<PAGE>

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

                                   FORM 10-KSB

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

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

                   For the fiscal year ended December 31, 1996

               [ ] 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)

                                 (201) 882-8810
                (Issuer's telephone number, including area code)

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

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

                                      NONE

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

                          COMMON STOCK, $.01 PAR VALUE

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

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

<PAGE>

State issuer's revenues for its most recent fiscal year:  $0.00

Aggregate market value of the voting stock held by non-affiliates based on the
last sale price for such stock at March 7, 1997: $24,599,759

State the number of shares outstanding of each of the issuer's classes of common
equity, as of March 7, 1997: 5,325,000

                       DOCUMENTS INCORPORATED BY REFERENCE

              The Company's definitive Proxy Statement for its 1997
               Annual Meeting of Shareholders which will be filed
             pursuant to Regulation 14A not later than April 30,1997
                is incorporated by reference in Part III hereof.


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


                                       ii


<PAGE>


                            NUWAVE TECHNOLOGIES, INC.
                                   FORM 10-KSB
                                      INDEX
<TABLE>
<CAPTION>



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


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

   ITEM 1.  BUSINESS.....................................................................................1
   ITEM 2.  PROPERTY....................................................................................16
   ITEM 3.  LEGAL PROCEEDINGS...........................................................................17
   ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........................................17

PART II.................................................................................................17

   ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER ................................
                       MATTERS..........................................................................17
   ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...................................18
   ITEM 7.  FINANCIAL STATEMENTS........................................................................33
   ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                       AND FINANCIAL DISCLOSURE.........................................................33

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

   ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
                       COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT................................33
   ITEM 10  EXECUTIVE COMPENSATION......................................................................34
   ITEM 11  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                        MANAGEMENT......................................................................34
   ITEM 12  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................................35
   ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K............................................................35

SIGNATURES..............................................................................................40

</TABLE>

                                      iii
<PAGE>


                                    GLOSSARY

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

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

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

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

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

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

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

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

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

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

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

                                       iv
<PAGE>

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

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

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

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

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

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

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

Real Time.  Transmission of data as an event occurs.

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

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

TBC. Time Base Corrector. A device attached to a video source that corrects to a
known timing source distortions in the rate each frame containing video
information is presented and presents a consistent timed signal and frame
synchronization. TBCs are an essential component in sophisticated video
production processes in which multi video sources are manipulated, combined and
otherwise processed.

VGA. Video Graphics Array. The typical form in which video is encoded in a
computer for processing or display on a computer monitor. A VGA display is based
on individual
                                       v

<PAGE>
"pixels" making up a computer screen. VGA must be converted into
broadcast signals that are displayed in compliance with NTSC or PAL standards.

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

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


                                       vi

<PAGE>


                                     PART I

ITEM 1.  BUSINESS

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

     In July 1996 the Company completed an initial public offering of its common
stock and warrants (the "IPO") from which it received net proceeds of $9,538,428
and repaid $2,000,000 principal amount of promissory notes issued in connection
with a previous financing. At that time, the Company had produced fully
operational prototypes of (1) an analog video processor which significantly
enhances video picture quality (the "AVP"), (2) another video enhancement device
which combined the AVP with digitally based frame extrapolation video noise
reduction circuits for use in NTSC or PAL standard devices (the "Magic Card"),
and (3) a time base corrector providing for analog to digital conversion and the
synchronization of up to 3 video sources (the "NUWAVE Dual TBC"). The Company
also had produced an initial prototype of a video editing "studio" mounted on
PCBs (the "NUWAVE Ministudio") and was in the process of developing additional
software to provide necessary memory functions for its operations. The AVP, the
Magic Card, the NUWAVE Dual TBC and the NUWAVE Ministudio are called the
"Initial Products."

     During the last six months of 1996, the Company, using its Advanced
Engineering Group (as described below), significantly enhanced the performance
of the original AVP to create the "NUWAVE Video Processor." The Advanced
Engineering Group also developed a separate proprietary software product
("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 taste or standards. For example, the manufacturer of a
set-top box who includes the NUWAVE Video Processor and Softsets in its product
could offer viewers the ability to select predetermined optimum video parameters
for "Sports," "Movies," "Drama" or other predesignated programming from their
remote control ("Active Softsets"). Additionally, program providers or other
transmitters can encode their signal so that a receiving device containing the
NUWAVE Softsets and enhanced NUWAVE Video Processor 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.



                                       1

<PAGE>

     In late January 1997 the Company began marketing the NUWAVE Video Processor
as the "NUWAVE Video Processor" and the "Crystal Wave Video(TM)" circuit, and
the Active and/or Passive Softsets as "Crystal Wave Softsets" through
comprehensive sales presentations to prospective customers. Although the Company
is unable to predict whether its marketing efforts will be successful, it
believes, based on its initial presentations, that the products have been well
received, and several potential customers have indicated their desire to
continue discussions.

     Based on initial conversations with prospective customers during September
and October, 1996, and the development of the Softsets, the Company modified its
plans with respect to pre-order production of the NUWAVE Video Processor in the
form of a semi-conductor ASIC chip. The Company now expects to produce the ASIC
chips in accordance with the customer's specific application requirements
supported by firm commitments rather than producing and inventorying them in
anticipation of the requirements of its potential customers.

     The Company has concluded commercial development of the first version of
its NUWAVE Dual Time Base Corrector which provides analog-to-digital conversion
and the synchronization of up to three video sources. It is completing
commercial development of a TBC chip (module) which is being used in a desk top
TBC which synchronizes two video sources and operates independently of a host
computer. It is also finalizing development of a TBC which will synchronize up
to 5 video sources utilizing four of such modules. Both products are derivatives
of the NUWAVE Dual Time Base Corrector. It anticipates introducing these
products to the market in 1997.

     During the last quarter of 1996 and early 1997, the Company, through its
Advanced Engineering Group and Rave Engineering Corporation ("Rave"),
substantially redesigned the "NUWAVE Ministudio," significantly improving its
performance characteristics and flexibility. The Company has tested working
prototypes of the newly designed NUWAVE Ministudio mounted on PCBs. Before
marketing the product, the Company intends to reconstitute several of the
constituent circuits into one or more ASICs which will then be mounted on a PCB
with other constituent chips to create the final product. The Company
anticipates that this process, and the attendant refining and modifications
inherent in taking a product from working prototype to one which can be marketed
in final form, will take approximately 6 months.

     The Company originally anticipated devoting significant resources to the
final commercial development of its Magic Card (which combines the analog based
NUWAVE Video Processor with digitally based enhancements) with a goal of
introducing it to the market in the second half of 1997. However, with the
introduction and apparent favorable reception of the NUWAVE Video Processor and
the Softsets in January and February, the Company has determined to devote
substantially all of the personnel and economic resources it would have devoted
to the Magic Card to the marketing of the NUWAVE Video Processor and the
Softsets. The Company believes this will give it the opportunity to further
refine the Magic Card based on its experience with the NUWAVE Video

                                       2

<PAGE>

Processor and market reaction. Because the final commercial development of the
Magic Card will be based in large part on the Company's experience in marketing
the NUWAVE Video Processor, the Company cannot predict when, if at all, it will
finalize commercial development of the product or commence marketing it.

     Substantially all of the technology on which the Company's Initial Products
were based was originated by Rave prior to the Company's organization. The
technology is licensed to the Company by Rave pursuant to an exclusive License
Agreement between the Company and Rave dated July 21, 1995 (the "License
Agreement"). The Company also has entered into a Development Agreement dated
July 21, 1995 (the "Development Agreement") with Rave and has relied
significantly on Rave in the development of the AVP, the NUWAVE Dual TBC and the
NUWAVE Ministudio. See Item 6, "Management's Discussion and Analysis" for a
discussion of the terms of the License Agreement and the Development Agreement.
The Company anticipates that Rave's role in the development of the Initial
Products will be substantially completed in the first half of 1997, and the
Company and Rave have agreed that Rave will thereafter be responsible for the
development of additional products pursuant to the Development Agreement.

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

     The Company has established an Advanced Engineering Group made up of its
own employees and third party consultants who work with the Company on a project
by project basis. The Advanced Engineering Group operates under the direction of
the Vice President-Marketing/Technical Development to support the continuing
development of its products and related technology, and the identification of
additional sources of new technology. The Company has used its Advanced
Engineering Group to develop a significant amount of the software included in
each of its products and to reconfigure certain circuitry to allow certain of
the products to be produced as ASICs. The Advanced Engineering Group also
developed the Softsets for the NUWAVE Video Processor and certain of the
enhancements to it. The Company intends to use the Advanced Engineering Group to
finish the commercialization process with respect to the additional NUWAVE TBC
products described above, and the NUWAVE Ministudio.

     The Company is a development stage enterprise. It has had only a limited
operating history and has not sold any of its products to date. Since its
inception in July 1995, the Company has been engaged primarily in raising funds,
directing, supervising and

                                       3

<PAGE>

coordinating Rave and its Advanced Engineering Group in the continuing
development of the NUWAVE Video Processor, the Softsets, the NUWAVE Dual Time
Base Corrector, the NUWAVE Ministudio and the Magic Card, pre-marketing and more
recently the commencement of a comprehensive program for marketing the NUWAVE
Video Processor and the recruitment of management and technical personnel,
including members of the Advanced Engineering Group.

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

HISTORY

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

         Negotiations commenced in December 1994 and continued among Mr. Zarin,
Mr. Chu, 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 technology-related products to third
parties (subject in all cases to the Company's approval) under the terms of the
Agency Agreement. See Item 6, "Management's Discussion and Analysis" for a
description of the Agency Agreement. Mr. Zarin became the Company's President
and Mr. Chu became the Chairman of its Board of Directors and

                                       4

<PAGE>

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

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

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

         Rave's principal activities are providing services for the Company
pursuant to the Development Agreement. The Development Agreement provides that
all results of development, including unrelated developments, belong to the
Company, and that Rave will not undertake any development activities for third
parties without the consent of the Company. Rave and the Company are discussing
possible collaboration with a third party pursuant to which Rave would undertake
development activities for such third party of medical devices, some of which
might incorporate the Company's licensed technology, but no agreements have been
reached with respect to such development activities or arrangements made with
the Company with respect to the use of such licensed technology. Rave has not
sought the Company's consent with respect to any other third party development
activities and is not providing development activities for any third parties.
Prime was organized in 1993 and, at that time, substantially all of its
activities related to proposed licensing of Rave's products and technology and
the organization of the Company. The exclusive licensing arrangement between
Rave and Prime relating to the technology used by the Company was terminated in
July 1995.

