independently  developed products and technology include the NUWAVE Video
Processor  ("NVP"), a significant amount of the software included in each of its
products and new  circuitry  to allow  certain of the products to be produced as
ASICs.  The Advanced  Engineering  Group also developed the Softsets for the NVP
and certain of the enhancements to it.  Utilizing this  technology,  the Company
has developed the ProWave NVP 2.2, a product for the professional  video market,
that is currently  available as a stand-alone  unit or a PC board with software.
The Advanced  Engineering Group is also currently  developing a commercial video
retail product also utilizing the NVP technology.

     The  Company  intends  to  produce  the NVP in the form of an ASIC  chip in
accordance with a customer's specific application requirements supported by firm
commitments  rather  than  producing  and  storing  in  inventory  ASIC chips in
anticipation  of  applications  required by  customers  in the  future.  In this
regard, the Company contracted with Adaptive  Micro-Wave Inc.  ("Adaptive"),  an
engineering  firm  specializing in engineering  product  management,  to provide
necessary  technical  support  and  manage  this  process  under  the  Company's
direction.  The Company also contracted with The Engineering Consortium ("TEC"),
a specialized design engineering group, to complete the design work necessary to
convert the  Company's  current NVP PC board design to ASIC  specifications  and
contracted with Zentrum  Mikroelectronik  Dresden GmbH ("ZMD"), a fabricator and
manufacturer  of integrated  circuits,  for  production of the ASIC. The Company
recently  completed  the final  design  layout of the ASIC chip and during March
1999 produced the first ASIC chips for testing and final evaluation purposes.

     The Company has significantly scaled back its research and development, and
marketing and related  activities with respect to all other existing or proposed
products in order to concentrate its resources on the continued  development and
marketing of its Softsets and NVP products (i.e.,  ASIC chip for the OEM market,
the  ProWave  NVP 2.2 in the  stand  alone  unit  and PC board  version  for the
professional  video market and the consumer video retail version).  As indicated
above,  the Company  recently  produced its first NVP ASIC chips for testing and
final evaluation purposes.  The Company,  through its Advanced Engineering Group
and agreements with third parties,  is currently  conducting  


                                       17

<PAGE>


investigation and research and development  activities with respect to other new
technologies/products  to address the digital,  PC and internet  markets.  These
activities may give rise to additional  products that may be  commercialized  by
the Company.  However, there can be no assurance that its efforts will result in
marketable products or products that can be produced at commercially  acceptable
costs.  The Company  believes  this product  strategy will allow it to take full
advantage of the growth opportunity  presented by the converging PC, television,
internet and telecommunication  markets,  which the Company believes to be quite
significant.

     As of December 31, 1998 the Company had  accumulated  a deficit  during the
development  stage of  $13,187,827  which includes a net loss for the year ended
December 31, 1998 of  $3,998,271.  The loss for the year ended December 31, 1998
included  $2,646,409 in general and  administrative  expenses,  representing  an
increase of $310,409 compared to the year ended December 31, 1997. This increase
was  the  result  of  the  Company's  planned  growth  and  expansion  including
establishment of a China office ($91,503), increased personnel and payroll costs
($22,558), professional and legal services ($203,315), insurance costs ($9,745),
investor relations  ($85,305),  travel and entertainment costs ($7,646),  office
rent ($14,017), recruiting costs ($40,000), financial consulting fees ($235,412)
and other  ($33,762).  This increase was partially  offset by a decline in sales
and  marketing  costs of  $362,854  discussed  more  fully  below  and a $70,000
decrease in payments made to Prime Technologies,  Inc. ("Prime") pursuant to the
Exclusive Agency Agreement  ("Agency  Agreement")  between the Company and Prime
dated July 21, 1995. See "Liquidity and Capital Resources." Although the Company
anticipates  deriving  some  revenue from the sale of its  proprietary  software
(Softsets)  and the NVP  products  during 1999,  no assurance  can be given that
these  products  will be  successfully  marketed  during  such  period.  Even if
revenues are produced  from the sale of such  products,  the Company  expects to
continue to incur  losses for at least the next 12 months.  See  "Liquidity  and
Capital Resources."

Marketing and Sales

     In  anticipation  of production of its NVP ASIC chip,  the Company has been
conducting  sales  presentations  of the NVP and  Softsets  to  prospective  OEM
customers world wide (i.e., manufacturers of set-top boxes, televisions,  VCR's,
DVD's and other video output  devices).  During March 1999 the Company  produced
its first NVP ASIC chips. After final evaluation and modification of these chips
the Company will launch a full-scale  sales  program  aimed at obtaining  orders
initially  from  those  customers  who  have  already  evaluated  the  Company's
technology  and wish to test these  chips in their  products.  The  Company  has
marketing and sales  organizations in place in the U.S., Japan and China,  close
to key prospective customers, to implement this program. Although the Company is
unable to predict whether its marketing efforts will be successful,  it believes
that its products have been well received.

     In January 1998,  the Company  entered into a multi-year  supply  agreement
with Thomson Consumer  Electronics  ("Thomson") for the purchase of its NVP ASIC
chip.  Thomson has recently  informed the Company that it has not yet  completed
the  development  of the  product  that  will  utilize  the NVP ASIC  chip,  and
therefore orders are not expected during 1999.

     The Company is currently  developing  retail  products for consumers who do
not have NUWAVE enabled  products for their TV's but want to improve the picture
quality of their home viewing.  The Company's  CWave  Division will market these
products.  The Company has  determined  that the most effective way to introduce
this  product  into  the  retail  marketplace  during  1999 is to  work  through
distributors  who will  manufacture and sell to retailers,  including those with
whom they are  


                                       18

<PAGE>


currently  doing   business.   The  Company   recently   announced  a  five-year
manufacturing  and  marketing  agreement  with  Terk  Industries,  Inc.,  a well
respected  brand name to  manufacture  and market  under the Terk brand name,  a
line-up  of  set-top  boxes,  incorporating  NUWAVE's  technology  for  existing
televisions  and video  output  products.  At present,  there are three  hundred
million non-enhanced televisions in the United States alone.

     During  the  second  quarter  of  1998,  the  Company  opened  a sales  and
engineering  office in Osaka,  Japan to maintain  ongoing  discussions,  provide
in-person demonstrations of the Company's technology and directly participate in
technical due diligence sessions with potential customers who are evaluating the
Company's  technology.  During the third quarter of 1998,  the Company  opened a
sales and engineering  office in Beijing,  China for its products and technology
to be sold into the Chinese domestic market,  which is equal in size to the U.S.
market.

     During  1997,  the  Company  formed  its  ProWave  Division  for  sales and
marketing of the ProWave NVP 2.2 and related products to the professional  video
market  (e.g.,   security   surveillance  systems)  and  began  selling  limited
quantities  (primarily  for  demonstration  purposes  until  the  ASIC  chip  is
available  to  replace  the more  expensive  PC board)  of its first  commercial
product, the ProWave NVP 2.2.

     The Company has contracted with Competitive  Technologies,  Inc. ("CTI") to
assist it in the  development  of the  Company's  OEM  business.  CTI,  for over
twenty-six  years,  has  been in the  business  of  taking  R&D  and  technology
companies and  introducing  them to the major  companies  specializing  in their
respective markets.  The Company also has contracts with several individuals and
organizations  that will act in a  commissioned  sales  representation  capacity
regarding the Company's products.

     During  1997,  the Company had  contracted  with a  professional  marketing
communications firm to assist in the development and implementation of a program
to develop market awareness and commercialization of its products.  This program
included  development of Company and product  brochures and press kits,  product
specification  sheets,  development  of a Company  booth for use at trade shows,
attendance at key trade shows,  mailers,  the production of corporate videos for
use at sales  presentations,  development of and placement of  advertisements in
key industry journals,  etc. The developmental  costs relating to these programs
were  substantially  incurred during 1997 and as a result such  expenditures for
1998 were reduced by approximately $271,351.  During the year ended December 31,
1998 costs included  $21,204 for  professional  sales and marketing  consultants
compared  to  $230,361  for the year  ended  December  31,  1997;  $139,708  for
advertising  and  public  relations  compared  to  $314,527  for the year  ended
December  31,  1997;  $8,283 for trade shows  compared to $47,610 for the twelve
months ended  December 31, 1997;  and $151,953  relating to the offices in Japan
and China opened in 1998. The Company is continually  reviewing its needs with a
view to maximizing efficiency while conserving its resources.

Research and Development

     For a  discussion  of the  Company's  research and  development  activities
carried out by its Advanced Engineering Group, see "Management's  Discussion and
Analysis or Plan of Operation--General."

     Research and  development  activity with respect to the  Company's  Initial
Products was carried out by Rave prior to July 21, 1995, the date upon which the
Company  and  Rave  entered  into  the  


                                       19

<PAGE>


License Agreement and the Development Agreement.  The Company's Initial Products
were based on technology originated by Rave prior to the Company's  organization
and licensed to the Company by Rave pursuant to the License Agreement.  Although
it was the  Company's  intention  to  utilize  Rave as its  primary  source  for
research and development  activities,  the Company has become  dissatisfied with
Rave's performance under the Development Agreement and has found it necessary to
utilize  its  Advanced  Engineering  Group  as its  primary  means  for  product
development. On October 1, 1998 the three-year term of the Development Agreement
between the Company and Rave expired.  The Company paid Rave an aggregate of (i)
$2,731,906 for  development  services  ("Development  Service  Payments"),  (ii)
$541,593  for  equipment  which  was  supposed  to be used in  conjunction  with
required  development  services and (iii) $125,913 for materials  intended to be
used in  conjunction  with  the  development  services.  The  Company  has  also
guaranteed an additional $76,078 for related equipment lease payments to be made
on Rave's behalf.

     Concurrent  with the research and  development  undertaken  by the Advanced
Engineering  Group,  the Company  retained patent counsel in 1996 to prosecute a
patent  application  on the video clarity  circuit  provided by Rave ( the "Rave
Clarity Circuit"), which, of the Initial Products, the Company had identified as
the most likely candidate for immediate commercial exploitation. The Company was
informed in January,  1998, that (a) such application had been rejected, and (b)
such  initial  rejections  by the  United  States  Patent and  Trademark  Office
("Patent office") are not uncommon.  The claims in the application were modified
and the application was resubmitted  twice.  Both times it was again rejected by
the Patent Office on the grounds that the Rave Clarity  Circuit was identical to
a circuit that was the subject of a prior United States patent issued to a third
party (the "Prior Art").  The Company has determined not to proceed with further
prosecution of the patent  application on the Rave Clarity Circuit.  The Company
acquired the exclusive rights to the Prior Art in August 1998.

     In July 1998, the Company's  representatives  conducted a "Technical Audit"
of the  consulting  and  development  services  (not limited to the Rave Clarity
Circuit)  that Rave was to have  performed  under the License  Agreement and the
Development  Agreement.  The Company  concluded,  on the basis of the  Technical
Audit and the  information  regarding the Prior Art, that Rave had not performed
the required  services and misled the Company about its ability to perform them,
and about Rave's ownership of the technology licensed to the Company.

     The  Development  Service  Payments also  satisfied  the Company's  payment
obligations  under the License Agreement between the Company and Rave which gave
the Company  exclusive rights to the "Licensed  Product" and "Licensed  Process"
(each as defined therein) for the three-year term of the Development  Agreement.
Commencing October 1, 1998, the Company did not pay Rave $65,000 per month under
the License  Agreement  thereby giving Rave the right,  which was exercisable by
giving notice to the Company prior to November 2, 1998, to convert the Company's
rights  to  the  "Licensed  Product"  and  "Licensed  Process"  into  that  of a
non-exclusive  licensee.  Rave failed to give such notice in the specified  time
and the Company believes it retains  exclusive rights to the "Licensed  Product"
and "Licensed Process."

     On November 13, 1998,  pursuant to the provisions of the License  Agreement
and the Development  Agreement,  the Company commenced an arbitration proceeding
under the American  Arbitration  Association Rules of Patent Arbitration against
Rave and Randy Burnworth.  Such proceeding seeks (a) damages for the injuries to
the Company caused by Rave's and Burnworth's  breaches of their  contractual and
common  law  obligations  to the  Company,  including  but not  limited to those
referred to above and (b) a declaration  that,  among other things,  Rave is not
entitled  to any  royalties  or other  payments  with  respect to the  Company's
technology and that the Company  continues to 


                                       20

<PAGE>


have exclusive license rights to the "Licensed  Product" and "Licensed  Process"
under the License Agreement.

         Rave has filed an  amended  counterclaim  against  the  Company  in the
Arbitration,   alleging  breaches  of  the  License  Agreement  and  Development
Agreement,  trade libel,  tortious  interference  and conspiracy,  and seeking a
declaration  that Rave is  entitled to the return and  exclusive  use of its own
technology. Rave claims that it is entitled to $65,000 per month for the life of
any patents on  products it  developed  for the Company  (approximately  15 more
years), as well as damages in excess of $4 million on the various claims.    The
Company believes that Rave's claims are completely without merit; accordingly no
liability has been recorded for this claim.

Manufacturing

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

     The  Company  intends to  produce  the NVP ASIC chip in  accordance  with a
customer's  specific  application  requirements  supported  by firm  commitments
rather than  producing and storing in inventory  ASIC chips in  anticipation  of
applications  required by customers in the future.  In this regard,  the Company
contracted with Adaptive to provide necessary  technical support and manage this
process  under the  Company's  direction,  contracted  with TEC to complete  the
design work  necessary to convert the  Company's  current NVP PC board design to
ASIC  specifications  and  contracted  with ZMD for  production of the ASIC. The
Company  recently  produced  its first  NVP ASIC  chips  for  testing  and final
evaluation purposes.

Employees

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

Liquidity and Capital Resources

     From its inception until the IPO, the Company relied for all of its funding
($2,900,000 in cash plus the  cancellation of the notes in the principal  amount
of  $350,000)  on  private  sales of its debt and  equity  securities  ("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.


                                       21

<PAGE>


     On February 6, 1998,  the Company  entered into a two-year  agreement  with
Profutures  whereby the Company issued 253,485 shares of its Common Stock for an
aggregate  purchase  price of $1,000,000.  On May 11, 1998, the Company  entered
into a placement  agency agreement with  Janssen-Meyers  to act as the Company's
placement  agent in a private  equity  placement  whereby the Company  issued to
certain accredited investors, as defined under Regulation D as promulgated under
the Securities Act, 2,742,904 shares of the Company's Common Stock and 2,057,207
Class A  Redeemable  Warrants  between  May 19,  1998  and  June 9,  1998 for an
aggregate  purchase price of  $7,280,546.  See "Market For  Registrant's  Common
Equity and Related Stockholder Matters--Recent Sales of Unregistered Securities"
for further descriptions of these agreements.

     As indicated  earlier,  the Company has developed  products and  technology
independent  of the  "Licensed  Product" and "Licensed  Process"  covered by the
License  Agreement  with Rave and  believes  that a  substantial  portion of its
future  sales  will not  include  "Licensed  Product"  and  "Licensed  Process."
Pursuant  to the terms of the Agency  Agreement  between  the Company and Prime,
Prime will  receive 35% of net  sublicensing  fees  received by the Company with
respect to the first  $50,000,000 of aggregate net sales of "Licensed  Product,"
"Licensed  Process" and "Results of Development"  (as defined in the Development
Agreement)  made by the Company's  sublicensees,  after  subtracting any royalty
payments made to Rave pursuant to the License Agreement, and any other licensing
expenses,  and  thereafter  45%.  Prime will also  receive  up to an  additional
$1,500,000 of which (i) $400,000 has been paid in  accordance  with the terms of
the Agency  Agreement,  (ii)  $400,000  is payable  out of the  Company's  first
sublicensing  fees of  "Licensed  Product,"  "Licensed  Process" and "Results of
Development,"  and (iii)  $700,000  is payable out of the  Company's  portion of
sublicensing  royalties  when  net  sublicensing  sales of  "Licensed  Product,"
"Licensed Process" and "Results of Development" exceed $200,000,000.

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

Plan of Operation

     The Company's plan of operation  over the next 12 months focuses  primarily
on the final phase of the  development of its ASIC chip,  marketing and sales of
its Softsets and NVP products in the OEM,  professional video and retail markets
and the continued  effort  necessary to support the sales and marketing of these
products.  In this regard,  the Company has recently produced the first NVP ASIC
chips.  After  final  evaluation  of the chips,  the  Company  plans to launch a
full-scale sales and marketing  program aimed initially at obtaining orders from
those customers who have already evaluated the Company's  technology and wish to
test the chips in their  products.  Also,  the  Company,  through  its  Advanced
Engineering  Group and agreement  with third  parties,  is currently  conducting
investigation and research and development  activities with respect to other new
technologies/products  to address the digital,  PC and internet  markets.  These
activities may give rise to additional  products that may be  commercialized  by
the Company.  However, there can be no assurance that its efforts will result in
marketable products or products that can be produced at commercially  acceptable
costs.