BACKGROUND--VIDEO IMAGES

         The human eye perceives all images as a result of its ability to
recognize light. Light travels as continuous electromagnetic waves ("Analog
Light Waves") that are either emitted by the object being observed or reflected
from it. Analog Light Waves vary in frequency and amplitude, and can be directly
captured as images. For example, in photography, light waves strike film treated
with certain chemicals and the energy from


                                       5

<PAGE>

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 a lower frequency
Analog Video Wave. That wave is transmitted to a receiver, where it is projected
at the standard broadcast rate of 30 fps against a phosphorescent screen. The
screen then emits Analog Light Waves, making the image visible to the human eye.

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

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

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

         Given the physical limitations of satellite, cable and telephone
systems, and their increasing interactivity, ever more emphasis is being placed
on compression technology as a means to allow more data to be transmitted in any
time interval. Using a variety of

                                       6
<PAGE>

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 Noise.

THE COMPANY'S VIDEO ENHANCEMENT PRODUCTS

         THE NUWAVE VIDEO PROCESSOR AND SOFTSETS

         The NUWAVE Video Processor enhances fine details of an image and
reduces distortions incurred in the course of transmitting the image, corrects
the pure black content of images and adjusts perceived light on projected
images. Fine detail enhancement is achieved by a proprietary circuit that
analyzes the form of the analog waves at the point of origin or display, and
processes the wave to significantly increase the clarity of the image.

         The NUWAVE Video Processor 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 NUWAVE Video Processor's
proprietary circuits enable the process to be performed inexpensively on a PCB,
ASIC or a small portion of a integrated circuit chip.

         The NUWAVE Video Processor 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.

                                       7

<PAGE>

         The NUWAVE Video Processor 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 NUWAVE
Video Processor 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
proprietary software ("Softsets") to control the functions of the NUWAVE Video
Processor. The Softsets give both end users and manufacturers who use the NUWAVE
Video Processor 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 NUWAVE Video Processor and Softsets in its product
could offer viewers the ability to select predetermined optimum video parameters
for "Sports," "Movies" "Drama" or other predesignated programming from their
remote control ("Active Softsets"). Additionally, program providers or other
transmitters can encode their signal so that a receiving device containing the
NUWAVE Softsets and enhanced NUWAVE Video Processor 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.

         In late January 1997, the Company began marketing the NUWAVE Video
Processor as "NUWAVE Video Processor" and "Crystal Wave Video(TM)" circuit, and
the Active and/or Passive Softsets as "Crystal Wave Video Softsets" through
comprehensive sales presentations to prospective customers. Although the Company
is unable to predict whether its marketing efforts will be successful, based
upon its initial sales presentations, it believes that the products have been
well received, and several potential customers have indicated their desire to
continue discussions.

     Based on initial conversations with prospective customers during September
and October, 1996, and the development of the Softsets, the Company modified its
plans with respect to pre-order production of the NUWAVE Video Processor in the
form of a semi-conductor chip (an Application Specific Integrated Circuit, or
"ASIC"). The Company now expects to produce the ASIC chips in accordance with
the customer's specific application requirements supported by firm commitments
rather than producing and inventorying standard ASIC chips in anticipation of
the requirements of its potential customers.

         THE MAGIC CARD

         The Magic Card combines the NUWAVE Video Processor, the Company's frame
extrapolation system and the Company's noise reduction system.

                                       8

<PAGE>

         The Company has proprietary software and circuits which it has combined
with readily available components on a PCB to replace missing frames (the
"NUWAVE Frame Extrapolation System"). The NUWAVE Frame Extrapolation System can
be used in any component in which digitized video information is processed in
compliance with NTSC, PAL or similar systems. It automatically becomes operative
when less than 30 fps are output. This system uses the digitized frames
previously presented, which are stored in memory on the PCB and, on the basis of
the differences, extrapolates information that is used to create a Virtual
Frame. The Virtual Frame is then inserted as the next frame presented. All
functions necessary for the extrapolation occur on the PCB, leaving the host
computer's memory and operating systems free.

         The Company has combined proprietary software and low cost, readily
available components to significantly reduce noise (the "NUWAVE Noise Reduction
System") in devices using NTSC or PAL standards. These standards provide for
interlaced scanning based on alternating horizontal lines. The NUWAVE Noise
Reduction System takes advantage of this to replace the erroneous data prior to
its presentation. The device uses the frames presented by the signal source for
its references. All functions necessary for the process occur on the PCB.

         The Company has produced and tested fully operational prototypes of the
Magic Card printed on a PCB. However, completing the commercial development
process of the Magic Card will require significant expenditure of time and
money. The Company originally anticipated final commercial development of its
Magic Card to be completed in the first half of 1997 with a goal of introducing
it to the market in the second half of 1997. However, with the introduction of
the NUWAVE Video Processor and the Softsets in January and February, the Company
has determined to devote substantially all of the personnel and economic
resources it would have devoted to the Magic Card to the marketing of the NUWAVE
Video Processor and the Softsets. The Company believes this will give it the
opportunity to further refine the Magic Card based on its experience with the
NUWAVE Video Processor and market reaction. Because the final commercial
development of the Magic Card will be based in large part on the Company's
experience in marketing the NUWAVE Video Processor, the Company cannot predict
when, if at all, it will complete commercial development of the product or
commence marketing it.

BACKGROUND--VIDEO PRODUCTION

         The development of faster, more affordable computers and more
sophisticated methods of capturing and manipulating still and moving images have
made available a wealth of video material, creating a demand for affordable ways
to produce high content, high quality video programs for personal use and
business applications. In order to meet this demand, it will be necessary to
make available easy to use, affordable TBCs. All recordings play back at
slightly varying speeds unless they contain a TBC. TBCs are devices which
provide a consistent timed signal for each frame. This corrected signal

                                       9
<PAGE>

allows the synchronous playback of video sources permitting images on each frame
to be composited.

         For example, a videographer will capture an entire event by camcorder
or video recorder. The videographer may want to show individuals using
photographs; add background scenery; incorporate titles or art work into images;
and present multiscreen images. In order to accomplish these tasks, it is
necessary to make use of a morphing program to evolve faces from photograph to
photograph, a "keyer" to effectively cut a hole in the video of the background
and insert the images into it and bring titles and art work into the video, and
finally a method of producing synchronous multiscreen images. The production
process must combine multiple recordings.

THE COMPANY'S PROPOSED VIDEO PRODUCTION PRODUCTS

         The Company's proposed video production products will provide
videographers with an easy, affordable system to create sophisticated video
productions. While these products will have the features and capabilities needed
for professional quality productions, they will be marketed at price points
affordable by a wide range of amateurs. These products include a TBC that may be
sold on a stand-alone basis. These components will be integrated with other
components and software in a Ministudio being developed by the Company that will
provide sophisticated video production capabilities including the ability to:

 o   Composite still and moving images from up to four sources simultaneously;

 o   Add special effects and artwork;

 o   Incorporate titles and captions;

 o   Present synchronous multiscreen images;

 o   Morph between successive images;

                   NUWAVE  TBCs

     The Company has developed a TBC (the "NUWAVE Dual TBC") which is based on a
single PCB, includes proprietary circuitry and software and utilizes readily
available parts to provide analog-to-digital conversion and memory functions. It
provides for the synchronization of up to three video sources. Currently, one
TBC must be dedicated to a video source connected to the editing site in order
to achieve synchronization. The Company believes that these features will enable
it to compete successfully with other manufacturers of TBCs on the basis of
price and capability. The Company has produced and tested fully operational
prototypes of the NUWAVE Dual TBC. In its initial commercial form, the Company
intends to market the NUWAVE Dual TBC as ASICs

                                       10
<PAGE>

mounted on a PBC. It also intends to integrate the NUWAVE Dual TBC into the
NUWAVE Ministudio.

     The Company has concluded commercial development of the first version of
its NUWAVE Dual Time Base Corrector which provides analog-to-digital conversion
and the synchronization of up to three video sources. It also is completing
commercial development of a TBC chip (module) which is being used in a desk top
TBC which synchronizes two video sources and operates independently of a host
computer and finalizing development of a TBC which will synchronize up to 5
video sources utilizing four of such modules. Both products are derivatives of
the NUWAVE Dual Time Base Corrector. It anticipates introducing these products
to the market in 1997.

NUWAVE MINISTUDIO

         In order to complete a final, edited video, a videographer may wish to:
select desired footage; choose background music; create or select titles;
confirm names; "morph" images; add animation; key primary images into a
background, and composite multiple images. The Company is developing the NUWAVE
Ministudio which it believes will be capable of providing all of the indicated
functions necessary to produce professional quality videos with special effects.

         The NUWAVE Ministudio includes software, through which a host computer
can identify video clips and store them in its hard drive. Thereafter, such
clips will be available instantly for Nonlinear Editing. Its NUWAVE Ministudio
can access video from an external source and from the host computer for A/B Roll
Editing and will provide operating commands for the external sources. The
Company also intends to include in its Ministudio third-party morphing software,
editing software (which provides, among other things, edit decision lists),
title generating software, animation software, other special effects software
and machine control software. The NUWAVE Ministudio allows the videographer to
perform discrete functions on all inputs simultaneously. The NUWAVE Video
Processor is included in the NUWAVE Ministudio. At the time of the IPO, the
Company had produced and tested initial prototypes of the NUWAVE Ministudio
mounted on PCBs which were fully operational except for the ability to store and
access video in the hard drive of the host computer.

     During the last quarter of 1996 and early 1997, the Company, through its
Advanced Engineering Group and Rave, substantially redesigned the NUWAVE
Ministudio, substantially improving its performance characteristics and
flexibility. The redesigned Ministudio utilizes its video to VGA converter to
synchronize the computer to the external source instead of the NUWAVE Dual TBC
included in the original version. Although this means that the NUWAVE
Ministudio, by itself, can only synchronize one external source, the use of the
converter has substantially simplified the product's design. If justified by the
market, the Company may package its TBCs with the Ministudio to provide
synchronization of multiple sources.

                                       11

<PAGE>

         The Company has tested fully operational prototypes of the newly
designed NUWAVE Ministudio mounted on PCBs. Before marketing the product, the
Company intends to reconstitute several of the constituent circuits into one or
more ASICs which will then be mounted on a PCB with other constituent chips to
create the final product. The Company anticipates that commercial development
process, and the attendant refining and modifications inherent in taking a
product from working prototype to one which can be marketed in final form, will
take approximately 6 months.

THE COMPANY'S OTHER POTENTIAL PRODUCTS

         Through its Development Agreement with Rave and other potential
opportunities with other third parties, the Company is conducting investigation,
research and development activities with respect to several other products
relating to video telecommunications although none are material to the Company's
present plan of operation. These activities may give rise to additional products
which may be commercialized by the Company. However, there can be no assurance
that its efforts will result in marketable products or products which can be
produced at commercially acceptable costs.

RESEARCH AND DEVELOPMENT

     Research and development activity with respect to the Company's Initial
Products was carried out by Rave prior to July 21, 1995 when the Company and
Rave entered into the License Agreement and the Development Agreement.
Substantially all of the technology on which the Company's Initial Products were
based was originated by Rave prior to the Company's organization. The technology
is licensed to the Company by Rave pursuant to the License Agreement. Pursuant
to the terms of the Development Agreement, the Company has relied significantly
on Rave in the development of the Analog Video Processor, the NUWAVE Dual TBC
and the NUWAVE Ministudio. The Company anticipates that Rave's role in the
development of the Initial Products will be substantially completed in the first
half of 1997, and the Company and Rave have agreed that Rave will thereafter be
responsible for the development of additional products pursuant to the
Development Agreement.

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

                                       12

<PAGE>

     The Company has established an Advanced Engineering Group made up of its
own employees and third party consultants who work with the Company on a project
by project basis. The Advanced Engineering Group operates under the direction of
the Vice President-Marketing/Technical Development to support the continuing
development of its products and related technology, and the identification of
additional sources of new technology. The Company has used its Advanced
Engineering Group to develop a significant amount of the software included in
each of its products and to reconfigure certain circuitry to allow certain of
the products to be produced as ASICs. The Advanced Engineering Group also
developed the Softsets for the NUWAVE Video Processor and certain of the
enhancements to it. The Company intends to use the Advanced Engineering Group to
finish the commercialization process with respect to the additional NUWAVE TBC
products described above, and the NUWAVE Ministudio. As of March 10, 1997, the
Advanced Engineering Group consisted of 3 of the Company's employees and 7
outside consultants and included engineers, technicians and support personnel.
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 rely not only on Rave but also on the Advanced
Engineering Group and other independent third party sources.

         From July 17, 1995 through December 31, 1995, the Company spent
approximately $491,000 on research and development, of which approximately 85%
was paid to Rave pursuant to the Development Agreement. From January 1, 1996 to
December 31, 1996 the Company spent approximately $1,620,600 on research and
development, of which approximately 71% was paid to Rave pursuant to the
Development Agreement and the remainder to outside consultants, including
participants in its Advanced Engineering Group. Over the next 12 months, the
Company intends to spend approximately $2,088,990 on research and development.
Of that amount the Company estimates that at least 56% will be paid to Rave
pursuant to the Development Agreement, and 44% will be spent on software
development, ASIC chip development, and production engineering undertaken by
third parties.

         Rave currently employs 12 persons and retains the services of 6
consultants on a regular basis. It also has informed the Company that it intends
to hire or retain additional persons to assist it in fulfilling its obligations
pursuant to the Development Agreement.

MARKETING AND DISTRIBUTION

         The Company has commenced the marketing of its NUWAVE Video Processor
and Softsets to manufacturers of televisions, multimedia computers and
teleconferencing equipment and manufacturers of other video products such as
set-top boxes, satellite distribution systems and home arcade stations. The
Company has also introduced these products to companies that manufacture such
products and semiconductors used in the manufacture of such products. The
Company believes that the inclusion of its NUWAVE Video Processor and Softsets
in such video products will allow them to produce

                                       13

<PAGE>

significantly better images, allow for product differentiation and the low cost
to the user will make it an attractive product.

         The Company is in the process of developing a formal advertising
program. Once the NUWAVE Video Processor and Softsets are accepted by one or
more manufacturing customers, the Company intends to advertise its availability
both to the retail markets and at the trade level in order to both increase
demand and increase awareness of the Company's products and technology.

         Although the Company has begun marketing the NUWAVE Video Processor and
the Active and/or Passive Softsets, it has entered into no agreements with
respect to any of its products, and is unable to predict whether its marketing
efforts will be successful. However, based on its initial presentations, it
believes that the products have been well received. Additionally, several
potential customers have indicated their desire to continue discussions.

         Because the TBC products and NUWAVE Ministudio are not expected to be
ready for market until the last half of 1997 and 1998, respectively, the Company
is still developing its marketing strategy with respect to these products.
However, the Company is considering the feasibility of marketing these products
through representatives to national distributors.

         In addition to direct sales, the Company may license the manufacture of
its product and use of its technology in situations in which such arrangements
are to its economic advantage. However, because its emphasis has been on direct
sales and OEM manufacturing, it has not yet developed a licensing program,
established proposed royalties or otherwise determined the terms and conditions
of the arrangements it may want to make with proposed licensees or others. These
programs will be developed and considered in conjunction with Prime pursuant to
the terms of the Agency Agreement, with product research and development, and
prevailing market conditions.

         During the past six months, the Company has recruited a Vice President
of Sales, a Director of Marketing Communications and professional sales
consultants to establish and manage the development of the Company's sales
organization. In this regard, the Company is continually reviewing its needs and
will employ additional internal sales staff as necessary. The Company is also
currently negotiating contracts with several individuals and organizations who
it anticipates will act in a commissioned sales representative capacity
regarding the Company's products.

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 NUWAVE Video Processor and Softsets, NUWAVE TBC products and NUWAVE
Ministudio.

                                       14
<PAGE>

It also may license to third parties the rights to manufacture the products,
either through direct licensing, OEM arrangements or otherwise.

         The Company will be dependent on third parties for the manufacture of
the ASIC-based NUWAVE Video Processor and the NUWAVE TBC products and for the
manufacture and/or assembly of the PCBs, frame and other subassemblies, as well
as for the supply of the various components, that will be incorporated into its
NUWAVE Ministudio. Although the Company has identified certain potential
manufacturers of its NUWAVE Video Processor, it has not entered into any
manufacturing or supply arrangements with respect to those products or any
others. Although management believes it will be able to negotiate satisfactory
manufacturing and supply agreements, the failure to do so would have a material
adverse effect on the Company. Furthermore, there can be no assurance that such
manufacturers will dedicate sufficient production capacity to satisfy the
Company's requirements within scheduled delivery times or at all. Failure or
delay by the Company's suppliers in fulfilling its anticipated needs would
adversely affect the Company's ability to develop and market its products. In
addition, the Company will be dependent on third party vendors for many of the
components necessary for the final assembly of its NUWAVE Ministudio. However,
the Company may have difficulty in obtaining contractual agreements with the
suppliers of such materials due to, among other things, possible material
shortages or possible lack of adequate purchasing power. While management
believes that these components are available from multiple sources, it
anticipates that the Company will obtain certain of them from a single source,
or limited number of sources, of supply. In the event that certain of such
suppliers are unable or unwilling to provide the Company with components used in
the NUWAVE Ministudio 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.

PATENTS; PROPRIETARY INFORMATION

         To the extent practicable, the Company intends to file U.S. patent
and/or copyright applications on certain aspects of its technology (or on behalf
of Rave to the extent licensed by the Company pursuant to the License Agreement)
and to file corresponding applications in key industrial countries worldwide.
The Company has filed for a patent with respect to its NUWAVE Video Processor
and expects to file applications with respect to the Softsets in the second
quarter of 1997.

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

                                       15

<PAGE>

COMPETITION

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

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

EMPLOYEES

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

ITEM 2.  PROPERTY

FACILITIES

         The Company has established its headquarters in Fairfield, New Jersey.
Pursuant to the sublease relating to such facility, the Company is obligated to
make monthly rental payments of $4,200. The lease is on a month-to-month basis.
The Company's subleased portion of the facility is approximately 1,500 square
feet and the sublease entitles the Company to share certain common areas.

                                       16

<PAGE>

         The Company also leases a 1,295 square foot facility in San Diego,
California, which houses product development, display and office facilities.
Under the lease for this facility, which lease expires in August 1997, the
Company is obligated to make monthly rental payments of $1,569.

ITEM 3.  LEGAL PROCEEDINGS

         The Company is not a party to any legal proceedings.

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

         No matters were submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1996.

                                     PART II

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

         The Company's Common Stock has been traded since July 1996 on the
NASDAQ Small Cap 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 Small Cap 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

Commencing July 3, 1996                    $  8.25              $  7.50

September 30, 1996                         $  7.75              $  4.75

December 31, 1996                          $  7.00              $  5.50

         As of March 7, 1997, there were approximately 77 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

                                       17
<PAGE>

its business and future operations, and therefore does not anticipate paying any
cash dividends in the foreseeable future.