     The  Company   anticipates,   based  on  its  current  proposed  plans  and
assumptions  relating to its operations,  that it has sufficient cash to satisfy
the estimated cash  requirements  of the Company for the next 12 months.  In the
event of  unanticipated  expenses,  delays or other problems beyond this period,
the Company might be required to seek additional  funding.  In addition,  in the
event that the  Company  receives a larger  than  anticipated  number of initial
purchase  orders upon  introduction  of Softsets  


                                       22

<PAGE>


and the NVP products,  it may require  resources greater than its available cash
or than are otherwise  available to the Company.  In such event, the Company may
be required to raise  additional  capital.  There can be no assurance  that such
additional  capital will be available to the Company if needed,  on commercially
reasonable terms or at all.

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

Year 2000

     The Company  recognizes  the need to ensure that its operations and systems
(including   information   technology  ("IT")  and  non-information   technology
("non-IT")  systems)  will not be adversely  affected by year 2000  hardware and
software issues.  The year 2000 problem is the result of computer programs being
written using two digits (rather than four) to define the applicable  years. Any
of the company's  programs that have  time-sensitive  software may recognize the
date using "00" as the year 1900 rather than the year 2000,  which could  result
in  miscalculations  or system  failures.  The year  2000  problem  affects  the
Company's installed computer systems,  software  applications and other business
systems that have time sensitive programs.

     The Company has conducted a review of its IT and non-IT systems to identify
those systems that could be affected by the year 2000 problem.  Modifications to
the Company's  systems as a result of the findings have been completed.  Testing
of these modifications was completed January 31, 1999. In addition,  the Company
has contacted its major supplier (the  fabricator/manufacturer of its ASIC chip)
to verify that the systems that the major supplier uses are or will be year 2000
compliant. If the Company's major supplier, or others with whom the Company does
business,  experience  problems  related to the year 2000 issue,  the  Company's
business,  financial  condition  or results of  operations  could be  materially
adversely affected.  Based on its current estimates and on information currently
available,  the Company does not anticipate that the costs  associated with year
2000 compliance issues will be material to the Company's  financial  position or
results of operations.

     The Company  believes  that its year 2000  project will allow it to be year
2000 compliant in a timely manner. There can be no assurances, however, that the
Company's  information  systems or those of a third  party on which the  Company
relies will be year 2000  compliant  by the year 2000.  An  interruption  of the
Company's  ability to conduct its business due to a year 2000 readiness  problem
could have a material  adverse affect on the Company's  business,  operations or
financial  condition.  There can be no guarantee  that the  Company's  year 2000
goals or expense estimates will be achieved, and actual results could differ.

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.


                                       23

<PAGE>


1.   Development Stage Enterprise; Absence of Operating History

     The Company is a development  stage  enterprise.  It has had only a limited
operating  history and has sold only a limited  quantity of its products to date
(primarily for  demonstration  purposes).  Since its inception in July 1995, the
Company has been engaged primarily in: raising funds; directing Rave Engineering
Corporation in the continuing  development of the Initial  Products;  recruiting
management and technical personnel,  including members of the Company's Advanced
Engineering Group;  directing and supervising its Advanced  Engineering Group in
the continuing  development of the NUWAVE Video Processor and the Softsets;  and
pre-marketing activities.

     More recently,  the Company produced its first NUWAVE Video Processor in an
application  specific  integrated chip (ASIC) format.  After final evaluation of
these  chips,  the  Company  will  launch a full scale  sales  program  aimed at
obtaining orders  initially from those customers who have already  evaluated the
Company's technology and wish to test these chips in their products.

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

2.   Limited Revenues; Accumulated Deficit; Anticipated Future Losses

     To date, the Company has received only limited revenue from the sale of its
products  (primarily from sales made for  demonstration  purposes).  It does not
anticipate  significant  operating revenue until its relevant technology and one
or more of its products is  completely  developed,  manufactured  in  commercial
quantities and made available for commercial delivery. There can be no assurance
that its technology and products, if developed and manufactured, will be able to
compete successfully in the marketplace and/or generate significant revenue. The
Company has incurred significant costs in connection with the development of its
technologies  and  proposed  products  and  there is no  assurance  that it will
achieve  sufficient  revenues  to  offset  anticipated  operating  costs.  As of
December  31,  1998,  the Company  had an  accumulated  deficit of  $13,187,827.
Although  the Company  anticipates  deriving  some  revenue from the sale of its
NUWAVE Video  Processor  and related  products  and Softsets  within the next 12
months,  no  assurance  can be given that these  products  will be  successfully
marketed or even completely  developed and tested for commercial use during such
period.   Management  anticipates  that  the  Company  will  continue  to  incur
substantial losses for at least the next 12 months.  Included in such former and
future  losses  are  research  and  development   expenses,   marketing   costs,
manufacture and assembly,  and general and administrative  expenses. The Company
anticipates that it will continue to have high levels of operating  expenses and
will be  required  to make  significant  expenditures  in  connection  with  its
continued research and development activities.  The Company anticipates that its
losses will continue until it is able to generate sufficient revenues to support
its operations.

3.   Significant  Capital  Requirements;  Dependence on Available Cash; Need for
     Additional Financing

     The  Company's  capital  requirements  in connection  with its  development
activities have been and will continue to be  significant.  The Company has been
dependent upon the proceeds of sales of its  securities to private  investors to
fund its initial  development  activities.  Since its initial public offering in
July 1996,  the Company has raised  capital by making the following  sale of its
securities to 


                                       24

<PAGE>


private  investors:  on February 11, 1998, the Company  received net proceeds of
approximately  $859,347  from the sale of 253,485  shares of its Common Stock to
Profutures Special Equities Fund, L.P.  ("Profutures")  pursuant to a Securities
Subscription   Agreement   dated  as  of  February  6,  1998  (the   "Investment
Agreement"); and between May 19, 1998 and June 9, 1998, the Company received net
proceeds of  approximately  $6,035562  from the sale of 2,742,904  shares of its
Common Stock and  2,057,207  Class A Redeemable  Warrants to certain  accredited
investors.    See   "Management's   Discussion   and   Analysis   or   Plan   of
Operation--General."

     In addition,  under the  Investment  Agreement,  the Company has the right,
subject  to  certain  conditions,  to draw up to  $5,000,000  in cash by selling
shares of Common Stock to ProFutures. The Company has this right until April 15,
2000,  and such shares are to be sold at a price equal to  eighty-eight  percent
(88%) of the Market Price (as defined in the Investment Agreement) of the Common
Stock on the relevant draw down date. There is no assurance,  however,  that the
conditions  to the right to draw will be  satisfied.  The  company  has the sole
discretion,  subject to certain  conditions,  as to when and in what amount such
draws  will be made.  However,  The  Company  is  required  to draw a minimum of
$1,000,000  in cash in  exchange  for shares of Common  Stock prior to April 15,
2000.  A  registration  statement  on Form S-3 covering the resale of all of the
Common Stock issued and issuable to ProFutures  under the  Investment  Agreement
became effective on April 15, 1998.

     The  Company   anticipates,   based  on  its  current  proposed  plans  and
assumptions  relating to its operations,  that it has sufficient cash to satisfy
all of its estimated cash  requirements for the next 12 months.  In the event of
unanticipated expenses,  delays or other problems, the Company might be required
to either utilize the equity financing available under the Investment  Agreement
or seek additional funding elsewhere.  Also, if it were to receive a larger than
anticipated  number of initial purchase orders upon introduction of the Softsets
or the NuWave Video  Processor  products,  the Company might require  additional
capital.  No assurance can be given that the Company will be able to obtain such
additional  capital on commercially  reasonable terms or at all. An inability to
obtain additional  financing,  when needed, would have a material adverse effect
on the Company,  and possibly require it to curtail or cease operations.  To the
extent  that  any  future  financing  involves  the sale  the  Company's  equity
securities, its existing stockholders could be substantially diluted.

4.   New Concept; Uncertainty of Market Acceptance; Lack of Marketing Experience

     The Company  develops  technology  and products  utilizing new concepts and
designs in video imagery and  processing.  The  Company's  prospects for success
will  depend  on  its  ability  to   successfully   sell  its  products  to  key
manufacturers and distributors who may be inhibited from doing business with the
Company because of their commitment to their own technologies and products. As a
result,  demand and market acceptance for the Company's  technology and products
are subject to a high level of  uncertainty.  The Company  currently has limited
financial,  personnel and other  resources to undertake the extensive  marketing
activities  that will be necessary to market its  technology  and products  once
their  development  is  completed.  No  assurance  can be given  that any of its
potential customers will enter into any arrangements with the Company.  Further,
there is no assurance that the Company's marketing efforts will be successful.

5.   Dependence on Third-Party Design Changes

     Commercialization  of the NuWave 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.  The
Company anticipates that manufacturers wishing


                                       25

<PAGE>


to use the NuWave 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.  The Company's ability to sell and/or license
its products would be adversely  affected if designers and manufacturers fail to
make such modifications.

6.   License

     General.  In July 1995, the company  entered into the following  agreements
with Rave Engineering  Corporation  ("Rave"):  (1) Exclusive  Worldwide  License
Agreement,  dated July 21, 1995 (the "License  Agreement")  and (2)  Development
Agreement,  dated July 21, 1995 (the "Development Agreement"),  which expired on
October 1, 1998. Pursuant to the License Agreement, Rave licensed to the Company
a substantial  portion of the  technology  from which its Initial  Products were
derived. See "Summary--The Company" for a definition of Initial Products.  Under
the License Agreement, the Company is obligated to pay to Rave the following:

     o    royalties  of 2.5% of  "Licensed  Product"  (as defined in the License
          Agreement) the Company sells;

     o    royalties of 25% of any  sublicensing  fees that  sublicensees  of the
          "Licensed  Product" and "Licensed  Process" (as defined in the License
          Agreement) pay to the Company; and

     o    minimum aggregate  payments of royalties (under the License Agreement)
          and  development  fees  (under  the  Development  Agreement)  equaling
          $65,000 per month.

     If the  Company  does  not  make  the  $65,000  minimum  aggregate  payment
described   above,   Rave  has  the  option  to  make  the   License   Agreement
non-exclusive.  Commencing  October 1, 1998, the Company  stopped paying to Rave
such  minimum  amount.  This gave Rave the right to make the  License  Agreement
non-exclusive  by giving the Company notice prior to November 2, 1998.  However,
Rave failed to give such notice  within the  specified  time.  Accordingly,  the
Company believes that it still retains exclusive license rights to the "Licensed
Product" and "Licensed Process" under the License Agreement.

     Arbitration.  In July 1996,  on behalf of Rave,  the Company filed a patent
application  on a video  clarity  circuit  which Rave  provided  to it under the
License Agreement ("Rave Clarity Circuit"). Of the products and technology which
Rave provided to the Company under the License Agreement, the Company identified
the Rave Clarity Circuit as the most likely  candidate for immediate  commercial
exploitation.  Although  Rave  claimed  proprietary  rights to the Rave  Clarity
Circuit,  in  January  1998,  the  Company  received a  rejection  of its patent
application from the patent examiner's  office.  The Company modified the claims
in the application and  resubmitted  the  application  twice.  Both times it was
rejected  on the  grounds  that the Rave  Clarity  Circuit  was  identical  to a
previously  patented  circuit.  In August 1998, the Company  acquired  exclusive
rights to such previously patented circuit. As a result, the Company decided not
to  proceed  with  further  prosecution  of the patent  application  on the Rave
Clarity Circuit.

     Dissatisfied with Rave's  performance under the Development  Agreement,  in
July 1998,  representatives  of the Company  conducted a technical  audit of the
consulting and  development  services (not limited to the Rave Clarity  Circuit)
that Rave agreed to perform  under the  License  Agreement  and 


                                       26

<PAGE>


the  Development  Agreement.  On the  basis  of  such  audit  and  the  repeated
rejections of the patent applications for the Rave Clarity Circuit,  the Company
concluded that:

     o    Rave had not performed  the required  services  under the  Development
          Agreement;

     o    Rave  misled the Company  about its  ability to perform  the  services
          required under the Development Agreement; and

     o    Rave  misled the Company  about  Rave's  propriety  rights to the Rave
          Clarity Circuit.

     On November 13, 1998,  pursuant to the provisions of the License  Agreement
and the Development  Agreement,  the Company commenced an arbitration proceeding
under the American  Arbitration  Association Rules of Patent Arbitration against
Rave and Randy Burnworth. Such proceeding seeks:

     o    damages due to Rave's and  Burnworth's  breaches of their  contractual
          and common law  obligations to the Company,  including but not limited
          to those described above; and

     o    a determination  that, among other things, Rave is not entitled to any
          royalties or other  payments with respect to the Company's  technology
          and that the Company continue to have exclusive  license rights to the
          "Licensed Product" and "Licensed Process" under the License Agreement.

     There  is  no  assurance  that  the  Company  will  be  successful  in  the
Arbitration.  Further,  if  the  arbitrator  rules  that  Rave  is  entitled  to
significant royalties or other payments with respect to its technology, it could
have a material adverse effect on the Company's operations.

         Rave has filed an  amended  counterclaim  against  the  Company  in the
Arbitration,   alleging  breaches  of  the  License  Agreement  and  Development
Agreement,  trade libel,  tortious  interference  and conspiracy,  and seeking a
declaration  that Rave is  entitled to the return and  exclusive  use of its own
technology. Rave claims that it is entitled to $65,000 per month for the life of
any patents on  products it  developed  for the Company  (approximately  15 more
years), as well as damages in excess of $4 million on the various claims.    The
Company believes that Rave's claims are completely without merit; accordingly no
liability has been recorded for this claim.

7.   Uncertainty  of  Product  and  Technology  Development;  Need  for  Product
     Testing; Technological Factors

     Development  of the  Company's  products  are  subject  to all of the risks
inherent  in the  development  of new  technology  and  products  including  the
following  risks:   unanticipated  delays;   expenses;   technical  problems  or
difficulties;  and possible  insufficiency  of funding to complete  development.
There is no  assurance  as to when,  or whether,  the  Company can  successfully
complete such developments.  Further, there is no assurance that the Company can
develop products in commercially  


                                       27

<PAGE>


salable form within its projected development schedule. If the Company is unable
to complete its development  activities for its proposed products, it would have
to complete  development  through third  parties.  Management  believes that the
Company has  sufficient  resources  to  complete  development  of its  products.
However, there is no assurance that it will be able to complete such development
in a timely manner, or at all. There is also no assurance that it can enter into
economically  reasonable  arrangements  for the  completion  of such products by
third parties.

     In connection with the development of commercially salable prototypes,  the
Company must  successfully  complete a testing  program for its products  before
marketing them.  Unforeseen technical problems arising out of such testing could
significantly  and adversely  affect its ability to  manufacture a  commercially
acceptable  version.  In addition,  the  Company's  success will depend upon its
technology  and  proposed  products  meeting  acceptable  cost  and  performance
criteria and upon their timely  introduction into the marketplace.  There can be
no  assurance  that  the  Company's   technology  and  proposed   products  will
satisfactorily perform the functions for which they are designed, that they will
meet applicable price or performance objectives or that unanticipated  technical
or other  problems will not occur.  Should any such problems  arise,  the result
would be  increased  costs  and/or  material  delays in the  development  of the
proposed products.

8.   Unconditional Obligation to Share Sublicense Fees

     The Company has entered  into an Agency  Agreement  with Prime.  The Agency
Agreement provides that Prime will be the Company's exclusive agent for entering
into sublicenses for the products and technology licensed to the Company by Rave
under the License Agreement. It also provides that Prime will assist the Company
in the development and  implementation  of a sublicensing  program.  [Subject to
certain minimum sales requirements,  the Company is required to pay to Prime 35%
to 45% of net sublicense fees that it receives (together with certain additional
payments)  for (a) "Licensed  Product" and "Licensed  Process" (as defined under
the License  Agreement) and for the "Results of Developments";  (b) improvements
and  enhancements  to the "Licensed  Product" and  "Licensed  Process" that Rave
develops under the Development Agreement;  and (c) the results of its efforts in
unrelated investigations.] These payments,  together with payments of sublicense
royalties to Rave under the License Agreement,  obligate the Company to pay Rave
and  Prime  51.25%  to  58.75%  of the  sublicense  fees.  However,  instead  of
sublicensing,  if the Company sells  "Licensed  Product," it is obligated to pay
only Rave a sales royalty of 2.5% of net sales.

     The Company is required to make payments to Prime  regardless of whether or
not it enters into the relevant  sublicense  through Prime's efforts.  Since the
Company is obliged to pay Prime and Rave more than one-half of any  sublicensing
fees that it receives  for the  technology  licensed  to the  Company  under the
License Agreement or developed under the Development Agreement,  sublicensing of
such technology may become a less attractive  alternative than selling products.
In some cases,  however,  the sale of products  embodying such technology may be
more difficult than licensing such technology.

     The  Company's  obligations  to Prime could be affected by the  Arbitration
with Rave described above in "License" or by subsequent arbitration  proceedings
with Prime. See "Certain Factors That May Affect Future Results--License."


                                       28

<PAGE>


9.   Dependence on Third-Party Development and Manufacturing

     The Company does not plan to directly  manufacture any of its products.  It
intends to contract with third parties to manufacture  its proposed NUWAVE Video
Processor  and  Softsets,  and  related  retail  products.  The Company may also
license to third parties the rights to manufacture  proposed  products,  through
direct licensing, OEM arrangements or otherwise.

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

10.  Competition

     Intense  competition  exists in the  markets  that the  Company  intends to
enter. 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.  The Company's  products  will  directly  compete with those of
numerous  well-established  companies,  such as the following  companies,  which
design, manufacture and/or market video technology and other products:

     o    Sony Electronics, Inc.
     o    Panasonic Division of Matsushita Electric Industrial Co.
     o    Motorola, Inc.
     o    Mitsubishi International Corp.
     o    Phillips Electronics, NV

     All of the above companies have substantially greater financial, technical,
personnel and other resources than the Company.  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.

11.  Rapid Changes to Industry Standards; Product Obsolescence

     Rapid changes  characterize  the markets for the Company's  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 that may be functionally  similar, or 


                                       29

<PAGE>


superior,  to some or all of the Company's proposed  products.  As a result, the
Company's ability to compete will depend on its ability to, among other things:

     o    complete  development and introduce to the marketplace in a timely and
          cost-competitive manner its proposed products and technology;

     o    continually enhance and improve its proposed products and technology;

     o    adapt its proposed  products to be compatible  with specific  products
          manufactured by others; and

     o    successfully develop and market new products and technology.

     There is no assurance that the Company will be able to compete successfully
or that its  competitors  will not develop  technologies or products that render
the Company's  products and  technology  obsolete or less  marketable.  Further,
there is no assurance that the Company will be able to successfully  enhance its
proposed products or technology or adapt them satisfactorily.

12.  Enforceability of Patents and Similar Rights;  Possible Issuance of Patents
     to Competitors; Trade Secrets

     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.

     Under the License  Agreement,  the Company has exclusive  license rights to
all patents and  copyrights  obtained or to be  obtained  for the  products  and
technology  licensed under the License Agreement.  For a discussion  relating to
the License Agreement and the exclusivity  provisions  thereunder,  see "Certain
Factors That May Affect  Future  Results--License."  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.

     In 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.  Although  management believes that each of these applications
contains patentable claims,  there is no assurance that the Company will receive
any patents.  Also, even if granted,  there is no assurance that any patent will
afford the Company with commercially significant protection of its technology or
that it will have adequate resources to enforce these patents.

     The company also intends to license and/or sell its technology and products
in foreign markets.  As such, it intends to seek foreign patent protection.  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 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,  and  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 


                                       30

<PAGE>


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.  In addition,  because the Company is a relatively  new company in
the  development  stage,  claims that its products  infringe on the  proprietary
rights of others are more likely to be asserted after commencement of commercial
sales of 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.

13.  No Dividends

     The Company has not paid any cash  dividends to date.  Payment of dividends
on the Company's Common Stock is within the discretion of the Board of Directors
and will depend upon the Company's earnings,  capital requirements and financial
condition,  and other relevant  factors.  The Company does not intend to declare
any dividends on its Common Stock in the foreseeable  future.  Instead, it plans
to retain any earnings it receives for development of its business operations.

14.  Limitation on Tax Loss Carryforwards

     As of December 31, 1998,  the Company had  available  unused net  operating
loss  carryforwards  ("NOLs")  aggregating  approximately  $8,778,000  to offset
future  taxable  income.  The unused NOLs  expire in various  years from 2010 to
2018.  Under  Section 382 of the Internal  Revenue Code of 1986, as amended (the
"Code"),  utilization  of prior NOLs is limited after an ownership  change.  The
company may be subject to  limitations  on the use of its NOLs as provided under
Section 382. Accordingly, there can be no assurance that a significant amount of
the  existing  NOLs will be  available  to use.  In the event  that the  Company
achieves profitability,  as to which there can be no assurance,  such limitation
would have the effect of  increasing  its tax  liability  and  reducing  its net
income and available cash resources in the future.

15.  Limitation on Liability of Directors and Officers

     The Company's Certificate of Incorporation  provides that: it indemnify any
of its  directors,  officers,  employees  or agents  against  actions,  suits or
proceedings  relating  to the  Company;  and subject to certain  limitations,  a
director shall not be personally  liable for monetary  damages for breach of his
fiduciary  duty.  In addition,  the Company has entered into an  indemnification
agreement with each of its directors.  Such  indemnification  agreement provides
that a director is entitled to  indemnification  to the fullest extent permitted
by law.


                                       31

<PAGE>


16.  Reliance Upon Key Personnel

     The Company's  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 the Company,  its business and  financial  condition  could be  materially
adversely affected.

17.  General

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

ITEM 7.   FINANCIAL STATEMENTS

     The information required by this item is incorporated by reference to pages
F-1 through F-19 of this Annual Report on Form 10-KSB.


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

Dismissal of Independent Accounting Firm

     Coopers & Lybrand L.L.P. ("Coopers"), the independent accounting firm which
audited the financial  statements of the registrant during fiscal year 1996, was
dismissed by the Company on February 11, 1998. Coopers' reports on the Company's
financial statements for the past two years did not contain any adverse opinions
or  disclaimers  of opinion,  and neither report was qualified or modified as to
uncertainty,  audit  scope,  or  accounting  principles.  The decision to change
accountants was approved by the Board of Directors of the Company at the Meeting
of the Board of  Directors  of the  Company  on  February  4,  1998.  During the
Company's  two most  recent  fiscal  years  and any  subsequent  interim  period
preceding such dismissal, there were no disagreements with Coopers on any matter
of accounting  principles  or  practices,  financial  statement  disclosure,  or
auditing  scope  or  procedure,  which  disagreements,  if not  resolved  to the
satisfaction  of Coopers,  would have caused it to make reference to the subject
matter of the disagreements in connection with its report.

Engagement of New Independent Accountants

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

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


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<PAGE>


                                    PART III

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

     Set forth  below are the  names,  ages as of March  17,  1999 and  business
experience of the directors and executive officers of the Company:

      Name                Age                               Position
      ----                ---                               --------
Gerald Zarin              58          Chairman of the Board of Directors,
                                          Chief Executive Officer and President
Ed Bohn                   53          Director
Lyle E. Gramley           72          Director
Joseph A. Sarubbi         70          Director
Don Legato                55          Vice President-Sales
Jeremiah F. O'Brien       52          Vice President, Secretary and Chief
                                          Financial Officer
Robert Webb               63          Vice President - Marketing/Technical
                                          Development

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

     ED BOHN, has been a director of the Company since July 1995.  From February
1995  to the  present,  he has  been  a  Director  and  Consultant  of  Jennifer
Convertibles,  a furniture  distributor.  From September 1994 to the present, he
has operated as an independent  consultant in financial and operational matters.
From January 1983 to March 1994, Mr. Bohn was employed in various  capacities by
Emerson  Radio  Corporation,   which  designs  and  sells  consumer  electronics
products.  From March 1993 to March 1994,  he was Senior Vice  President-Special
Projects;  from March 1991 to March  1993,  he was Chief  Financial  Officer and
Treasurer/Vice  President of Finance.  Emerson  Radio filed in the United States
Bankruptcy Court, District of New Jersey, for protection under Chapter 11 of the
Federal  Bankruptcy  Act on September  29, 1993 and was  discharged on March 31,
1994.

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


                                       33

<PAGE>


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

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

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

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

ITEM 10.  EXECUTIVE COMPENSATION


                       COMPENSATION OF EXECUTIVE OFFICERS

     The following table sets forth the annual and long-term  compensation  paid
by the  Company  for  services  performed  on the  Company's  behalf  since  the
Company's  inception in July 1995  through  December 31, 1995 and for the fiscal
years ended December 31, 1996,  1997 and 1998, with respect to those persons who
were, as of December 31, 1998,  the Company's  Chief  Executive  Officer and the
Company's executive officers (the "Named Executive Officers").


                                       34

<PAGE>


                           SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>
                                                                                             Long Term
                                              Annual Compensation                       Compensation Awards
                                              -------------------                       -------------------
---------------------------------------------------------------------------------------------------------------
                                                                                   Securities
                                                                                   Underlying
                                                                                    Options
                                                                  Other Annual     (Number of       All Other
Name and Principal Position    Year       Salary        Bonus     Compensation       Shares)       Compensation
---------------------------------------------------------------------------------------------------------------

<S>                            <C>       <C>           <C>             <C>                <C>           <C>
Gerald Zarin, President and    1996      $115,700      $50,000         0                  0             0
  Chief Executive Officer      1997      $120,000            0         0                  0             0
                               1998      $120,000      $25,000         0            385,000             0
---------------------------------------------------------------------------------------------------------------

Don Legato,                    1997      $129,800            0         0             60,000             0
  Vice President-Sales         1998      $150,000      $12,500         0             50,000             0
---------------------------------------------------------------------------------------------------------------

Jeremiah F. O'Brien, Chief     1996      $ 93,100       $7,500         0              5,000             0
  Financial Officer, Vice      1997      $100,000            0         0                  0             0
  President and Secretary      1998      $103,800      $15,000         0             75,000             0
---------------------------------------------------------------------------------------------------------------

Robert Webb, Vice              1996      $ 99,900      $17,500         0                  0             0
  President-Marketing/         1997      $108,000            0         0                  0             0
  Technical Development        1998      $108,000      $12,500         0             40,000             0
---------------------------------------------------------------------------------------------------------------
</TABLE>


                                       35

<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 1998.

                 OPTION GRANTS FOR YEAR ENDED DECEMBER 31, 1998

                       (Individual Grants in Fiscal Year)

<TABLE>
<CAPTION>
                          Number of          Percent of
                         Securities         Total Options
                         Underlying          Granted to         Exercise Price
        Name               Options            Employees          Per Share (1)       Expiration Date
----------------------------------------------------------------------------------------------------
<S>                        <C>                  <C>                   <C>                  <C> <C> 
Gerald Zarin               128,334              19.7                  3.25             May 25, 2003
                           128,333              19.7                  3.25             May 25, 2004
                           128,333              19.7                  3.25             May 25, 2005
Don Legato                  16,667               2.6                  3.25             May 25, 2003
                            16,667               2.6                  3.25             May 25, 2004
                            16,666               2.6                  3.25             May 25, 2005
Jeremiah F. O'Brien         25,000               3.8                  3.25             May 25, 2003
                            25,000               3.8                  3.25             May 25, 2004
                            25,000               3.8                  3.25             May 25, 2005
Robert Webb                 13,334               2.0                  3.25             May 25, 2003
                            13,333               2.0                  3.25             May 25, 2004
                            13,333               2.0                  3.25             May 25, 2005
----------------------------------------------------------------------------------------------------
TOTAL                      550,000              84.2%
----------------------------------------------------------------------------------------------------
</TABLE>

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

AGGREGATED OPTION EXERCISES

     No options were exercised in fiscal year 1998 by any of the Named Executive
Officers. The following table sets forth, as of December 31, 1998, the number of
stock  options  and the value of  unexercised  stock  options  held by the Named
Executive Officers.


                                       36

<PAGE>


           Aggregated Option Exercises in Year Ended December 31, 1998
                           and Year-End Option Values

<TABLE>
<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                        328,334         256,666                      $299,000           $0
Robert Webb                          83,334         26,666                        105,000            0
Don Legato                           76,667         33,333                              0            0
Jeremiah F. O'Brien                  55,000         50,000                         42,000            0
------------------------------------------------------------------------------------------------------------
TOTAL:                              548,335         366,665                      $446,000           $0
------------------------------------------------------------------------------------------------------------
</TABLE>

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

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, 1998,  each of Messrs.  Bohn,
Gramley and Sarubbi received compensation of $2,500 and $1,500 for attendance at
three  non-telephonic board meetings and David Kwong (who resigned as a director
in August 1998) received compensation of $2,500 and $1,000 for attendance at two
non-telephonic board meetings.  For the fiscal year ended December 31, 1998, the
following stock options were granted to the Company's directors:  53,000 options
to Mr. Bohn and 25,000  options to each of Messrs.  Gramley,  Kwong and Sarubbi.
The stock options  granted to the directors  during 1998 expire as follows:  one
third (42,666  options) on May 29, 2002;  one third (42,666  options) on May 29,
2003; and the remaining 42,668 options on May 29, 2004.

Employment Agreements

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


                                       37

<PAGE>


rendered  in  establishing  the  Company  and  creating  its  business  plan and
projections,  Mr. Zarin received  450,000  shares of the Company's  Common Stock
valued at $.01 per share.

     Mr. Webb entered into an employment agreement with the Company, dated as of
September   11,   1995,   pursuant  to  which  Mr.  Webb  was   appointed   Vice
President-Marketing of the Company. In March 1997, his title was changed to Vice
President-Marketing/Technical  Development in order to more  accurately  reflect
his  duties.  The  employment  agreement  continued  until  March  31,  1996 and
thereafter  has been  continuing  for  successive  3-month  periods.  Mr. Webb's
initial salary was $5,000 per month and was increased to $108,000 per year as of
August 14, 1996. In connection with his employment agreement,  Mr. Webb received
options to purchase  70,000  shares of the  Company's  Common Stock at $1.50 per
share.  These stock options  expire as follows:  30,000 options on September 11,
2000;  20,000 options on September 11, 2001; and the remaining 20,000 options on
September 11, 2002.

     Mr. Legato entered into an employment agreement with the Company,  dated as
of  February  11,  1997,  pursuant  to  which  Mr.  Legato  was  appointed  Vice
President-Sales of the Company.  The employment agreement continued until August
1997 and thereafter has been  continuing for  successive  3-month  periods.  Mr.
Legato's  initial  salary was $150,000 per year and has not been  increased.  In
connection  with his  employment  agreement,  Mr.  Legato  received  options  to
purchase 60,000 shares of the Company's Common Stock at $6.875 per share.  These
stock  options  expire as follows:  5,000  options on February 10,  2002;  5,000
options on June 10, 2002; 20,000 options on February 10, 2003; and the remaining
30,000 options on February 10, 2004.

     In connection with services performed by Mr. O'Brien,  on July 17, 1995, he
received 5,000 shares of the Company's Common Stock valued at $.01 per share and
has been granted options to purchase 25,000 shares of the Company's Common Stock
at $1.50 per share and 5,000 shares of the  Company's  Common Stock at $2.00 per
share.  The stock options  expire as follows:  10,714  options on July 17, 2000;
7,143  options on July 17, 2001;  and the  remaining  7,143  options on July 17,
12002.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT

     The table below is based on  information  obtained  from the persons  named
below with respect to the shares of Common Stock beneficially owned, as of March
12, 1999 (except as noted below),  by (i) each person known by the Company to be
the owner of more than 5% of the outstanding  shares of Common Stock,  (ii) each
director and nominee for director,  (iii) each executive officer included in the
Summary  Compensation Table and (iv) all executive officers and directors of the
Company as a group.