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

                          Summary Financial Information

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

Statement of Operations Data:         July 17, 1995 (Inception)       Year Ended
                                           to December 31,           December 31,
                                                 1995                     1996

<S>                                        <C>                    <C>
Net Loss                                   $   910,591            $   4,430,649
Net loss per common share                  $       .47            $        1.18
Weighted average number of shares            1,941,706                3,767,403


Balance Sheet Data:                          December 31,           December 31,
                                                 1995                   1996

Working capital                            $      295,447        $    5,776,740
Total assets                               $      426,328        $    6,291,898
Total liabilities                          $      349,719        $      373,110
Deficit accumulated during the
development stage                          $      910,591        $    5,341,240
Stockholders' equity                       $       76,609        $    5,918,788
</TABLE>


         This Annual Report on Form 10-KSB contains forward-looking statements.
For this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects" and
similar expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause the Company's actual results
to differ materially from those indicated by such forward-looking statements.
These factors include, without limitation, those set forth below under the
caption "Certain Factors That May Affect Future Results."

                                       18

<PAGE>

GENERAL

         The Company, a development stage enterprise organized in July 1995, was
formed to develop, manufacture and market products which improve picture quality
image in set top boxes, televisions, VCR's, camcorders and other video devices
by enhancing and manipulating video signals, and facilitate the production of
sophisticated consumer and professional videos. Since its inception the Company
has been engaged primarily in raising funds, directing, supervising and
coordinating the activities of Rave Engineering Corporation and its Advanced
Engineering Group (see below) in the continuing development of the NUWAVE Video
Processor, the Softsets, the NUWAVE Dual Time Base Corrector, the NUWAVE
Ministudio and the Magic Card (see product descriptions below), pre-marketing
and more recently the commencement of a comprehensive marketing of the NUWAVE
Video Processor and the recruitment of management and technical personnel,
including members of the Advanced Engineering Group. In July 1996 the Company
completed an Initial Public Offering of its common stock and warrants (the
"IPO") 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. The Company
is using the proceeds of the IPO to develop, commercialize and market its
products. The Company has not licensed or sold any of its products or
technologies.

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

          During the last six months, the Company has established an advanced
engineering group (the "Advanced Engineering Group"). The Advanced Engineering
Group is made up of employees and third party consultants who work with the
Company on a project by project basis to support the continuing development of
its products and related technology and the identification of additional sources
of new technology. The Company, through its Advanced Engineering Group, has
significantly enhanced the performance of the original AVP to create the "NUWAVE
Video Processor." The Advanced Engineering Group also has developed a separate
proprietary software product ("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 taste or
standards. In late January 1997, the Company began marketing the NUWAVE Video
Processor and Softsets. It has also concluded commercial development of the
first version of its

                                       19
<PAGE>

NUWAVE Dual Time Base Corrector. The Company anticipates marketing the TBC
products in the second half of 1997.

         The Company intends to produce the NUWAVE Video Processor in the form
of an "ASIC" chip (Application Specific Integrated Circuit) in accordance with
the customer's specific application requirements supported by firm commitments
rather than producing and inventorying ASIC chips and endeavoring to anticipate
applications required by customers in the future.

         The Company originally anticipated devoting significant resources to
the final development of its Magic Card with a goal of introducing it to the
market in the second half of 1997. However with the introduction of the NUWAVE
Video Processor and the Softsets in January and February and the favorable
market feedback from its initial marketing and sales calls, the Company has
determined to devote the majority of the personnel, economic resources and
research and development efforts that it would have devoted to the Magic Card to
the support of the sales and marketing of the NUWAVE Video Processor and
Softsets. The Company believes this will give it the opportunity to further
refine the Magic Card based on its experience with the NUWAVE Video Processor
and market reaction. Because the final commercial development of the Magic Card
will be based in large part on the Company's experience in marketing the NUWAVE
Video Processor, the Company cannot predict when, if at all, it will finalize
commercial development of the product or commence marketing it.

         As of December 31, 1996, the Company had a deficit accumulated during
the development stage of $5,341,240, which includes the net loss for the twelve
months ended December 31, 1996 of $4,430,649. Additional losses have been
incurred since such date. The Company will continue to have a high level of
operating expenses and will be required to make significant expenditures in
connection with its research and development activities (in accordance with the
License and Development Agreements) and the production and marketing of its
proposed products and technologies. Although the Company anticipates deriving
some revenue from the sale of the NUWAVE Video Processor and the NUWAVE TBC
products within the next 12 months, no assurance can be given that these
products will be successfully marketed during such period, and the Company has
projected its expenses based on the assumption that it will receive no revenues
from the sale of its products during the next 12 months. Even if revenues are
produced from the sale or license of products, the Company expects to continue
to incur substantial losses for at least the next 12 months. See "Liquidity and
Capital Resources."

MARKETING AND DISTRIBUTION

         In late January 1997, the Company began a comprehensive marketing
program of the NUWAVE Video Processor and Softsets through sales presentations
to prospective customers. Although the Company is unable to predict whether its
marketing efforts will be successful, it believes that the products have been
well received, and several potential customers have indicated their desire to
continue discussions. The Company believes that

                                       20
<PAGE>

achieving significant market acceptance and commercialization of the Company's
products will require substantial marketing efforts and the expenditure of
significant funds to establish market awareness of the Company and its products.
The Company anticipates spending approximately $1,008,600 over the next 12
months to continue the development and implementation of a formal advertising
and marketing communications program for this purpose. During the past six
months, the Company has recruited a Director of Marketing Communications in
addition to hiring a professional marketing communications firm to assist in the
development and implementation of this program.

         The Company initially intends to market the NUWAVE Video Processor to
manufacturers of set top boxes, televisions, multimedia computers and
teleconferencing equipment as well as broadcasting and video production
professionals. In addition to direct sales, the Company may license the
manufacture of its products and use of its technology in situations where such
arrangements are to the Company's economic advantage. However, because its
emphasis has been on direct sales and OEM manufacturing, the Company has not yet
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 and considered in
conjunction with Prime pursuant to the terms of the Agency Agreement, with
product research and development, and prevailing market conditions.

     The Company has concluded commercial development of the first version of
its NUWAVE Dual Time Base Corrector which provides analog-to-digital conversion
and the synchronization of up to three video sources. It also is completing
commercial development of a TBC chip (module) which is being used in a desk top
TBC which synchronizes two video sources and operates independently of a host
computer and finalizing development of a TBC which will synchronize up to 5
video sources utilizing four of such modules. Both products are derivatives of
the NUWAVE Dual Time Base Corrector. It anticipates introducing both of such
products to market in 1997.

         During the past six months the Company has recruited a Vice President
of Sales, a Director of Marketing Communications and professional sales
consultants to establish and manage the development of the Company's sales
organization. In this regard, the Company is continually reviewing its needs and
will employ additional internal sales staff as necessary. The Company is also
currently negotiating contracts with several individuals and organizations who
it anticipates will act in a commissioned sales representation capacity
regarding the Company's products.

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. Substantially all of the technology on which the Company's Initial
Products were based was originated

                                       21
<PAGE>

by Rave prior to the Company's organization. This technology is licensed to the
Company pursuant to the License Agreement. Pursuant to the Development
Agreement, the Company has utilized Rave to continue the development of the
Initial Products. The Company anticipates that Rave's role in the development of
the initial products will be substantially completed in the first half of 1997
and the Company and Rave have agreed that Rave will thereafter be responsible
for the development of additional products pursuant to the Development
Agreement.

         In addition to utilizing the services of Rave pursuant to the terms of
the Development Agreement, the Company's Advanced Engineering Group has also
utilized the services of third party contractors in connection with its research
and development activities. The Company intends to continue to use outside
consultants to assure exposure to new ideas and technology and its Advanced
Engineering Group to direct, supervise and coordinate the efforts of Rave and
its outside consultants. The Company has used its Advanced Engineering Group to
develop a significant amount of the software included in each of its products
and to reconfigure certain circuitry to allow certain of the products to be
developed as ASICs. The Advanced Engineering Group also developed the Softsets
for the NUWAVE Video Processor and certain of the enhancements to it. The
Company intends to use the Advanced Engineering Group to finish the
commercialization process with respect to the additional NUWAVE TBC products
described above, and the NUWAVE Ministudio.

         From July 17, 1995 through December 31, 1996, the Company spent
$2,111,716 on research and development, of which approximately 74% was paid to
Rave pursuant to the Development Agreement. During the next 12 months, the
Company intends to spend approximately $2,088,990 on research and development
and in support of the commercialization of its products. Of that amount the
Company estimates that at least 56% will be paid to Rave pursuant to the
Development Agreement and 44% will be spent by the Company's Advanced
Engineering Group for software development, ASIC chip development, and
supervising and directing production engineering undertaken by third parties and
on internal research and development. In the event the Company is able to
generate revenues from sales of its NUWAVE Video Processor and TBC products
during such 12-month period, it anticipates it will increase its expenditures on
research and development and the identification of additional sources of
technology.

MANUFACTURING

         The Company does not contemplate that it will directly manufacture any
of its products. It intends to contract with third parties to manufacture its
proposed NUWAVE Video Processor ASIC chip, NUWAVE TBC, Magic Card ASIC chip set,
and related retail products, and NUWAVE Ministudio.

                                       22
<PAGE>

EMPLOYEES

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

LIQUIDITY AND CAPITAL RESOURCES

         From its inception through completion of its IPO, the Company relied
for all of its funding ($2,900,000 in cash plus the cancellation of the notes in
the principal amount of $350,000) on private sales of its debt and equity
securities (the "Private Financings"). In July 1996, the company completed an
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.

         Pursuant to the terms of the License Agreement and the Development
Agreement, the Company is paying Rave minimum aggregate royalties and
development fees of $65,000 per month for the term of the License Agreement. The
License Agreement also provides for additional payments of $60,000 per year to
be made to Rave for consulting services to be rendered to the Company. The
Development Agreement also provides for Rave to receive additional payments
aggregating $850,000 to purchase or lease equipment for use in developing the
Licensed Products and Technology (as defined below). The payments are to be
based upon the submission of appropriate development schedules to the Company
and will be made in monthly installments not to exceed $23,611 with a lump sum
payment of $283,336 due in March 1998. Through December 31, 1996, the Company
had made payments of $208,630 against the $850,000 additional equipment
purchases.