                                       38

<PAGE>


<TABLE>
<CAPTION>
                                                                                PERCENTAGE OF
NAME AND ADDRESS OF                            AMOUNT AND NATURE OF              OUTSTANDING
BENEFICIAL OWNER                             BENEFICIAL OWNERSHIP (1)          SHARES OWNED (2)
-------------------                          ------------------------          ----------------

<S>                                                  <C>                             <C> 
Gerald Zarin                                         781,334                         9.0%
       36 Troy Drive
       Short Hills, NJ 07078 (3)
Edward Bohn                                           46,833                            *
       322 Broadway
       Pompton Lakes, NJ 07442 (4)
Lyle Gramley                                          33,334                            *
       12901 Three Sisters Road
       Potomac, MD 20854 (5)
Joseph A. Sarubbi                                     48,334                            *
       3221 S. Ocean Blvd., Suite 908
       Highland Beach, FL 33487 (5)
Don Legato                                            76,667                            *
       2 West Close Street
       Moorestown, NJ 08057 (6)
Jeremiah F. O'Brien                                   62,500                            *
       Netherland Avenue Apt. D-61
       Riverdale, NY 10471 (7)
Robert Webb                                           83,334                            *
       298 Stanton Mountain Rd.
       Lebanon, NJ 08833 (8)
Helen Burgess                                        577,854                         6.9%
       40 E. 30th St., 10th Fl.
       New York, NY 10016
David Kwong                                          459,718                         5.5%
       13694 Fremont Pines Road
       Los Altos, CA 94022 (5) (9) (10)
Bruce Meyers                                       1,335,013                        15.1%
       17 State Street
       New York, NY 10004 (11) (12) (13)
Peter Janssen                                      1,132,311                        12.9%
       17 State Street
       New York, NY 10004 (14) (15) (16)
Janssen-Meyers Associates, L.P.                      562,042                         6.3%
       17 State Street
       New York, NY 10004 (17)
All executive officers and directors as            1,132,336                        12.6%
   a group (7 persons) (18)
</TABLE>
-----------------------------------------
* Less than 1%.

(1)  The number of shares of Common Stock  beneficially  owned by each person is
     determined  in  accordance  with  the  rules  of the  Commission,  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  


                                       39

<PAGE>


     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 December 31, 1998 through the exercise of any stock option or
     other  right.  The  inclusion  herein of any shares of Common  Stock deemed
     beneficially owned does not constitute an admission of beneficial ownership
     of those shares. Unless otherwise indicated, the persons named in the table
     have sole voting and investment  power with respect to all shares of Common
     Stock shown as beneficially owned by them.
(2)  The number of shares deemed  outstanding  includes shares outstanding as of
     December 31, 1998 plus any shares  subject to options and warrants  held by
     the person in question that are currently  exercisable within 60 days after
     December 31, 1998.
(3)  Includes  328,334 shares that may be acquired within 60 days after December
     31, 1998, upon the exercise of outstanding options.
(4)  Includes  41,833 shares that may be acquired  within 60 days after December
     31, 1998, upon the exercise of outstanding options.
(5)  Includes  13,334 shares that may be acquired  within 60 days after December
     31, 1998, upon the exercise of outstanding options.
(6)  Includes  76,667 shares that may be acquired  within 60 days after December
     31, 1998, upon the exercise of outstanding options.
(7)  Includes  55,000 shares that may be acquired  within 60 days after December
     31, 1998,  upon the exercise of  outstanding  options.  Also includes 2,500
     shares that may be acquired  within 60 days after  December 31, 1998,  upon
     the exercise of  outstanding  warrants  held by Mr.  O'Brien's  wife. As to
     these 2,500 shares, Mr. O'Brien disclaims beneficial interest.
(8)  Includes  83,334 shares that may be acquired  within 60 days after December
     31, 1998, upon the exercise of outstanding options.
(9)  David Kwong, a former director of the Company,  owns approximately 21.6% of
     Prime's  stock.  Mr.  Kwong is a director  of Prime.  Mr.  Kwong  disclaims
     beneficial interest in the Company's Common Stock owned by Prime.
(10) Includes 231,117 shares of the Company's Common Stock owned by Prime, as to
     which Mr. Kwong disclaims beneficial interest. See footnote 9 above.
(11) Includes  (i)  202,703  shares  that may be  acquired  within 60 days after
     December 31, 1998, upon the exercise of Class A Redeemable  Warrants,  (ii)
     171,  427 shares that may be  acquired  within 60 days after  December  31,
     1998,  upon the exercise of Unit Warrants and (iii) 128,571 shares that may
     be acquired  within 60 days after  December 31, 1998,  upon the exercise of
     the Class A Redeemable Warrants which underlie the Unit Warrants.
(12) Bruce   Meyers  is  a  principal   of   Janssen-Meyers   Associates,   L.P.
     ("Janssen-Meyers").   Mr.  Meyers  disclaims  beneficial  interest  in  the
     Company's Common Stock beneficially owned by Janssen-Meyers.
(13) Includes 562,042 shares of the Company's Common Stock beneficially owned by
     Janssen-Meyers,  as to which Mr. Meyers disclaims beneficial interest.  See
     footnote (12) above and footnote (17) below.
(14) Includes  (i)  115,831  shares  that may be  acquired  within 60 days after
     December 31, 1998, upon the exercise of Class A Redeemable  Warrants,  (ii)
     171,  427 shares that may be  acquired  within 60 days after  December  31,
     1998,  upon the exercise of Unit Warrants and (iii) 128,571 shares that may
     be acquired  within 60 days after  December 31, 1998,  upon the exercise of
     the Class A Redeemable Warrants which underlie the Unit Warrants.
(15) Peter  Janssen is a principal  of  Janssen-Meyers.  Mr.  Janssen  disclaims
     beneficial  interest in the Company's  Common Stock  beneficially  owned by
     Janssen-Meyers.
(16) Includes 562,042 shares of the Company's Common Stock beneficially owned by
     Janssen-Meyers,  as to which Mr. Janssen disclaims beneficial interest. See
     footnote (15) above and footnote (17) below.
(17) Includes  (i)  321,165  shares  that may be  acquired  within 60 days after
     December  31,  1998,  upon the  exercise of Unit  Warrants and (ii) 240,877
     shares that may be acquired  within 60 days after  December 31, 1998,  upon
     the exercise of the Class A  Redeemable  Warrants  which  underlie the Unit
     Warrants.
(18) See footnotes (1) through (8) above.


                                       40

<PAGE>


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

General

     For a  description  of the formation of the Company and  transactions  with
"Promoters" of the Company within the meaning of the regulations  promulgated by
the  Commission   pursuant  to  the  provisions  of  the  Securities   Act,  see
"Business--History."

     The Company  entered into a consulting  agreement with Corporate  Builders,
L.P.  ("Corporate  Builders")  effective  as of August  1, 1995 (the  "Corporate
Builders Agreement"). Mr. Chu (who served as the Chairman of the Company's Board
of Directors and its Chief  Financial  Officer from its inception  until January
28, 1996) is a principal of Corporate Builders. The Corporate Builders Agreement
provides,  among other things,  that Corporate Builders will serve as an advisor
to the Company with regard to its  relationship  with the investment  community,
assist  the  Company  in  developing  a  corporate  strategy  and  business  and
management goals, assist in the preparation of media presentations,  and oversee
the  production  of video  production  relating to the  Company's  products  and
services.  The Corporate Builders Agreement  continued until June 30, 1998. From
August 1, 1995 to July 1996,  the Company  paid to  Corporate  Builders a fee of
$7,500 per month and  thereafter  has been paying a fee of $5,000 per month.  In
connection  with services  rendered by Mr. Chu in  establishing  the Company and
creating its business plan and projections, at the direction of Mr. Chu, in July
1995, the Company issued 450,000 shares of the Company's  Common Stock valued at
$.01 per share earned by Mr. Chu to First Earth Investors,  Corporate  Builders,
and W2 Technologies,  Inc., all entities affiliated with Mr. Chu, in the amounts
of 250,000 shares,  125,000 shares and 75,000 shares,  respectively.  As of June
19, 1996, Corporate Builders returned its 125,000 shares of the Company's Common
Stock back to Mr. Chu. As of June 28, 1996,  the 125,000 shares of the Company's
Common Stock  received by Mr. Chu from  Corporate  Builders were returned to the
Company.  The 125,000 shares of the Company's  Common Stock were returned to Mr.
Chu and,  subsequently,  to the  Company  to  prevent  such  shares  from  being
considered underwriting compensation to either Corporate Builders or Mr. Chu.

     The  total  consulting  fees paid to  Corporate  Builders  pursuant  to the
Corporate  Builders  Agreement  for the  cumulative  period  from the  Company's
inception  (July 17, 1995) to December 31, 1998 was $205,000 plus  out-of-pocket
expenses.  The  total  aggregate  payments  made to Mr.  Chu and his  affiliated
entities for the cumulative  period from  inception  (July 17, 1995) to December
31, 1998 was $294,998.

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

     Since 1996, Mr. 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.  For the year ended  December 31, 1996,  Mr. Bohn received
$14,250 on account of such consulting services.  In March 1997, Mr. Bohn entered
into a consulting  agreement with the Company pursuant to which he agreed to act
as the Company's  consultant with regard to certain agreements for a three-month
period at a rate of  $1,000  per day with a  minimum  of  $1,750  per week and a
maximum of $2,750 per week  regardless of the actual time spent on the Company's
behalf.  For the year ended  December 31,  1997,  


                                       41

<PAGE>


Mr. Bohn  received  $56,750 on account of such  consulting  services and for the
year ended  December  31,  1998,  Mr. Bohn  received  $35,025 on account of such
consulting services.  In addition, on May 29, 1997, Mr. Bohn was granted options
to purchase  12,500 shares of Common Stock at an exercise price of $6.75 for his
services as a consultant.

     Since 1996,  Mr.  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 year ended  December  31,  1996,  Mr.
Sarubbi  received  $6,000 on account of such consulting  services.  For the year
ended  December  31,  1998,  Mr.  Sarubbi  received  $20,000  on account of such
consulting services.

     In July and August  1995,  Ms. Helen  Burgess,  a 6.9%  stockholder  of the
Company,  purchased 437,854 shares of the Company's Series A Preferred stock for
$1.50 per share in a private placement,  which shares were converted into Common
Stock on a  one-for-one  basis at the time of the Company's IPO in July 1996. In
December 1995, Ms. Burgess purchased certain  promissory notes of the Company in
the principal  amount of $350,000 and 70,000  shares of Common  Stock.  In March
1996,  when the Company  concluded a private  placement  of an  aggregate of (i)
$2,000,000 senior subordinated  non-negotiable  promissory notes  (collectively,
the  "Bridge  Notes")  bearing  interest  at the rate of 6% per  annum  and (ii)
400,000  shares of Common  Stock (the  "Bridge  Shares")  to certain  accredited
investors,  Ms. Burgess  exchanged her promissory  notes for Bridge Notes in the
principal amount of $350,000 and 70,000  additional  shares of Common Stock. The
Bridge Notes were repaid from the proceeds of the Company's  IPO. Ms. Burgess is
a limited partner of Corporate Builders.

     On March 27,  1996,  Mr.  David  Kwong,  a former  director of the Company,
purchased  $150,000  principal  amount of Bridge Notes and 30,000 Bridge Shares.
The Bridge  Notes were repaid from the  proceeds of the  Company's  IPO. For the
year ended December 31, 1998, Mr. Kwong received $47,500 for consulting services
relating to the opening and administration of a sales office in China.

     On May 11, 1998, the Company entered into a placement agency agreement with
Janssen-Meyers  whereby  Janssen-Meyers agreed to act as the Company's placement
agent in a private  equity  placement of the Company's  Common Stock and Class A
Redeemable  Warrants.  See  "Management's  Discussion  and  Analysis  or Plan of
Operation--Liquidity and Capital Resources."

     Bruce Meyers and Peter Janssen,  who respectively  purchased 270,270 shares
and  154,440  shares of  Common  Stock of the  Company  in such  private  equity
placement, are principals of Janssen-Meyers.


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  EXHIBITS

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

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


                                       42

<PAGE>


3.2*      Certificate of Amendment to Articles of  Incorporation  of the Company
          (Delaware) (See Exhibit 3.1(b) to Registration  Statement on Form SB-2
          filed with the Commission on April 2, 1996).
3.3*      Certificate   of  Authority   (New  Jersey)  (See  Exhibit  3.1(c)  to
          Registration Statement on Form SB-2 filed with the Commission on April
          2, 1996).
3.4*      Amended  Certificate  of Authority (New Jersey) (See Exhibit 3.1(d) to
          Registration Statement on Form SB-2 filed with the Commission on April
          2, 1996).
3.5*      Certificate of Amendment to Articles of  Incorporation  of the Company
          (Delaware) (See Exhibit 3.1(e) to Registration  Statement on Form SB-2
          filed with the Commission on April 2, 1996).
3.6*      By-Laws of the Company (See Exhibit 3.2 to  Registration  Statement on
          Form SB-2 filed with the Commission on April 2, 1996).
4.1*      Form of Common Stock  Certificate  (See Exhibit 4.1 to Amendment No. 2
          to  Registration  Statement on Form SB-2 filed with the  Commission on
          July 3, 1996).
4.2*      Form of Public Warrant Agreement  between the Company,  American Stock
          Transfer & Trust  Company and Rickel &  Associates,  Inc. (See Exhibit
          4.2 to Amendment  No. 1 to  Registration  Statement on Form SB-2 filed
          with the Commission on May 22, 1996).
4.3*      Form of Public Warrant Certificate (See Exhibit 4.3 to Amendment No. 2
          to  Registration  Statement on Form SB-2 filed with the  Commission on
          July 3, 1996).
4.4*      Form   of   Underwriter's   Warrant   Agreement   (including   Warrant
          Certificate)  between the Company and Rickel & Associates (See Exhibit
          4.4 to Amendment  No. 1 to  Registration  Statement on Form SB-2 filed
          with the Commission on May 22, 1996).
4.5*      Selected Dealer Agreement among Rickel & Associates,  Inc. and certain
          underwriters  (See  Exhibit  4.5 to  Amendment  No. 2 to  Registration
          Statement on Form SB-2 filed with the Commission on July 3, 1996).
5.1*      Opinion of counsel  to the  Company  concerning  the  legality  of the
          securities  offered in the  Company's  Initial  Public  Offering  (See
          Exhibit 5.1 to Amendment No. 2 to Registration  Statement on Form SB-2
          filed with the Commission on July 3, 1996).
5.2*      Opinion of Greenberg Taurig Hoffman Lipoff Rosen & Quentel,  P.A. (See
          Exhibit  5.1 to  Registration  Statement  on Form S-8  filed  with the
          Commission on November 12, 1997).
5.3*      Opinion of counsel  to the  Company  concerning  the  legality  of the
          securities  being offered (See Exhibit 5 to Registration  Statement on
          Form S-3 filed with the Commission on March 8, 1998).
10.1*     Restated  Employment  Agreement  dated  as of July  20,  1995  between
          NUWAVE  Engineering,  Inc.  and  Gerald  Zarin  (See  Exhibit  10.1 to
          Registration Statement on Form SB-2 filed with the Commission on April
          2, 1996).
10.2*     Employment  Agreement  dated as of September  11, 1995 between  NUWAVE
          Engineering, Inc. and Robert I. Webb (See Exhibit 10.2 to Registration
          Statement on Form SB-2 filed with the Commission on April 2, 1996).


                                       43

<PAGE>


10.3*     Consulting  Agreement  dated  as  of  July  18,  1995  between  NUWAVE
          Engineering,  Inc. and Corporate  Builders,  L.P. (See Exhibit 10.3 to
          Registration Statement on Form SB-2 filed with the Commission on April
          2, 1996).
10.4*     Letter  Agreement  dated  as  of  November  22,  1995  between  NUWAVE
          Technologies,  Inc. and Rickel & Associates, Inc. (See Exhibit 10.5 to
          Registration Statement on Form SB-2 filed with the Commission on April
          2, 1996).
10.5*     1996  Performance  Incentive  Plan (See Exhibit  10.6 to  Registration
          Statement on Form SB-2 filed with the Commission on April 2, 1996).
10.6*     Exclusive  Worldwide  License  Agreement  dated  as of July  21,  1995
          between NUWAVE Engineering, Inc. and Rave Engineering Corporation (See
          Exhibit  10.7 to  Registration  Statement  on Form SB-2 filed with the
          Commission on April 2, 1996).
10.7*     Development  Agreement  dated  as of  July  21,  1995  between  NUWAVE
          Engineering,  Inc. and Rave Engineering  Corporation (See Exhibit 10.8
          to  Registration  Statement on Form SB-2 filed with the  Commission on
          April 2, 1996).
10.8*     Exclusive  Agency  Agreement  dated as of July 21, 1995 between NUWAVE
          Engineering,  Inc.  and Prime  Technology,  Inc.  (See Exhibit 10.9 to
          Registration Statement on Form SB-2 filed with the Commission on April
          2, 1996).
10.9*     Assignment  dated  as of July 21,  1995  between  NUWAVE  Engineering,
          Inc., Prime  Technology,  Inc. and Rave  Engineering  Corporation (See
          Exhibit  10.10 to  Registration  Statement on Form SB-2 filed with the
          Commission on April 2, 1996).
10.10*    Shareholders' Agreement dated as of July 21, 1995 (See Exhibit 10.11
          to  Registration  Statement on Form SB-2 filed with the  Commission on
          April 2, 1996).
10.11*    Finder's  Agreement  dated as of  September  1, 1995  among  NUWAVE
          Technologies,  Inc., Prime Technology,  Inc. and Harvest Technologies,
          Inc. (See Exhibit 10.12 to  Registration  Statement on Form SB-2 filed
          with the Commission on April 2, 1996).
10.12*    Finder's  Agreement  dated as of  January  16,  1996  among  NUWAVE
          Engineering,  Inc., Prime  Technology,  Inc. and Jay Vahl (See Exhibit
          10.13 to Registration Statement on Form SB-2 filed with the Commission
          on April 2, 1996).
10.13*    Option  Agreement  for the Purchase of Common Stock dated as of July
          17, 1995 between NUWAVE Engineering, Inc. and Jeremiah F. O'Brien (See
          Exhibit  10.14 to  Registration  Statement on Form SB-2 filed with the
          Commission on April 2, 1996).
10.14*    Option  Agreement  for the  Purchase  of  Common  Stock  dated as of
          September 11, 1995 between NUWAVE Engineering, Inc. and Robert I. Webb
          (See Exhibit 10.15 to  Registration  Statement on Form SB-2 filed with
          the Commission on April 2, 1996).
10.15*    Option  Agreement  for the  Purchase  of  Common  Stock  dated as of
          November 9, 1995 between NUWAVE Engineering,  Inc. and Lyle E. Gramley
          (See Exhibit 10.16 to  Registration  Statement on Form SB-2 filed with
          the Commission on April 2, 1996).


                                       44

<PAGE>


10.16*    Option  Agreement  for Purchase of Common Stock dated as of March 1,
          1996 between  NUWAVE  Technologies,  Inc. and Jeremiah F. O'Brien (See
          Exhibit  10.17 to  Registration  Statement on Form SB-2 filed with the
          Commission on April 2, 1996).
10.17*    Option  Agreement  for Purchase of Common Stock dated as of July 20,
          1995 between NUWAVE  Technologies,  Inc. and Gerald Zarin (See Exhibit
          10.18 to Registration Statement on Form SB-2 filed with the Commission
          on April 2, 1996).
10.18*    Option  Agreement  for Purchase of Common Stock dated as of March 1,
          1996  between  NUWAVE  Technologies,  Inc.  and Joseph A. Sarubbi (See
          Exhibit  10.19 to  Registration  Statement on Form SB-2 filed with the
          Commission on April 2, 1996).
10.19*    Option  Agreement  for Purchase of Common Stock dated as of March 1,
          1996 between NUWAVE Technologies,  Inc. and Ed Bohn (See Exhibit 10.20
          to  Registration  Statement on Form SB-2 filed with the  Commission on
          April 2, 1996).
10.20*    Shareholder's  Agreement  dated as of July 17, 1995 between  NUWAVE
          Engineering,  Inc. and its Common  Stockholders  (See Exhibit 10.21 to
          Registration Statement on Form SB-2 filed with the Commission on April
          2, 1996).
10.21*    Form of Subscription Agreement between NUWAVE Engineering,  Inc. and
          its Series A Preferred  Stockholders  through August 1995 (See Exhibit
          10.22 to Registration Statement on Form SB-2 filed with the Commission
          on April 2, 1996).
10.22*    Loan and Stock  Purchase  Agreement  dated as of  December  15, 1995
          between NUWAVE Engineering,  Inc. and Helen Burgess (See Exhibit 10.23
          to  Registration  Statement on Form SB-2 filed with the  Commission on
          April 2, 1996).
10.23*    Form  of  Indemnification  Agreement  between  the  Company  and its
          directors,  dated  as of  January  31,  1996  (See  Exhibit  10.24  to
          Registration Statement on Form SB-2 filed with the Commission on April
          2, 1996).
10.24*    Form of Note entered into between the Company and the Initial Bridge
          Investor  relating to the Initial Bridge  Financing (See Exhibit 10.25
          to  Registration  Statement on Form SB-2 filed with the  Commission on
          April 2, 1996).
10.25*    Form of 10%  Promissory  Note delivered by the Company in connection
          with  the  private  placement  of 80  Units  (the  "Private  Placement
          Bridge"),  each unit  consisting  of an unsecured  10%  non-negotiable
          promissory  note in the amount of $25,000  and 5,000  shares of Common
          Stock of the Company,  during  February and March of 1996 (See Exhibit
          10.26 to Registration Statement on Form SB-2 filed with the Commission
          on April 2, 1996).
10.26*    Form  of  Securities  Registration  Rights  Agreement  entered  into
          between the Company and the  purchasers of Common Stock in the Private
          Placement  (See Exhibit 10.27 to  Registration  Statement on Form SB-2
          filed with the Commission on April 2, 1996).
10.27*    Form of Registration  Rights Agreement  entered into between Company
          and the purchasers of its Series A Preferred  Stock (See Exhibit 10.28
          to  Registration  Statement on Form SB-2 filed with the  Commission on
          April 2, 1996).


                                       45

<PAGE>


10.28*    Form of Lock-up  letter  between the Company and certain  holders of
          its Common Stock (See Exhibit 10.29 to Registration  Statement on Form
          SB-2 filed with the Commission on April 2, 1996).
10.29*    Lease  Letter  Agreement  between the  Company  and Simon,  Sarver &
          Rosenberg  dated  July 28,  1995 (See  Exhibit  10.30 to  Registration
          Statement on Form SB-2 filed with the Commission on April 2, 1996).
10.30*    Guaranty  executed  by  the  Company  as of  October  13,  1995  in
          connection with Standard  Industrial Net Lease between Collins Tech RB
          and  Rave  Engineering,   Inc.  (See  Exhibit  10.31  to  Registration
          Statement on Form SB-2 filed with the Commission on April 2, 1996).
10.31*    Amendment to  Employment  Agreement  dated as of September  11, 1995
          between NUWAVE Engineering, Inc. and Robert I. Webb dated June 3, 1996
          (See Exhibit  10.32 to Amendment  No. 2 to  Registration  Statement on
          Form SB-2 filed with the Commission on July 3, 1996).
10.32*    Financial  Consulting  Agreement between Prime Technology,  Inc. and
          Ernest Chu dated  January 15, 1995 (See Exhibit 10.33 to Amendment No.
          2 to Registration  Statement on Form SB-2 filed with the Commission on
          July 3, 1996).
10.33*    Letter Agreement concerning the Gaming Technology among the Company,
          Rave Engineering Corp. and Prime Technology, Inc. dated March 24, 1997
          (See Exhibit 10.34 to Annual Report filed with the Commission on April
          30, 1997).
10.34*    Non-Employee Director Stock Option Plan (See Exhibit 10.1 to Current
          Report on Form 8-K filed with the Commission on June 6, 1997).
10.35*    Form  of  Incentive  Stock  Option  Agreement  (See  Exhibit  4.3 to
          Registration  Statement  on Form  S-8  filed  with the  Commission  on
          November 12, 1997).
10.36*    Form of  Non-Employee  Director Stock Option  Agreement (See Exhibit
          4.4 to Registration Statement on Form S-8 filed with the Commission on
          November 12, 1997).
10.37*    Form of Non-Qualified  Stock Option  Agreement  covering options not
          granted  under  either  the  1996  Performance  Incentive  Plan or the
          Non-Employee   Director   Stock   Option  Plan  (See  Exhibit  4.5  to
          Registration  Statement  on Form  S-8  filed  with the  Commission  on
          November 12, 1997).
10.38*    Registration  Rights  Agreement,  dated  February 6, 1998,  between
          NuWave  Technologies,  Inc. and ProFutures Special Equities Fund, L.P.
          (See  Exhibit  4.1 to  Current  Report  on Form  8-K  filed  with  the
          Commission on February 18, 1998).
10.39*    Private Securities Subscription  Agreement,  dated as of February 6,
          1998,  between  NuWave  Technologies,   Inc.  and  ProFutures  Special
          Equities  Fund,  L.P. (See Exhibit 10.1 to Current  Report on Form 8-K
          filed with the Commission on February 18, 1998).
10.40*    Warrant,  dated February 6, 1998,  executed by NuWave  Technologies,
          Inc. in favor of ProFutures  Special  Equities Fund, L.P., to purchase
          up to 50,000  shares of Common  Stock,  par value $.01 per  share,  of
          NuWave Technologies,  Inc. (See Exhibit 10.2 to Current Report on Form
          8-K filed with the Commission on February 18, 1998).


                                       46

<PAGE>


10.41*    Component  Purchase  Agreement,  dated  December 31,  1997,  between
          Thomson Consumer Electronics, Inc. and NuWave Technologies,  Inc. (See
          Exhibit  10.41  to  Annual  Report  on  Form  10-KSB  filed  with  the
          Commission on March 25, 1998).
10.42*    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).
10.43*    Warrant, dated March 3, 1998, executed by NuWave Technologies,  Inc.
          in favor of Janssen/Meyers Associates, L.P., to purchase up to 400,000
          shares  of  Common  Stock,   par  value  $.01  per  share,  of  NuWave
          Technologies,  Inc. (See Exhibit 10.41 to Annual Report on Form 10-KSB
          filed with the Commission on March 25, 1998).
10.44*    Letter   Agreement,   dated   December  3,  1997,   between  NuWave
          Technologies,  Inc. and  Lippert/Heilshorn  &  Associates,  Inc.  (See
          Exhibit  10.41  to  Annual  Report  on  Form  10-KSB  filed  with  the
          Commission on March 25, 1998).
10.45*    Option   Agreement,   dated   December  9,  1997,   between  NuWave
          Technologies,  Inc. and  Lippert/Heilshorn  &  Associates,  Inc.  (See
          Exhibit  10.41  to  Annual  Report  on  Form  10-KSB  filed  with  the
          Commission on March 25, 1998).
10.46*    First Amendment to Restated Employment Agreement,  dated December 9,
          1997, between NuWave Technologies,  Inc. and Gerald Zarin (See Exhibit
          10.41 to Annual  Report on Form 10-KSB  filed with the  Commission  on
          March 25, 1998).
10.47*    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).
10.48*    Escrow Agreement,  dated May 11, 1998, between NuWave  Technologies,
          Inc.,  Janssen-Meyers  Associates,  L.P. and Republic National Bank of
          New York (See  Exhibit  10.2 to Current  Report on Form 8-K filed with
          the Commission on June 11, 1998).
10.49*    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).
10.50*    Form of Warrant  Certificate  (See Exhibit 10.4 to Current Report on
          Form 8-K filed with the Commission on June 11, 1998).
10.51*    Placement  Agent  Warrant  Agreement,  dated May 19,  1998,  between
          NuWave  Technologies,  Inc. and Janssen-Meyers  Associates,  L.P. (See
          Exhibit 10.5 to Current  Report on Form 8-K filed with the  Commission
          on June 11, 1998).
10.52*    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).
10.53*    Form of  Subscription  Agreement (See Exhibit 10.7 to Current Report
          on Form 8-K filed with the Commission on June 11, 1998).
10.54**   Agreement,  dated February 1, 1999,  between  NuWave  Technologies,
          Inc. and Terk Technologies Corp.
16.1*     Letter from Coopers & Lybrand L.L.P. to the Commission  dated February
          16, 1998 (See  Exhibit  16.1 to Current  Report on Form 8-K filed with
          the Commission on February 18, 1998).


                                       47

<PAGE>


23.1*     Consent  of  Coopers  & Lybrand  L.L.P.  (See  Exhibit  23.1 to Annual
          Report on Form 10-KSB filed with the Commission on March 25, 1998)
27.1*     Financial  Data  Schedule  (See Exhibit 27.1 to Annual  Report on Form
          10-KSB filed with the Commission on March 25, 1998)
99.1*     Press release,  dated May 21, 1998 (See Exhibit 99.1 to Current Report
          on Form 8-K filed with the Commission on June 11, 1998).

*    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.  Certain  portions of this  Exhibit  10.54 were omitted and
    filed separately with the Commission  pursuant to a request for confidential
    treatment.


(b)  REPORTS ON FORM 8-K:

     None.


                                       48

<PAGE>


                                   SIGNATURES

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

                                        NUWAVE TECHNOLOGIES, INC.
                                        (Registrant)



Date: March 31, 1999                    By: /s/ Gerald Zarin                   
                                            -----------------------------------
                                            Gerald Zarin
                                            Chairman of the Board, President
                                            and Chief Executive Officer

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

SIGNATURE                         TITLE                           DATE

/s/ Gerald Zarin                  President, Chief Executive      March 31, 1999
---------------------------       Officer and Chairman of
Gerald Zarin                      the Board (Principal
                                  Executive Officer)

/s/ Jeremiah F. O'Brien           Chief Financial Officer and     March 31, 1999
---------------------------       Secretary (Principal
Jeremiah F. O'Brien               Financial Officer and
                                  Accounting Officer)

/s/ Ed Bohn                       Director                        March 31, 1999
---------------------------       
Ed Bohn

/s/ Lyle Gramley                  Director                        March 31, 1999
---------------------------       
Lyle Gramley

/s/ Joseph A. Sarubbi             Director                        March 31, 1999
---------------------------       
Joseph A. Sarubbi


                                       49

<PAGE>


                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
Exhibit                                                                               Page
Number         Description                                                           Number
------         -----------                                                           ------

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


                                       50

<PAGE>


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

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


                                       51

<PAGE>


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

10.9*          Assignment dated as of July 21, 1995 between NUWAVE  Engineering,
               Inc., Prime  Technology,  Inc. and Rave  Engineering  Corporation
               (See Exhibit 10.10 to  Registration  Statement on Form SB-2 filed
               with the Commission on April 2, 1996).
10.10*         Shareholders'  Agreement dated as of July 21, 1995 (See Exhibit
               10.11 to  Registration  Statement  on Form  SB-2  filed  with the
               Commission on April 2, 1996).
10.11*         Finder's  Agreement  dated as of September 1, 1995 among NUWAVE
               Technologies,   Inc.,   Prime   Technology,   Inc.   and  Harvest
               Technologies,  Inc. (See Exhibit 10.12 to Registration  Statement
               on Form SB-2 filed with the Commission on April 2, 1996).
10.12*         Finder's  Agreement  dated as of January 16, 1996 among  NUWAVE
               Engineering,  Inc.,  Prime  Technology,  Inc.  and Jay Vahl  (See
               Exhibit 10.13 to  Registration  Statement on Form SB-2 filed with
               the Commission on April 2, 1996).
10.13*         Option  Agreement  for the Purchase of Common Stock dated as of
               July 17, 1995 between  NUWAVE  Engineering,  Inc. and Jeremiah F.
               O'Brien (See Exhibit 10.14 to Registration Statement on Form SB-2
               filed with the Commission on April 2, 1996).
10.14*         Option  Agreement  for the Purchase of Common Stock dated as of
               September 11, 1995 between NUWAVE Engineering, Inc. and Robert I.
               Webb (See Exhibit  10.15 to  Registration  Statement on Form SB-2
               filed with the Commission on April 2, 1996).
10.15*         Option  Agreement  for the Purchase of Common Stock dated as of
               November 9, 1995  between  NUWAVE  Engineering,  Inc. and Lyle E.
               Gramley (See Exhibit 10.16 to Registration Statement on Form SB-2
               filed with the Commission on April 2, 1996).
10.16*         Option Agreement for Purchase of Common Stock dated as of March
               1, 1996 between NUWAVE Technologies, Inc. and Jeremiah F. O'Brien
               (See Exhibit 10.17 to  Registration  Statement on Form SB-2 filed
               with the Commission on April 2, 1996).
10.17*         Option  Agreement for Purchase of Common Stock dated as of July
               20, 1995 between NUWAVE Technologies,  Inc. and Gerald Zarin (See
               Exhibit 10.18 to  Registration  Statement on Form SB-2 filed with
               the Commission on April 2, 1996).
10.18*         Option Agreement for Purchase of Common Stock dated as of March
               1, 1996 between NUWAVE  Technologies,  Inc. and Joseph A. Sarubbi
               (See Exhibit 10.19 to  Registration  Statement on Form SB-2 filed
               with the Commission on April 2, 1996).
10.19*         Option Agreement for Purchase of Common Stock dated as of March
               1,  1996  between  NUWAVE  Technologies,  Inc.  and Ed Bohn  (See
               Exhibit 10.20 to  Registration  Statement on Form SB-2 filed with
               the Commission on April 2, 1996).