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

         Pursuant to the terms of an agency agreement with Prime Technology,
Inc. ("Prime") dated July 21, 1995 (the "Agency Agreement"), Prime will receive
35% of net sublicensing fees received by the Company with respect to the first
$50,000,000 of aggregate net sales made by the Company's sublicensees, after
subtracting the payments to

                                       23
<PAGE>

Rave and licensing expenses, and thereafter 45%. Prime will also receive up to
an additional $1,500,000 of which (i) $400,000 is payable regardless of the
receipt of sublicense fees in installments of $15,000 per month which began
January 1, 1996 and increased in accordance with the terms of the agreement to
installments of $40,000 per month after the completion of the IPO (through
December 31, 1996, the Company had made payments of $330,000 against this
$400,000), (ii) $400,000 is payable out of the Company's first sublicensing
fees, and (iii) $700,000 is payable out of the Company's portion of sublicensing
royalties when net sublicensing sales exceed $200,000,000.

         The Company anticipates that its available cash will be sufficient to
satisfy its contemplated cash requirements for at least the next 12 months.

PLAN OF OPERATION

         The Company's plan of operation over the next 12 months focuses
primarily on the marketing and/or licensing of the NUWAVE Video Processor and
Softsets and the NUWAVE TBC products, the production of additional prototypes
and continued effort necessary to support the sales and marketing of the NUWAVE
Video Processor and Softsets and the NUWAVE TBC products. The Company originally
anticipated devoting significant resources to the final development of its Magic
Card with a goal of introducing it to the market in the second half of 1997.
However with the introduction of the NUWAVE Video Processor and Softsets in
January and February and the apparent favorable market feedback from its initial
marketing and sales calls, the Company has determined to devote the majority of
the personnel, economic resources and research and development efforts that it
would have devoted to the Magic Card to the support of the sales and marketing
of the NUWAVE Video Processor and Softsets. The Company believes this will give
it the opportunity to further refine the Magic Card based on its experience with
the NUWAVE Video Processor and market reaction. Because the final commercial
development of the Magic Card will be based in large part on the Company's
experience in marketing the NUWAVE Video Processor, the Company cannot predict
when, if at all, it will finalize commercial development of the product or
commence marketing it.

         The Company anticipates, based on its current proposed plans and
assumptions relating to its operations, that it has sufficient cash to satisfy
the contemplated cash requirements of the Company for at least 12 months. In the
event that the Company's plans change or its assumptions prove to be inaccurate
and its available cash proves to be insufficient to fund operations (due to
unanticipated expenses, delays, problems, or otherwise), the Company would be
required to seek additional funding sooner than anticipated. Depending upon the
Company's progress in the development of its products and technology, their
acceptance by third parties, and the state of the capital markets, the Company
may also determine that it is advisable to raise additional equity capital,
possibly within the next 12 months. In addition, in the event that the Company
receives a larger than anticipated number of initial purchase orders upon
introduction of the NUWAVE Video Processor, it may require resources
substantially greater than its available cash or than are otherwise available to
the Company. In such event the Company may be required

                                       24
<PAGE>

to raise additional capital. The Company has no current arrangements with
respect to, or sources of, any such capital, and there can be no assurance that
such additional capital will be available to the Company when needed, on
commercially reasonable terms or at all. The inability of the Company to obtain
additional capital would have a material adverse effect on the Company and could
cause the Company to be unable to implement its business strategy, to postpone
or cancel the development of certain of its proposed products, or to otherwise
significantly curtail or cease its operations. Additional equity financing may
involve substantial dilution to the interests of the Company's then existing
stockholders.

         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.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

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

         1. Development Stage Enterprise; Absence of Operating History. The
Company is a development stage enterprise. It has had only a limited operating
history and has not sold any 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 and its Advanced Engineering Group in the
continuing development of the NUWAVE Video Processor, the Softsets, the NUWAVE
Dual Time Base Corrector, the NUWAVE Ministudio and the Magic Card,
pre-marketing and more recently the commencement of comprehensive program for
marketing the NUWAVE Video Processor and the recruitment of management and
technical personnel, including members of the Advanced Engineering Group.

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

         2. No Revenues; Accumulated Deficit; Anticipated Future Losses. To
date, the Company has had no operating revenue and does not anticipate any
operating revenue until such time, if ever, as its relevant technology and one
or more of its Products are

                                       25
<PAGE>

completely developed, manufactured in commercial quantities and available for
commercial delivery. There can be no assurance that the Company's technology and
products, if developed and manufactured, will be able to compete successfully in
the marketplace and/or generate significant revenue. The Company anticipates
incurring significant costs in connection with the development of its
technologies and proposed products and there is no assurance that the Company
will achieve sufficient revenues to offset anticipated operating costs. As of
December 31, 1996, the Company incurred an accumulated deficit of $5,341,240.
Although the Company anticipates deriving some revenue from the sale of the
NUWAVE Video Processor and the NUWAVE TBC products within the next 12 months, no
assurance can be given that these products will be successfully marketed or even
completely developed and tested for commercial use during such period, and the
Company has projected its expenses based on the assumption that it will receive
no revenues from the sale of its products during the next 12 months. Even if
revenues are produced from the sale or license of products, the Company expects
to continue to incur substantial losses for at least the next 12 months.
Included in such losses are research and development expenses, marketing costs,
manufacture and assembly, and general and administrative expenses. Inasmuch as
the Company will continue to have high levels of operating expenses and will be
required to make significant expenditures in connection with its continued
research and development activities, the Company anticipates that such losses
will continue until such time, if ever, as the Company is able to generate
sufficient revenues to support its operations. See "Summary Financial
Information" and "Management's Discussion and Analysis."

         3. Significant Capital Requirements; Dependence on Available Cash;
Need for Additional Financing. The Company's capital requirements in connection
with its development activities have been and will continue to be significant.
The Company has been dependent upon the proceeds of sales of its securities to
private investors to fund its initial development activities. The Company
anticipates that its available cash will be sufficient to satisfy its
contemplated cash requirements for at least the next 12 months. After such time,
the completion of the Company's development activities relating to its products
and the commencement of manufacturing and marketing activities in connection
with such products will require continued funding. The Company has no current
arrangements with respect to sources of additional financing and there is no
assurance that other additional financing will be available to the Company in
the future on commercially reasonable terms, or at all. The inability to obtain
additional financing, when needed, would have a material adverse effect on the
Company, including possibly requiring the Company to curtail or cease
operations. To the extent that any future financing involves the sale of the
Company's equity securities, the Company's then existing stockholders could be
substantially diluted. See "Management's Discussion and Analysis -- Liquidity
and Capital Resources."

         4. New Concept; Uncertainty of Market Acceptance; Lack of Marketing
Experience. The technology and products currently being developed by the Company
utilize new concepts and designs in video imagery and processing. The Company's
prospects for success will therefore depend on its ability to successfully sell
its products to

                                       26
<PAGE>

key manufacturers and distributors who may be inhibited from doing business with
the Company because of their commitment to their own technologies and products.
As a result, demand and market acceptance for the Company's technologies and
products is subject to a high level of uncertainty. The Company currently has
limited financial, personnel and other resources to undertake the extensive
marketing activities that will be necessary to market its technology and
products once their development is completed. There is no assurance that any of
the Company's potential customers will enter into any arrangements with the
Company. There is no assurance that the Company's marketing efforts will be
successful. See "Business -- Marketing" and "Business -- Research and
Development."

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

         6. License Subject to Modification and Termination. Substantially all
of the technology on which the Company's initial products rely is licensed to
the Company pursuant to the License Agreement. The License Agreement provides
that Rave will receive minimum aggregate payments of royalties and Development
Fees, as defined in the development agreement between the Company and Rave dated
July 21, 1995 (the "Development Agreement"), of $65,000 per month (the "Rave
Minimum Payments"). If Rave does not receive the Rave Minimum Payments, Rave has
the option of electing to make the License Agreement non-exclusive. If such
payments are not made and Rave exercises its option to make the License
Agreement non-exclusive, it could have a material adverse effect on the
Company's operations. The License Agreement also provides for the payment of
royalties based on the net sales of the licensed products and technology as well
as any sublicensing fees paid to the Company (the "Royalties"). If the Company
fails to pay the Royalties, Rave has the option to terminate the License
Agreement. Because virtually all of the Company's existing products and
technology are licensed by the Company from Rave, a termination of the License
Agreement would render the Company unable to continue its business. The Company
anticipates that Rave's role in the development of the Initial Products will be
substantially completed in the first half of 1997, and the Company and Rave have
agreed that Rave will thereafter be responsible for the development of
additional products pursuant to the Development Agreement. See "Management's
Discussion and Analysis."

                                       27
<PAGE>

         7. Uncertainty of Product and Technology Development; Need for
Product Testing; Technological Factors. The Company originally anticipated
devoting significant resources to the final commercial development of its Magic
Card (which combines the analog based NUWAVE Video Processor with digitally
based enhancements) with a goal of introducing it to the market in the second
half of 1997. However, with the introduction and favorable reception of the
NUWAVE Video Processor and the Softsets in January and February, the Company has
determined to devote substantially all of the personnel and economic resources
it would have devoted to the Magic Card to the marketing of the NUWAVE Video
Processor and the Softsets. The Company believes this will give it the
opportunity to further refine the Magic Card based on its experience with the
NUWAVE Video Processor and market reaction. Because the final commercial
development of the Magic Card will be based in large part on the Company's
experience in marketing the NUWAVE Video Processor, the Company cannot predict
when, if at all, it will finalize commercial development of the product or
commence marketing it. Product development efforts, with respect to all of the
Company's proposed products, are subject to all of the risks inherent in the
development of new technology and products (including unanticipated delays,
expenses, technical problems or difficulties, as well as the possible
insufficiency of funding to complete development). There can be no assurance as
to when, or whether, such developments will be successfully completed. No
assurance can be given that the products can be developed in commercially
salable form within the projected development schedule. If the Company, either
through its Advanced Engineering Group or Rave, is unable to complete its
development activities with respect to the Company's proposed products, it would
have to complete development through third parties. Although the Company
believes it has sufficient information to allow the completion of development of
these products, there is no assurance that the Company will have sufficient
economic or human resources to complete such development in a timely manner, or
at all, or that it could enter into economically reasonable arrangements for the
completion of such products by third parties. In connection with the development
of commercially salable prototypes, the Company must successfully complete a
testing program for the products before they can be marketed. Unforeseen
technical problems arising out of such testing could significantly and adversely
affect the Company's ability to manufacture a commercially acceptable version.
In addition, the Company's success will depend upon its technologies and
proposed products meeting acceptable cost and performance criteria and upon
their timely introduction into the marketplace. There can be no assurance the
technologies and proposed products will satisfactorily perform the functions for
which they are designed, that they will meet applicable price or performance
objectives or that unanticipated technical or other problems will not occur
which would result in increased costs and/or material delays in their
development. See "Business -- The Company's Video Enhancement Products" and
"Business -- The Company's Proposed Video Production Products."

         8. Unconditional Obligation to Share Sublicense Fees with Prime. The
Company has entered into an Agency Agreement with Prime which provides that
Prime will be the Company's exclusive agent for entering into sublicenses with
respect to the products and technology licensed to the Company pursuant to the
License Agreement and

                                       28
<PAGE>

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

         9. Dependence on Third-Party Development and Manufacturing. The
Company does not contemplate that it will directly manufacture any of its
products. It intends to contract with third parties to manufacture its proposed
NUWAVE Video Processor and Softsets, and related retail products and its NUWAVE
TBC products, and NUWAVE Ministudio. It also may license to third parties the
rights to manufacture the products, either through direct licensing, OEM
arrangements or otherwise.

         The Company will be dependent on third parties for the manufacture of
the ASIC-based NUWAVE Video Processor and the NUWAVE TBC products and for the
manufacture and/or assembly of the PCBs, frame and other subassemblies, as well
as for the supply of the various components, that will be incorporated into its
NUWAVE Ministudio. Although the Company has identified certain potential
manufacturers of its NUWAVE Video Processor, it has not entered into any
manufacturing or supply arrangements with respect to those products or any
others. Although management believes it will be able to negotiate satisfactory
manufacturing and supply agreements, the failure to do so would have a material
adverse effect on the Company. Furthermore, there can be no assurance that such
manufacturers will dedicate sufficient production capacity to satisfy the
Company's requirements within scheduled delivery times or at all. Failure or
delay by the Company's suppliers in fulfilling its anticipated needs would
adversely affect the Company's ability to develop and market its products. In
addition, the Company will be dependent on third party vendors for many of the
components necessary for the final assembly of its NUWAVE Ministudio. The
Company may have difficulty in obtaining contractual agreements with the
suppliers of such materials due to, among other things, possible material
shortages or possible lack of adequate purchasing power. While management
believes that these components are available from multiple sources, it
anticipates that the Company will obtain certain of them from a single source,
or limited number of sources, of supply. In the event that certain of such
suppliers are unable or unwilling to provide the Company with components used in
the NUWAVE Ministudio on commercially reasonable terms, or at all, delays in
securing alternative sources of supply would result and could have a material
adverse effect on the Company's operations.

         10. Competition. The markets that the Company intends to enter are
characterized by intense competition, and, particularly with respect to the
market for video, editing, production and processing products, significant price
erosion over the life

                                       29
<PAGE>

of a product. The Company's products will directly compete with those of
numerous well-established companies, such as Sony Electronics, Inc., Panasonic
Division of Matsushita Electric Industrial Co., Motorola, Inc., Mitsubishi
International Corp. and Phillips Electronics, NV, which design, manufacture
and/or market video technology and other products. All of these companies have
substantially greater financial, technical, personnel and other resources than
the Company and have established reputations for success in the development,
licensing, sale and service of their products and technology. Certain of these
competitors dominate their industries and have the necessary financial resources
to enable them to withstand substantial price competition or downturns in the
market for video products.

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

         12. Enforceability of Patents and Similar Rights; Possible Issuance
of Patents to Competitors; Trade Secrets. To the extent practicable, the Company
intends to file U.S. patents and/or copyright applications relating to certain
of its proposed products and technologies either on its own behalf (or on behalf
of Rave with respect to products and technology licensed pursuant to the License
Agreement) and to file corresponding applications in key industrial countries
worldwide. The Company has filed for a patent with respect to its NUWAVE Video
Processor and expects to file applications with respect to the Softsets in the
second quarter of 1997. Although the Company believes certain of its technology
contains patentable claims, there is no assurance that any patents will be
obtained. If obtained, there is no assurance that any patents will afford the
Company commercially significant protection of its technologies or that the
Company will have adequate resources to enforce its patents. Because the Company
also intends to license its technology and products in foreign markets, it
intends to seek foreign patent protection. With respect to foreign patents, the
patent laws of other countries may differ significantly from those of the United
States as to the patentability of the Company's products or technology.
Moreover, the degree of protection afforded by foreign patents may be different
from that in the United States. Patent applications in the United States

                                       30
<PAGE>

are maintained in secrecy until patents issue, and since publication of
discoveries in the scientific or patent literature tends to lag behind actual
discoveries by several months, the Company cannot be certain that it will be the
first creator of inventions covered by any patent applications it makes or the
first to file patent applications on such inventions.

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

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

         13. Control by Management and Prime. The officers of the Company own
707,857 shares of Common Stock, or approximately 13.6% of the Company's
outstanding shares of Common Stock, and Prime Technology, Inc. (21.6% of the
capital stock of which is owned by Mr. David Kwong, a director of the Company,
21.6% of which is owned by Rave and 16.1% of which is owned by Mr. Ted Wong, a
former director of the Company) beneficially owns 1,090,000 shares of Common
Stock or approximately 20.9% of the Company's outstanding shares of Common
Stock. Such officers and Prime are

                                       31
<PAGE>

therefore in a position to significantly influence the election of the Company's
directors and thereby select the management, and direct the policies, of the
Company.

         14. No Dividends. The Company has paid no cash dividends to date.
Payment of dividends on the Common Stock is within the discretion of the Board
of Directors and will depend upon the Company's earnings, its capital
requirements and financial condition, and other relevant factors. The Company
does not currently intend to declare any dividends on its Common Stock in the
foreseeable future. Currently, the Company plans to retain any earnings it
receives for development of its business operations. See "Summary Financial
Information" and "Market for Registrant's Common Equity and Related Stockholder
Matters."

         15. Limitation on Tax Loss Carryforwards. At December 31, 1996, the
Company had available unused net operating loss carryforwards ("NOLs")
aggregating approximately $2,784,502 to offset future taxable income. The unused
net operating loss carryforwards expire in various years from 2010 to 2011.
Under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"),
utilization of prior NOLs is limited after an ownership change, as defined in
such Section 382, to an amount equal to the value of the loss corporation's
outstanding stock immediately before the date of the ownership change,
multiplied by the federal long-term tax-exempt rate in effect during the month
that the ownership change occurred. Based on the consummation of the Offering,
the Company may be subject to limitations on the use of its NOLs as provided
under Section 382. Accordingly, there can be no assurance that a significant
amount of the Company's existing NOLs will be available to the Company. In the
event that the Company achieves profitability, as to which there can be no
assurance, such limitation would have the effect of increasing the Company's tax
liability and reducing the net income and available cash resources of the
Company in the future.

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

         17. General. Because of these and other factors, past financial
performance should not be considered an indicator of future performance.
Investors should not use historical trends to anticipate future result and
should be aware that the trading price of

                                       32
<PAGE>

the Company's Common Stock may be subject to wide fluctuations in response to
quarter-to-quarter variations in operating results, general conditions in the
computer, video and telecommunications industries, changes in earnings estimates
and recommendations by analysts and other events.


ITEM 7.  FINANCIAL STATEMENTS

         The information required by this item is incorporated by reference to
pages F-1 through F-24 of this Annual Report on Form 10-KSB.

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

         None.

                                    PART III

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

         The information required by this item regarding directors, executive
officers, promoters and control persons of the Company is incorporated by
reference to the Registrant's definitive Proxy Statement for its 1997 Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission
not later than April 30, 1997.

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

Name:                    Age:      Position
-----                    ----      --------

Gerald Zarin             56        Chairman of the Board of Directors,
                                       Chief Executive Officer and President
Jeremiah F. O'Brien      50        Vice-President,  Secretary and Chief
                                       Financial Officer
Robert Webb              61        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

                                       33
<PAGE>

and Chief Executive Officer of Emerson Radio Corporation, which designs and
sells consumer electronics products. From June 1991 to July 1992, 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.

JEREMIAH O'BRIEN has been Vice President and Secretary of the Company since
July, 1995 and Chief Financial Officer since January 28, 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 11, 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

         The information required by this item is incorporated by reference to
the Registrant's definitive Proxy Statement for its 1997 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission not later
than April 30, 1997.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                                       34
<PAGE>

         The information required by this item is incorporated by reference to
the Registrant's definitive Proxy Statement for its 1997 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission not later
than April 30, 1997.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this item is incorporated by reference from
the Registrant's definitive Proxy Statement for its 1997 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission not later
than April 30, 1997.

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(a)*          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.)
3.1(b)*          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.)
3.1(c)*          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.)
3.1(d)*          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.)
3.1(e)*          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.)
3.2*             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)

                                       35
<PAGE>

                 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.)
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*            Consulting Agreement dated as of August 1, 1995 between NUWAVE
                 Engineering, Inc. and Christopher J. Daly (expired by its
                 terms) (See Exhibit 10.4 to Registration Statement on Form SB-2
                 filed with the Commission on April 2, 1996.)
10.5*            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.)
10.6*            1996 Performance Incentive Plan. (See Exhibit 10.6 to
                 Registration Statement on Form SB-2 filed with the Commission
                 on April 2, 1996.)
10.7*            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.)
10.8*            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.)
10.9*            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.)
10.10*           Assignment dated as of July 21, 1995 between NUWAVE
                 Engineering, Inc.,

                                       36
<PAGE>
                 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.)
10.11*           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.)
10.12*           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.)
10.13*           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.)
10.14*           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.)
10.15*           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.)
10.16*           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.)
10.17*           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.)
10.18*           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.)
10.19*           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.)
10.20*           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.)
10.21*           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.)