                                       52

<PAGE>


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

10.20*         Shareholder's  Agreement  dated  as of July 17,  1995  between
               NUWAVE Engineering, Inc. and its Common Stockholders (See Exhibit
               10.21 to  Registration  Statement  on Form  SB-2  filed  with the
               Commission on April 2, 1996).
10.21*         Form of Subscription Agreement between NUWAVE Engineering, Inc.
               and its Series A Preferred  Stockholders through August 1995 (See
               Exhibit 10.22 to  Registration  Statement on Form SB-2 filed with
               the Commission on April 2, 1996).
10.22*         Loan and Stock Purchase Agreement dated as of December 15, 1995
               between NUWAVE  Engineering,  Inc. and Helen Burgess (See Exhibit
               10.23 to  Registration  Statement  on Form  SB-2  filed  with the
               Commission on April 2, 1996).
10.23*         Form of  Indemnification  Agreement between the Company and its
               directors,  dated as of January  31, 1996 (See  Exhibit  10.24 to
               Registration  Statement on Form SB-2 filed with the Commission on
               April 2, 1996).  10.24*  Form of Note  entered  into  between the
               Company and the Initial Bridge  Investor  relating to the Initial
               Bridge Financing (See Exhibit 10.25 to Registration  Statement on
               Form SB-2 filed with the Commission on April 2, 1996).
10.25*         Form  of 10%  Promissory  Note  delivered  by  the  Company  in
               connection  with the private  placement of 80 Units (the "Private
               Placement  Bridge"),  each unit  consisting  of an unsecured  10%
               non-negotiable promissory note in the amount of $25,000 and 5,000
               shares of Common Stock of the Company,  during February and March
               of 1996 (See Exhibit 10.26 to Registration Statement on Form SB-2
               filed with the Commission on April 2, 1996).
10.26*         Form of Securities  Registration  Rights Agreement entered into
               between  the Company and the  purchasers  of Common  Stock in the
               Private Placement (See Exhibit 10.27 to Registration Statement on
               Form SB-2 filed with the Commission on April 2, 1996).
10.27*         Form of  Registration  Rights  Agreement  entered  into between
               Company and the  purchasers of its Series A Preferred  Stock (See
               Exhibit 10.28 to  Registration  Statement on Form SB-2 filed with
               the Commission on April 2, 1996).
10.28*         Form of Lock-up letter between the Company and certain  holders
               of its Common Stock (See Exhibit 10.29 to Registration  Statement
               on Form SB-2 filed with the Commission on April 2, 1996).
10.29*         Lease Letter Agreement between the Company and Simon,  Sarver &
               Rosenberg  dated July 28, 1995 (See Exhibit 10.30 to Registration
               Statement  on Form SB-2  filed  with the  Commission  on April 2,
               1996).


                                       53

<PAGE>


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

10.30*         Guaranty  executed  by the  Company as of October  13,  1995 in
               connection  with Standard  Industrial  Net Lease between  Collins
               Tech  RB  and  Rave  Engineering,  Inc.  (See  Exhibit  10.31  to
               Registration  Statement on Form SB-2 filed with the Commission on
               April 2, 1996).
10.31*         Amendment to  Employment  Agreement  dated as of September  11,
               1995 between  NUWAVE  Engineering,  Inc. and Robert I. Webb dated
               June  3,  1996  (See  Exhibit   10.32  to  Amendment   No.  2  to
               Registration  Statement on Form SB-2 filed with the Commission on
               July 3, 1996).
10.32*         Financial Consulting  Agreement between Prime Technology,  Inc.
               and Ernest  Chu dated  January  15,  1995 (See  Exhibit  10.33 to
               Amendment No. 2 to Registration Statement on Form SB-2 filed with
               the Commission on July 3, 1996).
10.33*         Letter  Agreement  concerning the Gaming  Technology  among the
               Company, Rave Engineering Corp. and Prime Technology,  Inc. dated
               March 24, 1997 (See Exhibit 10.34 to Annual Report filed with the
               Commission on April 30, 1997).
10.34*         Non-Employee  Director  Stock Option Plan (See Exhibit 10.1 to
               Current  Report on Form 8-K filed with the  Commission on June 6,
               1997).
10.35*         Form of Incentive  Stock Option  Agreement  (See Exhibit 4.3 to
               Registration  Statement on Form S-8 filed with the  Commission on
               November 12, 1997).
10.36*         Form of  Non-Employee  Director  Stock  Option  Agreement  (See
               Exhibit 4.4 to Registration  Statement on Form S-8 filed with the
               Commission on November 12, 1997).
10.37*         Form of Non-Qualified  Stock Option Agreement  covering options
               not granted under either the 1996  Performance  Incentive Plan or
               the  Non-Employee  Director Stock Option Plan (See Exhibit 4.5 to
               Registration  Statement on Form S-8 filed with the  Commission on
               November 12, 1997).
10.38*         Registration Rights Agreement,  dated February 6, 1998, between
               NuWave  Technologies,  Inc. and ProFutures Special Equities Fund,
               L.P.  (See  Exhibit 4.1 to Current  Report on Form 8-K filed with
               the Commission on February 18, 1998).
10.39*         Private Securities Subscription Agreement, dated as of February
               6, 1998, between NuWave Technologies, Inc. and ProFutures Special
               Equities  Fund,  L.P. (See Exhibit 10.1 to Current Report on Form
               8-K filed with the Commission on February 18, 1998).
10.40*         Warrant,   dated   February   6,  1998,   executed  by  NuWave
               Technologies,  Inc. in favor of ProFutures Special Equities Fund,
               L.P., to purchase up to 50,000 shares of Common Stock,  par value
               $.01 per share, of NuWave Technologies, Inc. (See Exhibit 10.2 to
               Current  Report on Form 8-K filed with the Commission on February
               18, 1998).


                                       54

<PAGE>


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

10.41*         Component Purchase Agreement,  dated December 31, 1997, between
               Thomson Consumer Electronics, Inc. and NuWave Technologies,  Inc.
               (See Exhibit 10.41 to Annual Report on Form 10-KSB filed with the
               Commission on March 25, 1998).
10.42*         Letter  Agreement,   dated  March  3,  1998,   between  NuWave
               Technologies,  Inc.  and  Janssen/Meyers  Associates,  L.P.  (See
               Exhibit  10.42 to Annual  Report on Form  10-KSB  filed  with the
               Commission on March 25, 1998).
10.43*         Warrant,  dated March 3, 1998, executed by NuWave Technologies,
               Inc. in favor of Janssen/Meyers Associates,  L.P., to purchase up
               to 400,000 shares of Common Stock,  par value $.01 per share,  of
               NuWave Technologies,  Inc. (See Exhibit 10.43 to Annual Report on
               Form 10-KSB filed with the Commission on March 25, 1998).
10.44*         Letter  Agreement,  dated  December  3,  1997,  between  NuWave
               Technologies,  Inc. and Lippert/Heilshorn & Associates, Inc. (See
               Exhibit  10.44 to Annual  Report on Form  10-KSB  filed  with the
               Commission on March 25, 1998).
10.45*         Option  Agreement,  dated  December  9,  1997,  between  NuWave
               Technologies,  Inc. and Lippert/Heilshorn & Associates, Inc. (See
               Exhibit  10.45 to Annual  Report on Form  10-KSB  filed  with the
               Commission on March 25, 1998).
10.46*         First  Amendment  to  Restated  Employment  Agreement,   dated
               December 9, 1997,  between NuWave  Technologies,  Inc. and Gerald
               Zarin (See  Exhibit  10.46 to Annual  Report on Form 10-KSB filed
               with the Commission on March 25, 1998).
10.47*         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).
10.48*         Escrow   Agreement,   dated  May  11,  1998,   between  NuWave
               Technologies,  Inc., Janssen-Meyers Associates, L.P. and Republic
               National Bank of New York (See Exhibit 10.2 to Current  Report on
               Form 8-K filed with the Commission on June 11, 1998).
10.49*         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).
10.50*         Form of Warrant Certificate (See Exhibit 10.4 to Current Report
               on Form 8-K filed with the Commission on June 11, 1998).
10.51*         Placement Agent Warrant Agreement,  dated May 19, 1998, between
               NuWave  Technologies,  Inc. and Janssen-Meyers  Associates,  L.P.
               (See  Exhibit  10.5 to Current  Report on Form 8-K filed with the
               Commission on June 11, 1998).


                                       55

<PAGE>


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

10.52*         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).
10.53*         Form of  Subscription  Agreement  (See  Exhibit 10.7 to Current
               Report on Form 8-K filed with the Commission on June 11, 1998).
10.54**        Agreement,   dated   February   1,  1999,   between   NuWave
               Technologies, Inc. and Terk Technologies Corp.
16.1*          Letter from  Coopers & Lybrand  L.L.P.  to the  Commission  dated
               February 16, 1998 (See Exhibit 16.1 to Current Report on Form 8-K
               filed with the Commission on February 18, 1998).
23.1*          Consent of Coopers & Lybrand  L.L.P.  (See Exhibit 23.1 to Annual
               Report on Form  10-KSB  filed  with the  Commission  on March 25,
               1998).
27.1*          Financial  Data  Schedule  (See Exhibit 27.1 to Annual  Report on
               Form 10-KSB filed with the Commission on March 25, 1998)
99.1*          Press  release,  dated May 21, 1998 (See  Exhibit 99.1 to Current
               Report on Form 8-K filed with the Commission on June 11, 1998).
</TABLE>


*   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.  Certain  portions of this  Exhibit  10.54 were omitted and
    filed separately with the Commission  pursuant to a request for confidential
    treatment.


                                       56

<PAGE>


                            NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                         Index to Financial Statements


                                                                            Page
                                                                            ----

Reports of Independent Accountants ........................................  F-2

Balance Sheet as of December 31, 1998 .....................................  F-4

Statements of Operations for the years ended December 31, 1997 and
     December 31, 1998 and for the cumulative period from July 17, 1995
     (inception) to December 31, 1998 .....................................  F-5

Statement of Stockholders' Equity for cumulative period from
     July 17, 1995 (inception) to December 31, 1998 .......................  F-6

Statements of Cash Flows for the years ended December 31, 1997 and
     December 31, 1998 and for the cumulative period from July 17, 1995
     (inception) to December 31, 1998 .....................................  F-8

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


                                      F-1

<PAGE>


                            NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                        Report of Independent Accountants



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


     We  have  audited  the  statement  of  operations,  cash  flows  of  NUWAVE
Technologies, Inc. (a development stage enterprise) for the period from July 17,
1995 (inception) to December 31, 1996 included in the cumulative amounts for the
period  from July 17,  1995  (inception  to  December  31,  1998 (not  presented
separately  herein),  and the related statement of stockholders'  equity for the
period from July 17, 1995  (inception)  to December  31, 1995 and the year ended
December 31, 1996.  These  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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

     In our opinion the financial  statements  referred to above present fairly,
in all material  respects,  the results of  operations  and cash flows of NUWAVE
Technologies, Inc. for the period from July 17, 1995 (inception) to December 31,
1996  included  in the  cumulative  amounts  for the period  from July 17,  1995
(inception)  to  December  31,  1998,  in  conformity  with  generally  accepted
accounting principles.

PricewaterhouseCoopers LLP
New York, New York
March 26, 1997


                                      F-2

<PAGE>

                            NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                        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. (a
development  stage  enterprise)  as  of  December  31,  1998,  and  the  related
statements of  operations,  stockholders'  equity and cash flows for each of the
years in the two-year  period  ended  December 31, 1998 and the amounts for such
years  included  in the period from July 17, 1995  (inception)  to December  31,
1998.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion, the financial statements enumerated above present fairly, in all
material  respects,  the financial position of NUWAVE  Technologies,  Inc. as of
December 31, 1998, and the results of its operations and its cash flows for each
of the years in the two-year  period ended December 31, 1998 and the amounts for
such years included in the cumulative  amounts for the period from July 17, 1995
(inception)  to  December  31,  1998,  in  conformity  with  generally  accepted
accounting principles.



Richard A. Eisner & Company, LLP
Florham Park, New Jersey
March 10, 1999


                                      F-3

<PAGE>


                            NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                                 Balance Sheet

ASSETS                                                           December 31,
                                                                      1998
                                                                 ------------

Current assets:

     Cash and cash equivalents                                   $  4,990,159

     Inventory                                                         49,073

     Prepaid expenses and other current assets                        126,734
                                                                 ------------
               Total current assets                                 5,165,966

Property and equipment                                                111,029

Restricted Cash                                                        76,078

Other assets                                                          162,279
                                                                 ------------
               Total assets                                      $  5,515,352
                                                                 ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

     Accounts payable and accrued liabilities                    $    261,201
                                                                 ------------
               Total liabilities                                      261,201
                                                                 ------------

Commitments and contingencies

Stockholders' equity:


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

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

     Common stock, $.01 par value; authorized 
     20,000,000 shares; as of December 31, 1998; 
     issued and outstanding 8,356,389 shares                           83,564

     Additional paid in capital                                    18,358,414

     Deficit accumulated during the development stage             (13,187,827)
                                                                 ------------
               Total stockholders' equity                           5,254,151

               Total liabilities and stockholders' equity        $  5,515,352
                                                                 ============



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


                                       F-4

<PAGE>


                            NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                             Statement of Operations

<TABLE>
<CAPTION>
                                                                       Cumulative from
                                                                        July 17, 1995
                                           Year             Year         (inception)
                                           ended            ended            to
                                        December 31,     December 31,    December 31,
                                           1997             1998            1998
                                        ----------------------------------------------
<S>                                     <C>              <C>            <C>         
Net Sales                               $    10,275      $    12,545    $     22,820
Cost of Sales                                (4,214)          (4,906)         (9,120)
                                        ----------------------------------------------
                                              6,061            7,639          13,700
                                        ----------------------------------------------

Operating expenses:

Research and development expenses        (1,697,084)      (1,572,364)     (5,381,164)

General and administrative expenses      (2,336,000)      (2,646,409)     (7,208,640)
                                        ----------------------------------------------

                                         (4,033,084)      (4,218,773)    (12,589,804)
                                        ----------------------------------------------

          Loss from operations           (4,027,023)      (4,211,134)    (12,576,104)
                                        ----------------------------------------------

Other income (expense):

          Interest income                   178,707          212,863         567,979

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

                                            178,707          212,863         236,437
                                        ----------------------------------------------

Loss before extraordinary item           (3,848,316)      (3,998,271)    (12,339,667)

          Extraordinary item                                                (848,160)
                                        ----------------------------------------------

          Net loss                      $(3,848,316)     $(3,998,271)   $(13,187,827)
                                        ==============================================

Basic and diluted loss per share:

          Weighted average number of
          common shares outstanding       5,343,348        7,259,896
                                        =============================

          Basic and diluted loss per
          share                         $     (0.72)     $     (0.55)
                                        =============================
</TABLE>

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


                                      F-5

<PAGE>


                            NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                        Statement of Stockholders' Equity

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

<S>                                 <C>        <C>        <C>        <C>        <C>         <C>         <C>         <C>       
Common Shares issued in
 connection with the 
 formation of the
 company.........................                         2,060,000  $  20,000                                      $    20,600

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

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

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

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

Net loss for the period from
 July 17, 1995 (inception) to
 December 31, 1995...............                                                                      $  (910,591)    (910,591)
                                    ---------  ---------  ---------  ---------  ----------  ---------  -----------  -----------
Balance at December 31, 1995.....     600,000      6,000  2,005,000     20,050     999,550    (38,400)    (910,591)      76,609

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

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

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

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

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

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

Conversion of 600,000 preferred
 shares into 600,000 common
 shares in connection with
 the IPO.........................    (600,000)    (6,000)   600,000      6,000
</TABLE>


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


                                      F-6

<PAGE>


                            NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                        Statement of Stockholders' Equity

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

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

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

Net loss for the year ended
 December 31, 1996...............                                                                       (4,430,649)  (4,430,649)
                                    ---------  ---------  ---------  ---------  ----------  ---------  -----------  -----------
Balance at December 31, 1996.....       -       $  -      5,325,000  $  53,250 $11,206,778  $   -     $ (5,341,240) $ 5,918,788

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

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

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

Common shares issued in
 connection with a private
 placement for cash of
 $3.95 per share and 50,000
 supplemental warrants...........                           253,485      2,535     997,465                            1,000,000

Costs incurred in connection
 with private placement..........                                                 (140,652)                            (140,652)

Common shares issued in
 connection with the exercise
 of 11,666 stock options for
 cash of $2.00 per share.........                            11,666        117      23,215                               23,332

Warrants to purchase common
 stock issued in connection
 with a consulting agreement.....                                                  217,040                              217,040

2,742,904 Common shares issued
 with 2,057,207 class A
 warrants to purchase common
 shares in connection with a
 private placement for a cash
 price ranging from $2.50 to
 $3.06 per share.................                         2,742,904     27,429   7,253,117                            7,280,546