                                       37
<PAGE>

10.22*           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.)
10.23*           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.)
10.24*           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.)
10.25*           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.)
10.26*           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.)
10.27*           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.)
10.28*           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.)
10.29*           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.)
10.30*           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.)
10.31*           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.)
10.32*           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.)
10.33*           Financial Consulting Agreement between Prime Technology, Inc.
                 and Ernest

                                       38
<PAGE>

                 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.)
10.34            Letter Agreement concerning the Gaming Technology among the
                 Company, Rave Engineering Corp. and Prime Technology, Inc.
                 dated March 24, 1997.
27               Financial Data Schedule.

*The exhibits thus designated are incorporated herein by reference as exhibits
hereto. Following the description of such exhibits is a reference to the copy of
the exhibit heretofore filed with the Commission, to which there have been no
amendments or changes, except for Exhibit 10.7 [Exclusive Worldwide License
Agreement] which is modified by the Letter Agreement filed as Exhibit 10.34
hereto.

(b)      REPORTS ON FORM 8-K:

                           None.





                                       39



<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 26, 1997             By: /s/ Gerald Zarin
                                     ---------------------
                                      Gerald Zarin
                                      Chairman of the Board, President and
                                      Chief Executive Officer

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

SIGNATURE                       TITLE                               DATE

/s/ Gerald Zarin            President, Chief Executive       March 26, 1997
------------------------    Officer and Chairman of
Gerald Zarin                the Board (Principal
                            Executive Officer)


/s/ Jeremiah F. O'Brien     Chief Financial Officer and      March 26, 1997
------------------------    Secretary (Principal
Jeremiah F. O'Brien         Financial Officer and
                            Accounting Officer)


/s/ Ed Bohn                 Director                         March 26, 1997
Ed Bohn

/s/ Lyle Gramley            Director                         March 26, 1997
Lyle Gramley

/s/ David Kwong             Director                         March 26, 1997
David Kwong

/s/ Joseph A. Sarubbi       Director                         March 26, 1997
------------------------
Joseph A. Sarubbi

                                       40
<PAGE>

                            NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                          Index to Financial Statements

<TABLE>
<CAPTION>

                                                                                    Page(s)
                                                                                    -------

<S>                                                                                       <C>
Report of Independent Accountants.................................................F-2

Balance Sheets as of December 31, 1995 and as of December 31, 1996................F-3  - F-4

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

Statements of Stockholders' Equity for the period from July 17, 1995 (inception)
         to December 31, 1995 and for the year ended December 31, 1996............F-6  - F-7

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

Notes to Financial Statements.....................................................F-10 - F-24
</TABLE>









                                      F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Nuwave Technologies, Inc.:

We have audited the accompanying balance sheets of NUWAVE TECHNOLOGIES, INC. (a
development stage enterprise) as of December 31, 1995 and 1996, and the related
statements of operations, stockholders' equity and cash flows for the period
from July 17, 1995 (inception) to December 31, 1995 and for the year ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nuwave Technologies, Inc., as
of December 31, 1995 and 1996, and the results of its operations and its cash
flows for the period from July 17, 1995 (inception) to December 31, 1995 and for
the year ended December 31, 1996, in conformity with generally accepted
accounting principles.



                                                    COOPERS & LYBRAND L.L.P.

New York, New York
March 26, 1997.




                                       F-2


<PAGE>

                            NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                                 Balance Sheets
<TABLE>
<CAPTION>

                                                           ASSETS

                                                                                        December 31,           December 31,
                                                                                            1995                   1996
                                                                                     ----------------       ----------------
Current assets:

<S>                                                                                         <C>                  <C>
           Cash and cash equivalents                                                        $372,800             $6,057,941

           Prepaid expenses and other current assets                                          21,691                 91,909

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

                               Total current assets                                          394,491              6,149,850

Property and equipment                                                                         7,737                 69,773

Other assets, including deferred financing costs of $20,100 at
December 31, 1995                                                                             24,100                 72,275
                                                                                     ----------------       ----------------

                               Total assets                                                 $426,328             $6,291,898
                                                                                     ================       ================

                                            LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

           Accounts payable and accrued liabilities                                          $99,044               $373,110

Long-term debt                                                                               250,675
                                                                                     ----------------       ----------------

                               Total liabilities                                             349,719                373,110
                                                                                     ----------------       ----------------

Commitments and contingencies (Note 9)

Stockholders' equity:

           Series A Convertible Preferred Stock, noncumulative, $.01
           par value; authorized 1,000,000 shares; issued and
           outstanding 600,000 shares as of December 31, 1995
           ($900,000 liquidation preference as of December 31, 1995)                           6,000

           Preferred stock $.01 par value; authorized 1,000,000 shares;
           issued and outstanding - none as of December 31, 1996.
           (Such preferences and rights to be designated by the Board
           of Directors)

           Common stock, $.01 par value; authorized 8,000,000 shares as of
           December 31, 1995, and 20,000,000 shares as of December 31, 1996;
           issued and outstanding 2,005,000 shares and 5,325,000 shares as of
           December 31, 1995 and December 31, 1996, respectively                              20,050                 53,250

</TABLE>

   The accompanying notes are an integral part of these financial statements


                                      F-3

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

                                 Balance Sheets


<TABLE>
<CAPTION>
                                                                                        December 31,          December 31,
                                                                                           1995                  1996
                                                                                     ---------------        ----------------
<S>                                                                                         <C>                 <C>
           Additional paid in capital                                                        999,550             11,206,778

           Deferred equity costs                                                             (38,400)

           Deficit accumulated during the development stage                                 (910,591)            (5,341,240)
                                                                                     ----------------       ----------------

                               Total stockholders' equity                                     76,609              5,918,788
                                                                                     ----------------       ----------------

                               Total liabilties and stockholders' equity                    $426,328             $6,291,898
                                                                                     ================       ================
</TABLE>

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

                                      F-4
<PAGE>

                            NUWAVE TECHNOLOGIES, INC
                        (A Development Stage Enterprise)

                            Statements of Operations
<TABLE>
<CAPTION>
                                                                             Cumulative from
                                               July 17, 1995                  July 17, 1995
                                                (inception)       Year        (inception)
                                                    to            ended            to
                                                December 31    December 31     December 31
                                                    1995          1996           1996
                                                -----------   -------------   -------------


<S>                                             <C>           <C>             <C>
Operating expenses:

Research and development expenses               $  (491,122)  $  (1,620,594)  $  (2,111,716)

General and administrative expenses                (417,664)     (1,808,567)     (2,226,231)
                                                -----------   -------------   -------------

                                                   (908,786)     (3,429,161)     (4,337,947)
                                                -----------   -------------   -------------

                Loss from operations               (908,786)     (3,429,161)     (4,337,947)
                                                -----------   -------------   -------------

Other income (expense):

                Interest income                       3,870         172,539         176,409

                Interest expense                     (5,675)       (325,867)       (331,542)
                                                -----------   -------------   -------------

                                                     (1,805)       (153,328)       (155,133)
                                                -----------   -------------   -------------

Net loss before extraordinary item                 (910,591)     (3,582,489)     (4,493,080)

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


                Net loss                        $  (910,591)  $  (4,430,649)  $  (5,341,240)
                                                ===========   =============   =============

Loss per share:

                Weighted average number of
                common shares outstanding         1,941,706       3,767,403
                                                ===========   =============

                Net loss per share before
                extraordinary item              $     (0.47)  $       (0.95)


                Net loss per share on
                extraordinary item                            $       (0.23)
                                                -----------   -------------

                Net loss per share              $     (0.47)  $       (1.18)
                                                ===========   =============
</TABLE>

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

                                      F-5
<PAGE>




                            NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                       Statements 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 connec-
tion with the formation of the
company.............................                     2,060,000     $20,600                                              $20,600

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

Sale of Series A convertible pre-
ferred 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 connec-
tion with the exchange of the
initial bridge notes for 14 bridge
units...............................                        70,000         700     139,300                                  140,000

Common shares issued with bridge
notes payable for cash of $2.00
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 connec-
tion 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

</TABLE>

   The accompanying notes are an integral part of these financial statements


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

                       Statements of Stockholders' Equity

<TABLE>
<CAPTION>


                                         Series A                                                          Deficit
                                        Convertible                                                      Accumulated
                                      Preferred Stock         Common Stock     Additional     Deferred    During the
                                      ---------------         ------------       Paid-in       Equity    Development
                                     Share       Amount    Shares      Amount    Capital        Costs        Stage        Total
                                   ----------  --------- -----------  -------  --------------  -------    -----------    ----------
<S>                                <C>         <C>       <C>          <C>      <C>             <C>        <C>            <C>
Conversion of 600,000 preferred
shares into 600,000 common
shares in connection with the
initial public offering..........    (600,000)    (6,000)   600,000    6,000

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
                                   ==========  ========= ===========  =======  =============   =======    ===========    ==========
</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
<TABLE>
<CAPTION>

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


Cash flows from operating activities:


<S>                                                                 <C>             <C>               <C>
       Net loss                                                      $(910,591)      $(4,430,649)      $(5,341,240)

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

       Extraordinary item                                                                848,160           848,160

       Depreciation expense                                                860            18,856            19,716

       Amortization of unamortized debt discount                         5,675           163,103           168,778

       Amortization of deferred financing costs                                           89,062            89,062

       Issuance of common stock for services rendered                   20,600                              20,600

       Increase in prepaid expenses and other current                  (21,691)          (70,218)          (91,909)
       assets

       Increase in accounts payable and accrued                         99,044           274,066           373,110
       liabilities

       Increase in other assets                                         (4,000)          (68,275)          (72,275)
                                                              -----------------  ----------------  ----------------