18.2 Unit Warrants issued in
 connection with private
 placement.......................                                                        6                                    6

Costs incurred in connection
 with private placement..........                                               (1,244,990)                          (1,244,990)

Net loss for the year ended
 December 31, 1998...............                                                                       (3,998,271)  (3,998,271)
                                    ---------  ---------  ---------  --------- -----------  --------- ------------  -----------
Balance at December 31, 1998.....        -     $   -      8,356,389  $  83,564 $18,358,414  $   -     $(13,187,827) $ 5,254,151
                                    =========  =========  =========  ========= ===========  ========= ============  ===========
</TABLE>


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


                                      F-7

<PAGE>


                            NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

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

                                                                    Cumulative
                                                                       from
                                                                   July 17, 1995
                                           Year          Year       (inception)
                                           ended         ended          to
                                        December 31,  December 31,  December 31,
                                           1997          1998           1998
                                        ------------  ------------  ------------

Cash flows from operating activities:

     Net loss                           $(3,848,316)  $(3,998,271) $(13,187,827)

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

     Extraordinary item                                                 848,160

     Depreciation expense                    42,354        52,690       114,760

     Amortization of unamortized
     debt discount                                                      168,778

     Amortization of deferred
     financing costs                                                     89,062

     Issuance of common stock for
     services rendered                                                   20,600

     (Increase) decrease in inventory       (59,818)       10,745       (49,073)

     (Increase) in prepaid expenses
     and other current assets               (19,096)      (15,730)     (126,734)

     (Increase) in other assets              (9,925)      (80,079)     (162,279)

     Issuance of warrants in connection
     with consultant agreement                            217,040       217,040

     Increase (decrease) in accounts
     payable and accrued liabilities       (219,487)      107,578       261,201
                                        ------------  ------------  ------------

          Net cash used in operating
          expenses                       (4,114,288)   (3,706,027)  (11,806,312)
                                        ------------  ------------  ------------

Cash flows from investing activities:

     Purchase of property and
     equipment                              (76,052)      (60,247)     (225,788)
                                        ------------  ------------  ------------
          Net cash used in investing        (76,052)      (60,247)     (225,788)
          activities

Cash flows from financing activities:

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

     Proceeds from issuance of initial
     bridge units                                                       350,000

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


                                      F-8

<PAGE>
                            NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

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

                                                                  Cumulative
                                        Year          Year    from July 17, 1995
                                        ended         ended       (inception)
                                      December 31,  December 31, to December 31,
                                         1997          1998           1998
                                      ------------  ------------  ------------

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

   Proceeds from IPO                                               11,753,010

   Proceeds from equity offering -
   February 6, 1998                                   1,000,000     1,000,000

   Proceeds from equity offering
   May 19, to June 6, 1998                            7,280,546     7,280,546

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

   Costs incurred for equity offerings
   and warrants                                      (1,385,636)   (3,734,219)

   Issuance of common stock in
   connection with exercise of
   stock options                           46,668        23,332       100,000

   (Increase) decrease in restricted
   cash                                  (221,481)      145,403       (76,078)

   Deferred financing costs                                          (201,000)
                                      ------------  ------------  ------------
   Net cash provided (used in) by
   financing activities                  (174,813)    7,063,645    17,022,259
                                      ------------  ------------  ------------

   Net increase (decrease) in cash
   and cash equivalents                (4,365,153)    3,297,371     4,990,159

Cash and cash equivalents at the
beginning of the period                 6,057,941      1,692,788        -
                                      ------------  ------------  ------------
     Cash and cash equivalents at
     the end of the period             $1,692,788    $4,990,159    $4,990,159
                                      ============  ============  ============
Supplemental disclosure of cash 
flow information:

     Interest paid during the
     period                                                        $   73,702
                                                                   ==========
Supplemental disclosure of non cash
investing and financing activities:

Deferred financing costs incurred in
connection with the exchange of the
initial bridge notes for 14 bridge
units                                                              $  140,000
                                                                   ==========
Deferred equity costs charged to
additional paid-in capital in
connection with the IPO                                            $   13,400
                                                                   ==========
Deferred financing costs charged to
additional paid-in capital in
connection with the IPO                                            $   25,000
                                                                   ==========
600,000 Series A Convertible Preferred
Stock converted into Common                                        $    6,000
                                                                   ==========

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

                                      F-9

<PAGE>


1.   Organization and Business

     NUWAVE Technologies,  Inc. (the "Company"), a development stage enterprise,
was  incorporated  in  Delaware  on July 17,  1995.  It was  formed to  develop,
manufacture  and market  products that improve picture quality in set-top boxes,
televisions,  VCR's,  camcorders  and  other  video  devices  by  enhancing  and
manipulating  video signals,  and  facilitate  the  production of  sophisticated
consumer and professional  videos.  It has had only a limited  operating history
and has had only limited  sales of its products to date.  Since its inception in
July 1995, the Company has been engaged  primarily in raising funds,  directing,
supervising and coordinating Rave Engineering  Corporation  ("Rave," see note 7)
and its own Advanced  Engineering  Group in the  continuing  development  of its
products,  pre-marketing activities, the commencement of comprehensive marketing
of the NUWAVE Video  Processor and the  recruitment  of management and technical
personnel,  including  members of the Advanced  Engineering  Group.  The Company
conducts its operations primarily in the United States.

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

2.   Summary of Significant Accounting Policies

Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amount of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial  statements,  and
the reported  amounts of revenue and expenses during the reporting  period.  The
most significant  estimates relate to the valuation allowance in connection with
deferred tax assets. Actual results could differ from those estimates.

Cash and Cash Equivalents

     Cash  and  cash  equivalents  include  all  cash  balances,   money  market
instruments and other highly liquid investments with insignificant interest rate
risk and  original  maturities  of three  months or less.  At December 31, 1998,
$4,990,159 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.


                                      F-10

<PAGE>


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

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

Research and Development Expenses

     Expenditures for research and development are expensed as incurred.

Advertising Expenses

     The  Company  expenses   advertising   costs  which  consist  primarily  of
promotional items and print media.  Advertising and promotional expenses charged
to  operations  for the  cumulative  period  from July 17, 1995  (inception)  to
December 31, 1998 amounted to $537,900 and for the years ended December 31, 1998
and December 31, 1997 amounted to $116,776 and $289,892, respectively.

Concentration of Credit Risk

     The Company's  financial  instruments that are exposed to concentrations of
credit risk consist of cash and cash  equivalents.  The Company  places its cash
and cash equivalents in 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.

Benefit Plan

     The Company  maintains a 401(k) Savings Plan, which allows all employees to
participate by making salary deferral  contributions  to the 401(k) Savings Plan
ranging  from  1% to 15%  of  their  eligible  earnings.  The  Company  has  not
contributed to the 401(k) Savings Plan to date.

Per Share Data

     The basic per share  data have 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 (see note 6).

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 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting  Comprehensive  Income. This statement  establishes standards for
reporting and  displaying  


                                      F-11

<PAGE>


comprehensive income and its components (revenues,  expenses, gains and losses).
Comprehensive  income as defined  includes all changes in equity during a period
from non-owner  sources.  Such items may include  foreign  currency  translation
adjustments,  unrealized gains/losses from investing and hedging activities, and
other  transactions.  The Company  has no source of  comprehensive  income,  and
therefore,  no  disclosure  reporting  requirements  are  necessary  relating to
Statement No. 130.

     In June 1997, the Financial Accounting Standards Board issued Statement No.
131, Disclosures about Segments of an Enterprise and Related Information,  which
was adopted by the Company on December 31, 1998. This Statement  requires public
business  enterprises to report certain  information about operating segments in
sets of annual financial  statements of the enterprise and in interim statements
issued to shareholders.  It further  requires that a public business  enterprise
report certain information about their products and services, geographical areas
of  operation  and major  customers.  As the Company  operates  and accounts for
results as one operating segment, there are no additional reporting requirements
pertaining to Statement No. 131.

     In February 1998, FASB issued SFAS No. 132,  Employer's  Disclosures  about
Pension and Other Postretirement  Benefits, which revises employers' disclosures
about  pension and other  postretirement  benefit  plans.  SFAS No. 132 does not
change the measurement or recognition of those plans.  SFAS No. 132 is effective
for fiscal years  beginning after December 15, 1997. The Company does not expect
the  adoption  of SFAS No.  132 to have an impact on the  Company's  results  of
operations, financial position or cash flows.

3.   Property and equipment

     Property and equipment consist of the following:

                                              Useful Lives in      December 31,
                                                   Years               1998
                                              ---------------      ------------
Furniture and Fixtures.....................         10              $    5,523
Computers..................................          5                 141,829
Equipment..................................          5                  78,437
                                                                    ----------
                                                                    $  225,789
     Less, accumulated depreciation........                            114,760
                                                                    ----------
         TOTAL                                                      $  111,029
                                                                    ==========

4.   Accounts Payable and Accrued Liabilities

     Accounts payable and accrued liabilities consist of the following:

                                                                   December 31,
                                                                       1998
                                                                   ------------
Accounts payable...........................                          $ 125,610
Legal and accounting fees..................                            129,843
Payroll taxes payable......................                              5,748
                                                                    ----------
         TOTAL                                                       $ 261,201
                                                                    ==========


                                      F-12

<PAGE>


5.   Capital Transactions

Common Stock

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

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

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

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

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

     On April 30, 1996,  the Board of Directors and the  Company's  stockholders
authorized  the  increase  in the shares of Common  Stock to  20,000,000  common
shares, par value $.01 per share.

     In July  1996,  the  Company  completed  an IPO in which it sold  2,300,000
common  shares and  2,530,000  Redeemable  Common Stock  Purchase  Warrants (the
"Warrants")  to purchase an additional  2,530,000  common  shares.  The Warrants
became  exercisable  at $5.50 per share on July 3, 1997,  and have an expiration
date of July 3, 2001.  The Warrants are redeemable by the Company at any time on
not less than 30 days  prior  written  notice to the  holders  of the  Warrants,
provided  the average  closing bid  quotation of the Common Stock as reported on
the NASDAQ  Stock  Market,  if traded  thereon,  or if not traded  thereon,  the
average  closing  sale  price  of the  Common  Stock  if  listed  on a  national
securities  exchange (or other reporting system that provides last sale prices),
has  been at least  150% of the  then  current  exercise  price of the  Warrants
(currently  $6.225) for a period of 20  consecutive  trading  days ending on the
third day prior to the date on which the Company gives notice of redemption. The
Warrants will be exercisable  until the close of business on the day immediately
preceding the date fixed for redemption.  The Underwriter  will receive from the
Company  a  Warrant  Solicitation  fee of five  percent  (5%)  of the  aggregate
exercise  price of the  Warrants  if the  market  price of the  Common  Stock is
greater than the exercise price of the Warrants on the date of exercise.

     Also in connection with the IPO, the Company issued to the Underwriter, for
an aggregate purchase price of $10.00, warrants to purchase 220,000 Common Stock
and  Redeemable   Warrants  to  purchase   220,000   Redeemable   Warrants  (the
"Underwriter's Warrants"). The Underwriter's Warrants are at $8.25. The warrants
expire July 2001.

     On February 6, 1998, the Company entered into a two-year  agreement with an
investor  whereby the Company  issued  253,485  shares of the  Company's  Common
Stock,  par value $0.01 per share ("Common  Stock"),  for an aggregate  purchase
price of $1,000,000. In addition,  subject to certain conditions,  the agreement
provides  that,  from time to time over the life of the  agreement  the  Company
shall put shares of the  Company's  Common Stock for a minimum of $250,000 and a
maximum of $750,000.  The total aggregate value of the Puts over the life of the
agreement  must be a minimum of  $1,000,000  and cannot exceed  $5,000,000.  The
purchase price of the stock will be at 88% of the fair 


                                      F-13

<PAGE>


market  value of the stock at the time of the Put. The  following  restrictions,
among others, apply beginning with the second Put: (1) there must be 20 business
days between Puts; (2) the average daily trading volume in the Company's  Common
Stock for the 30  trading  days  prior to the Put date  must be at least  20,000
shares;  (3) the minimum bid price for the Company's Common Stock on the trading
day  immediately  preceding the Put date must be at least $2.50;  and (4) unless
the investor agrees  otherwise,  no Put can be made which causes the investor to
own more than 9.9% of the Company's then outstanding Common Stock.

     In  connection  with the  agreement,  the  Company  issued to the  investor
warrants to purchase an aggregate of 50,000 shares of Common Stock at a purchase
price of $6.41 per share and additional  warrants (the "supplemental  warrants")
to purchase an aggregate of 50,000 shares of Common Stock at a purchase price of
$3.95 per share.  The warrants  may be  exercised at any time through  August 6,
2001. The  Supplemental  warrants may be exercised at any time through April 19,
2003.

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

     In connection  with such  consultant  agreement,  the Company issued to the
Consultant  warrants to purchase  400,000  shares of Common Stock.  The warrants
have an exercise price of $4 per share and are  exercisable  after  September 3,
1999. The warrants expire on March 3, 2003. The fair value of these warrants was
estimated at $386,805 and is being  charged to  operations  over the life of the
consulting agreement. $217,000 was charged against operations for the year ended
December 31, 1998.

     On May 11, 1998 the Company entered into a placement  agency agreement with
the  Consultant  to act as the  Company's  placement  agent in a private  equity
placement whereby the Company issued to certain accredited investors, as defined
under  Regulation D as promulgated  under the Securities Act of 1933, as amended
(the  "Securities  Act"),  2,742,904  shares of the  Company's  Common Stock and
2,057,207 Class A Redeemable  Warrants ("Class A Warrants") between May 19, 1998
and June 6, 1998 for an aggregate  purchase  price of  $7,280,546.  Each Class A
Warrant  entitles the holder thereof to purchase one share of Common Stock at an
exercise price per share of $3.24,  subject to adjustment upon the occurrence of
certain  events to prevent  dilution,  at any time during the period  commencing
from June 6, 1998 and expiring on May 11, 2003. The Class A Warrants are subject
to  redemption  by the Company at $.01 per Warrant 12 months after the effective
date of a registration  statement covering the Warrants 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  on the day  prior  to the day on  which  the  Company  gives  notice  of
redemption. The Class A Warrants will be exercisable until the close of business
on the day immediately preceding the date fixed for redemption.

     The Consultant  for acting as placement  agent received a commission of 10%
($728,055)  of the gross  proceeds  from the sale of the Units,  as well as a 3%
non-accountable  expense allowance  ($218,416) and reimbursement of other costs,
including legal expenses relating to the offering  ($77,171).  In addition,  the
Consultant, as part of its compensation, received warrants exercisable until May
11, 2003 to purchase up to (i) 688,084 shares of the Company's Common Stock at a
price per share  ranging from 


                                      F-14

<PAGE>


$2.50 to $3.06  and (ii)  warrants  to  purchase  up to  516,068  shares  of the
Company's Common Stock at a price per share of $3.24.

     As a result of the above capital  transactions  and in accordance  with the
provisions  of the  Warrant  Agreement  dated  as of July 3,  1996  between  the
Company, Rickel & Associates,  Inc. and American Stock Transfer & Trust Company,
adjustments  have been made to the exercise price (the "Warrant  Price") for the
warrants  issued  pursuant to such Agreement  (the Public  Warrants") and to the
number of shares of Common  Stock  issuable on exercise of the Public  Warrants.
The Warrant Price has been reduced from $5.50 to $4.15.  In addition,  for every
share of Common Stock the warrant holders were entitled to prior to the dilutive
transactions  (2,530,000 shares),  the warrant holders are now entitled to 1.325
shares (3,352,250 shares). Also, pursuant to the Warrant Agreement,  the Company
can redeem the Public  Warrants in the event that the average  closing  price of
the Company's Common Stock is at least 150% of the then current Warrant Price of
the Public Warrants for a period of 20 consecutive  trading days;  consequently,
the average closing price now required is $6.225.

Preferred Stock

     During July and August 1995,  the Company  sold 600,000  shares of Series A
Convertible  Preferred Stock for $900,000 to several investors,  one of whom was
the purchaser of the initial bridge notes.  The preferred  shares converted into
common shares on a one-for-one basis at the IPO date.

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

Bridge Units

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

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

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

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


                                      F-15

<PAGE>


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  are
included in operating results as an expense.

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

<TABLE>
<CAPTION>
                                                                                  Weighted
                                               Number of                           Average       Number of
                                                Common       Exercise Price       Exercise        Shares
                                                Share        Range per Share        Price       Exercisable
                                               ---------     ---------------      ---------     -----------

<S>                                             <C>           <C>                   <C>            <C>    
Outstanding at December 31, 1996...........     362,000       $ 1.50 - $ 5.75       $ 1.72         311,524
                                                                                                   =======
Granted....................................     192,500       $ 5.78 - $ 6.88       $ 6.54
Exercised..................................     (23,334)          $ 2.00            $ 2.00
Canceled...................................     (25,000)      $ 6.38 - $ 6.81       $ 6.64
                                               --------
Outstanding at December 31, 1997...........     506,166       $ 1.50 - $ 6.75       $ 2.92         401,000
                                               =========                                           =======
Granted....................................     733,000       $ 1.50 - $ 3.25       $ 3.13
Exercised..................................     (11,666)          $ 2.00            $ 2.00
Canceled...................................     (13,000)      $ 3.00 - $ 6.75       $ 5.23
                                               --------
Outstanding at December 31, 1998...........    1,214,500      $ 1.50 - $ 6.75       $ 3.18         633,503
                                               =========                                           =======
</TABLE>

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

     Exercise prices and  weighted-average  contractual  lives for stock options
outstanding as of December 31, 1998 are as follows:

<TABLE>
<CAPTION>
                                    Options Outstanding                          Options Exercisable
                       ------------------------------------------------      ------------------------------
                                          Weighted
                                           Average
                                          Remaining         Weighted                            Weighted
Range of Exercise         Number         Contractual         Average           Number           Average
      Prices           Outstanding          Life         Exercise Price      Exercisable     Exercise Price
-----------------      -----------       -----------     --------------      -----------     --------------
<S>                      <C>                 <C>              <C>              <C>                <C>  
$ 1.50 - $ 2.00          365,000             2.12             $1.53            315,000            $1.53
$ 2.00 - $3.25           618,000             4.40             $3.25            204,336            $3.25
$ 5.75 - $ 6.75          171,500             4.09             $6.42            114,167            $6.30
</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 1998 and 1997 vest over several years and additional  awards are expected


                                      F-16

<PAGE>


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.

                                                      1997              1998
                                                      ----              ----
Pro forma net loss.............................  $  (4,029,183)    $ (4,285,280)
Pro forma basic and diluted loss per share.....  $        (.75)    $       (.59)

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
1998 and 1997 was $.85 and $1.75,  respectively.  The following weighted-average
assumptions  were used in computing the fair value of option grants for 1998 and
1997:  weighted-average  risk-free interest rates ranged from 4.26% to 5.60% for
1998 and 5.64% for 1997; zero dividend yields for both years;  volatility of the
Company's Common Stock of 30% for 1998 and 50% for 1997; and an expected life of
the options of three years for 1998 and two years for 1997, respectively.

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). As of December 31, 1996
no options had been issued. During 1997, 172,500 options were granted and 25,000
options were canceled under the plan. During 1998,  605,000 options were granted
under the plan.

Non-Employee Director Stock Option Plan

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

     Beginning with the annual meeting of the  stockholders  of the Company held
on May 29, 1997 and provided that a sufficient number of shares remain available
under the  Director's  Plan,  each year  


                                      F-17

<PAGE>


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.

     On November 25, 1996, four Eligible Directors were each granted 3,000 stock
options at an exercise price of $5.75 per share.  On May 29, 1997, four Eligible
Directors  were each granted  5,000 stock options at an exercise price of $6.75
per share. On May 26, 1998, one eligible  director was granted 53,000 options at
an excise price of $3.25 per share and the three  remaining  Eligible  Directors
were each granted 25,000 stock options at $3.25 per share. 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. During 1998, 13,000
options  previously  granted under the plan were  cancelled.  As of December 31,
1998,  there are 148,000 stock options  reserved for issuance in the  Director's
Plan.

6.   Income taxes

     There is no benefit for federal,  state or local income taxes for the years
ended  December 31, 1997 and  December 31, 1998,  since the Company has incurred
operating losses. In addition,  the Company has fully reserved the net potential
future tax benefits  resulting from its temporary  differences and net operating
loss carryforwards.

     The tax effect of temporary differences consists of the following:

                                                                December 31,
                                                                    1998
                                                                ------------
     Deferred tax assets:
          Start up costs....................................  $    1,680,000
          Property and equipment............................          17,000
          Net operating loss carryforward...................       3,506,000
                                                                ------------
                                                                   5,203,000
          Valuation allowance...............................      (5,203,000)
                                                                ------------
                                                                $         --
                                                                ============

     As of  December  31,  1998,  the  Company  has  unused net  operating  loss
carryforwards  of $8,778,000  available for income tax purposes.  The unused net
operating  loss  carryforwards  expire in various  years from 2010 to 2018.  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.

7.   Commitments and Contingencies

License and Development Agreements

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


                                      F-18

<PAGE>


the  Company's  aggregate  net  profits  from  sales of  Licensed  Products  and
technology  equaling  $5,000,000,  whichever comes first. The License  Agreement
became  effective  on July 21, 1995 and  continues in force until either (1) the
expiration of the last patent rights or (2) July 21, 2012, whichever is later.

     The Company also entered into a  development  agreement  (the  "Development
Agreement")  with  Rave  on  July  21,1995  which  focused  principally  on  the
development of products as defined in the agreement.  The Development  Agreement
provided for the payment to Rave of a monthly fee which,  when  aggregated  with
the  royalties  provided  for in the  License  Agreement,  totaled a minimum  of
$65,000 per month. The Development  Agreement terminated on October 2, 1998. The
Development  Agreement  also  provided for Rave to receive  additional  payments
under certain conditions aggregating $850,000 to purchase or lease equipment for
use in developing  the "Licensed  Product" and "Licensed  Process." The payments
were originally to be made in monthly  installments not to exceed $23,611 with a
lump sum payment of $283,336 due in March 1998, if certain  conditions were met.
In this  regard,  on April 22,  1997,  the  Company  deposited  $300,000  into a
certificate  of  deposit.  The  certificate  of  deposit  has  been  pledged  as
collateral for an irrevocable  standby letter of credit opened by the Company to
guarantee  monthly equipment lease payments (not to exceed $23,611 per month) to
be made by the Company on behalf of Rave pursuant to the Development  Agreement.
The balance of the  standby  letter of credit has been  reduced by any  payments
made and any cash  restriction  on the  certificate of deposit is limited to the
balance of the standby letter of credit.  Through December 31, 1998, the Company
had made payments of $507,012  under this agreement and at that date had $76,078
pledged as collateral to guarantee the monthly payments.

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

     The Rave  research and  development  expenses  charged to the  statement of
operations for the cumulative  period from July 17, 1995 (inception) to December
31, 1998 amounted to  $3,399,413;  and for the years ended December 31, 1998 and
December 31, 1997 amounted to $742,058 and $1,096,903, respectively.

     On November 13, 1998,  pursuant to the provisions of the License  Agreement
and the  Development  Agreement  between  Rave  and  the  Company,  the  Company
commenced an arbitration  proceeding seeking (a) damages for the injuries to the
Company caused by Rave's  breaches of its contractual and common law obligations
to the Company and (b) a  declaration  that,  among  other  things,  Rave is not
entitled  to any  royalties  or other  payments  with  respect to the  Company's
technology and that the Company  continues to have  exclusive  license rights to
the  "Licensed  Product" and  "Licensed  Process"  (as defined in the  Exclusive
Worldwide  License  Agreement).   While  management  does  not  anticipate  this
arbitration will have a material effect on the Company's financial position,  it
is not possible to determine the outcome at this early stage of the proceeding.

         Rave has filed an  amended  counterclaim  against  the  Company  in the
Arbitration,   alleging  breaches  of  the  License  Agreement  and  Development
Agreement,  trade libel,  tortious  interference  and conspiracy,  and seeking a
declaration  that Rave is  entitled to the return and  exclusive  use of its own
technology. Rave claims that it is entitled to $65,000 per month for the life of
any patents on  products it  developed  for the Company  (approximately  15 more
years),  as well as damages in excess of $4 million on the various  claims.  The
Company believes that Rave's claims are completely without merit; accordingly no
liability has been recorded for this claim.  However, there can be no assurances
that such claims will not result in the Company incurring a liability.



                                      F-19

<PAGE>


Agency Agreement

     In order to  assist  it in  obtaining  sublicensing  revenue,  the  Company
entered into an Agency Agreement (the "Agency Agreement") with Prime. The Agency
Agreement provides that Prime will be the Company's exclusive agent for entering
into sublicenses with respect to the Licensed  Products and technology.  Because
its products are not fully developed,  the Company has not developed a licensing
program,  established  proposed royalties,  or otherwise determined the terms or
conditions of the  arrangements  it may want to make with proposed  licensees or
others.  These programs will be developed in conjunction  with product  research
and  development,  and with  Prime  pursuant  to the Agency  Agreement.  For its
services,  with respect to the first  $50,000,000  of aggregate net sales of the
Company's licensees and sublicensees, after subtracting the payments to Rave and
licensing  expenses,  Prime will receive 35% of net sublicense  fees received by
the Company,  and thereafter 45%.  Because the Company has retained the right to
enter into licenses and sublicenses  independently,  payments to Prime are to be
made  regardless  of whether the relevant  sublicenses  are entered into through
Prime's  efforts or by the  Company  itself.  Prime will  receive an  additional
agency  fee of up to  $1,500,000,  of which (i)  $400,000  has been  paid,  (ii)
$400,000 is payable out of the Company's first sublicensing  royalties and (iii)
$700,000 is payable out of the Company's portion of sublicensing  royalties when
net sublicensing sales exceed $200,000,000.

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

     The agency fee charged to operations  for the  cumulative  period from July
17, 1995  (inception) to December 31, 1997 amounted to $400,000 and for the year
ended December 31, 1997 amounted to $70,000;  no fees were charged to operations
for the year ended December 31, 1998.

Consulting and Representative Agreements

     On November 12, 1997, the Company contracted with Adaptive Micro-Ware, Inc.
to work  with  TEC  (see  below)  in the  design  and  development  of a  custom
integrated circuit ("ASIC") in accordance with the Company's specifications. The
total cost of the project was  estimated  to be $179,550 to be paid in intervals
based upon  milestones.  At December 31,  1998,  $89,602 had been paid under the
terms of the contract.

     On  November  14,  1997,  the  Company   contracted  with  The  Engineering
Consortium ("TEC") to design and develop a custom integrated circuit ("ASIC") in
accordance with the Company's specifications.  The total cost of the project was
estimated  to be  $130,000 to be paid in  intervals  based upon  milestones.  At
December 31, 1998, $105,000 had been paid under the terms of the contract.

     On  December 3, 1997,  the  Company  contracted  with  Lippert/Heilshorn  &
Associates,  Inc.  ("LHA")  to provide  various  Investor  Relations  and Public
Relations  services  for the  Company.  In return for such  services the Company
granted to the LHA 30,000 options for the purchase of the Company's Common Stock
at $5.78 per share  (market  price on date of grant).  In  addition  the Company
agreed to pay LHA a fee of $7,500 per month plus normal business  expenses.  The
contract  terminated on November 15, 1998. As of December 31, 1998, $100,858 had
been paid under the terms of the contract.


                                      F-20

<PAGE>


     On January 12, 1998, the Company  contracted  with Zentrum  Mikroelectronik
Dresden GmbH (ZMD), a manufacturer of integrated  circuits,  to produce the ASIC
chips.  ZMD is to produce the  necessary  masks  required  for ASIC  production,
perform the initial wafer run and deliver prototypes to the Company for testing.
Upon the Company's  approval ZMD will manufacture  production  quantities of the
chip as specified by  individual  purchase  orders.  As of December 31, 1998, no
payments have been made under the terms of the contract.

     On  June  1,  1998,  the  Company   contracted  with  Innovation   Partners
International, Inc. ("IPI") to provide sales management and engineering services
for the  Company in Japan and other  designated  countries,  for the  purpose of
securing  the  Company's   product  sales  to  the  Asian   Original   Equipment
Manufacturers  market. In return for such services the Company agreed to pay IPI
a fee of $6,000 per month plus normal business expenses. At December 31, 1998, a
total of  $60,450  had been paid under the terms of the  contract,  representing
consulting  fees and out of the  pocket  expenses,  which  have been  charged to
operations.

     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,  any time
subsequent  to  September  30,  1999 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 until August 1999. The Company further agreed to pay the costs to
establish  and  maintain  an office in China  within the  limits of an  approved
budget.  As of December  31,  1998 a total of  $120,201  had been paid under the
terms of the contract,  representing consulting fees of $45,000, office expenses
of $48,439 and travel costs of $26,762.  No  commissions  had been earned and no
stock  options had been  granted  through  December  31,  1998  pursuant to this
agreement.

Leases

     The Company  leases  shared  office space on a  month-to-month  basis for a
monthly rental of $5,950.  Rent expense incurred for the cumulative  period from
July 17, 1995 (inception) to December 31, 1998 amounted to $196,446; and for the
years ended  December  31, 1998 and  December  31, 1997  amounted to $74,098 and
$78,496, respectively.

8.   Employment Agreements

     Mr. Zarin entered into an employment  agreement with the Company,  dated as
of July  20,  1995,  pursuant  to  which he  agreed  to  serve as the  Company's
President and Chief  Executive  Officer  through  December 31, 2000. In December
1997,  the  term of the  agreement  was  extended  for two  additional  years to
December 31, 2002.  The agreement  provided for an initial salary of $90,000 per
year and increased to $120,000 on March 15, 1996.  Mr. Zarin is also entitled to
an annual bonus equal to (i) 30% of his base  compensation  if the Company's net
profits  before taxes are equal to  projections  to be approved by the Company's
Board of  Directors,  (ii) 60% of his base  compensation  if the  Company's  net
profits  before taxes are equal to 110% of such  projections,  and (iii) 100% of
his base  compensation  if the Company's  net profits  before taxes are equal to
120% of 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  terminates  the agreement  other than for good cause,  or otherwise
materially breaches the agreement, Mr. Zarin will receive a single payment equal
to the  remaining  payments he would have been  entitled  to receive  during the
unexpired  portion of the  agreement.  In  addition,  the  employment  agreement


                                      F-21

<PAGE>


provides Mr. Zarin with an option to purchase  200,000 shares of Common Stock at
$1.50 per share.  The option  expires  December 31, 2000 and  terminates  if Mr.
Zarin voluntarily  leaves the Company or the employment  agreement is terminated
by the  Company  for  good  cause.  In  connection  with  services  rendered  in
establishing  the Company and creating its business  plan and  projections,  Mr.
Zarin received  450,000 shares of the Company's  Common Stock valued at $.01 per
share.

     Mr. Webb entered into an employment agreement with the Company, dated as of
September   11,   1995,   pursuant  to  which  Mr.  Webb  was   appointed   Vice
President-Marketing of the Company. In March 1997, his title was changed to Vice
President-Marketing/Technical  Development in order to more  accurately  reflect
his  duties.  The  employment  agreement  continued  until  March  31,  1996 and
thereafter  has been  continuing  for  successive  3-month  periods.  Mr. Webb's
initial salary was $5,000 per month and was increased to $108,000 per year as of
August 14, 1996. In connection with his employment agreement,  Mr. Webb received
options to purchase  70,000  shares of the  Company's  Common Stock at $1.50 per
share.

     Mr. Legato entered into an employment agreement with the Company,  dated as
of  February  11,  1997,  pursuant  to  which  Mr.  Legato  was  appointed  Vice
President-Sales of the Company.  The employment agreement continued until August
1997 and thereafter has been  continuing for  successive  3-month  periods.  Mr.
Legato's  initial  salary was $150,000 per year and has not been  increased.  In
connection  with his  employment  agreement,  Mr.  Legato  received  options  to
purchase 60,000 shares of the Company's Common Stock at $6.875 per share.

     In connection with services performed by Mr. O'Brien,  on July 17, 1995, he
received 5,000 shares of the Company's Common Stock valued at $.01 per share and
has been granted options to purchase 25,000 shares of the Company's Common Stock
at $1.50 per share and 5,000 shares of the  Company's  Common Stock at $2.00 per
share.

     On September 4, 1998 the Company entered into an employment  agreement with
its Vice President - Engineering.  As part of the agreement, the Company granted
to this individual,  under the Company's Plan, options to purchase 50,000 shares
of Common Stock at $1.50 per share, the underlying value of the Company's Common
Stock at, October 1, 1998,  the date of grant:  10,000 options vest on March 16,
1999;  13,334  options vest on March 16, 2000;  13,333 options vest on March 16,
2001; and 13,333 options vest on March 16, 2002.

9.   Extraordinary Item

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


                                      F-22