                       Net cash used in operating                     (810,103)       (3,175,895)       (3,985,998)
                       activities
                                                              -----------------  ----------------  ----------------

Cash flows from investing activities:

       Purchase of property and equipment                               (8,597)          (80,892)          (89,489)
                                                              -----------------  ----------------  ----------------

                       Net cash used in investing                       (8,597)          (80,892)          (89,489)
                       activities
                                                              -----------------  ----------------  ----------------
</TABLE>

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
<TABLE>
<CAPTION>
                                                                                                   Cumulative from
                                                                   July 17, 1995                    July 17, 1995
                                                                    (inception)                      (inception)
                                                                        to          Year ended             to
                                                                    December 31,    December 31,      December 31,
                                                                       1995            1996               1996
                                                                   -------------    ------------    ---------------
<S>                                                                   <C>            <C>                <C>
Cash flows from financing activities:

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

       Proceeds from issuance of initial bridge units                  350,000                             350,000

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

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

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

       Costs incurred for equity offerings                             (38,400)       (2,310,182)       (2,348,582)

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

       Deferred financing costs                                        (20,100)         (180,900)         (201,000)
                                                              -----------------  ----------------  ----------------
       Net cash provided by financing activities                     1,191,500         8,941,928        10,133,428
                                                              -----------------  ----------------  ----------------

       Net increase in cash and cash equivalents                       372,800         5,685,141         6,057,941

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

Supplemental disclosure of cash flow information:

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

Deferred financing costs incurred in connection with
the exchange of the initial bridge notes for 14 bridge
units                                                                                   $140,000          $140,000
                                                                                 ================  ================
Deferred equity costs charged to additional paid-in
       capital in connection with the PPO                                                $13,400           $13,400
                                                                                 ================  ================

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

600,000 Series A Convertible Preferred Stock converted
into Common Stock                                                                         $6,000            $6,000
                                                                                 ================  ================
</TABLE>
   The accompanying notes are an integral part of these financial statements

                                      F-9

<PAGE>

                           NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                         Notes to Financial Statements


1. ORGANIZATION AND BUSINESS:

         NUWAVE Technologies, Inc. (the "Company"), a development stage
enterprise, was incorporated in Delaware on July 17, 1995. It was formed to
develop, manufacture and market products which improve picture quality in
set-top boxes, televisions, VCR's, camcorders and other video devices, by
enhancing and manipulating video signals, and facilitate the production of
sophisticated consumer and professional videos. It has had only a limited
operating history and has not sold any of its products to date. Substantially
all of the technology on which the Company's initial products were based is
licensed to the Company from Rave Engineering Inc. ("Rave") pursuant to an
exclusive world wide license agreement (the "License Agreement"). Since its
inception in July 1995, the Company has been engaged primarily in raising funds;
directing, supervising and coordinating Rave and its own Advanced Engineering
Group in the continuing development of its products; pre-marketing activities;
the commencement of comprehensive marketing of the NUWAVE Video processor and
the recruitment of management and technical personnel, including members of the
Advanced Engineering Group. The Company conducts its operations primarily in the
United States.

   The Company has had no product sales and 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.

   Substantially all of its technology is licensed to the Company. If the
Company were unable to comply with the terms of its License Agreement and if the
License Agreement were terminated, and if the Company was unable to successfully
market its NUWAVE Video Processor, the Company would not be able to 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 amounts of assets and liabilities and disclosure 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.

   The carrying amount approximates fair value because of the short-term
maturity of these instruments.

PROPERTY AND EQUIPMENT

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

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

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

DEFERRED FINANCING COSTS

   Costs associated with obtaining debt financing and debt discounts are being
amortized over the term of the related debt instruments by the interest method.


                                    F-10
<PAGE>


                           NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                         Notes to Financial Statements

RESEARCH AND DEVELOPMENT EXPENSES

   Expenditures for research and development are expensed as incurred.

CONCENTRATION OF CREDIT RISK

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

PER SHARE DATA

   The historic per share data has been computed on the basis of the loss for
the period divided by the historic weighted average number of shares of common
stock outstanding. The historic weighted average number of shares outstanding
excludes the number of common shares issuable upon the exercise of outstanding
stock options and Series A Convertible Preferred Stock, since such inclusion
would be anti-dilutive.

   The following pro forma supplemental loss per share data has been computed as
if the historic weighted average number of common shares outstanding had been
increased to reflect the conversion of all Series A Convertible Preferred Stock
into common stock and as if such conversion had occurred on the respective dates
on which the Series A Convertible Preferred Stock was originally issued:

                                      July 17, 1995
                                       (inception)
                                            to                 Year ended
                                    December 31, 1995      December 31, 1996
                                   -------------------     ------------------
Supplemental loss per share data:
 Pro forma weighted average -
  number of common shares
  outstanding
                                            2,470,309              4,070,683
                                   ===================     ==================
Pro forma net loss per share       $             (.37)     $           (1.09)
                                   ===================     ==================


INCOME TAXES

   The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires that the Company recognize 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 bases of assets and liabilities and their respective
financial reporting amounts ("temporary differences") at enacted tax rates in
effect for the years in which the differences are expected to reverse.

                                      F-11
<PAGE>

                           NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                         Notes to Financial Statements

RECLASSIFICATIONS

   Certain reclassifications were made to the 1995 financial statements to
conform to the current presentation.

IMPACT OF THE ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS

   The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128") in February
1997, which is effective for calendar year 1997. The Company will adopt the new
earnings per share computations and disclosure requirements in its financial
statements for the year ending December 31, 1997. However, the impact on
Earnings Per Share calculations has not yet been determined.

3. PROPERTY AND EQUIPMENT:

   Property and equipment consist of the following:

                           Useful Lives     December 31,    December 31,
                             in Years           1995            1996
                          --------------    ------------    ------------

   Furniture and Fixtures .      10                             $ 4,164
   Computers  . . . . . . .       5              $3,658          51,928
   Equipment  . . . . . . .       5               4,939          33,397
                                            ------------    ------------
                                                  8,597          89,489

       Less, accumulated
        depreciation  . . .                         860          19,716
                                            ------------    ------------
                                                 $7,737         $69,773
                                            ============    ============

4. DEFERRED EQUITY COSTS:

   Deferred equity costs consist of the following:

                                            December 31,
                                                1995
                                            ------------

     Deferred costs in connection with
     the Private Placement Offering             $13,400
     Deferred costs in connection with the
     Initial Public Offering ("IPO"). . . .      25,000
                                            ------------
                                                $38,400
                                            ============
                                      F-12

<PAGE>

                           NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                         Notes to Financial Statements

5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

   Accounts payable and accrued expenses consist of the following:

                                            December 31,    December 31,
                                                1995            1996
                                            ------------    ------------

     Accounts payable . . . .                   $22,803        $150,504
     Legal and accounting
        fees  . . . . . . . .                    62,296         125,378
     Accrued payroll. . . . .                    11,654          89,098
     Payroll taxes payable. .                     2,291           8,130
                                            ------------    ------------
                                                $99,044        $373,110
                                            ============    ============

6. LONG-TERM DEBT:

   Long-term debt consists of the following:

                                             December 31,
                                                 1995
                                             ------------

10% initial bridge notes payable
("initial bridge notes"), less
unamortized debt discount of $99,325.           $250,675

                                             ------------
                                                $250,675
                                             ============

         On December 15, 1995, the Company entered into a loan and stock
purchase agreement with a Series A Convertible Preferred stockholder

                                      F-13

<PAGE>

                           NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                         Notes to Financial Statements

(see Note 7), whereby the Company issued 14 initial bridge units, each unit
consisting of the Company's unsecured initial bridge notes in the principal
amount of $25,000 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. The initial bridge
notes bear interest at the rate of 10% per annum and mature the earlier of June
30, 1997 or the completion of the Private Placement Offering ("PPO").

         After giving effect to the amortization of the initial bridge notes
debt discount described in Note 2, the effective interest rate of the initial
bridge notes is 33% per annum.

         On February 1, 1996, the Company offered to the initial bridge
noteholder an option to exchange the initial bridge notes for the equivalent
number of units offered in the PPO. On March 1, 1996 the initial bridge
noteholder elected to exchange the initial bridge notes for 14 bridge units.

         On March 1 and March 27, 1996, the Company sold and exchanged to
accredited investors 66 units and 14 units (the "bridge units") respectively, in
its PPO. Each bridge unit consisted of (i) a senior subordinated non-negotiable
promissory note ("Bridge Notes") in the principal amount of $25,000, bearing
interest at the rate of 10% per annum, due and payable on the earlier of (a) the
closing of the IPO of the Company's common stock, (b) June 30, 1997, or (c) the
closing of any transaction in which any class of the Company's securities is
exchanged for securities of an issuer that is required to file reports pursuant
to Section 13 or 15(d) of the Securities and Exchange Act of 1934 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 described in Note 2, the effective interest rate of the Bridge Notes is
49%.

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



7. CAPITAL TRANSACTIONS (SEE NOTE 6):

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;

                                      F-14
<PAGE>

                           NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                         Notes to Financial Statements

   o 450,000 shares to three entities affiliated with an individual who was then
a member of the Company's Board of Directors; and

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

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

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

   Also in connection with the IPO, the Company issued to the Underwriter, for
an aggregate purchase price of $10.00, 220,000 warrants to purchase Common Stock
and 220,000 Redeemable Warrants to purchase 220,000 Redeemable Warrants (the
"Underwriter's Warrants"). The Underwriter's Warrants will be non-exercisable
for one year after the effective date of the IPO. Thereafter, for a period of
four years, the Underwriter's Warrants will be exercisable at an amount of 165%
above the offering price of the Common Stock and Warrants. The warrants expire
five years after the date of issue. The Underwriter's Warrants are not
transferable for a period of one year after the date of the IPO, except to
officers of the Underwriter, members of the selling group and their officers and
partners.

                                      F-15

<PAGE>

                           NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                         Notes to Financial Statements

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 are convertible
into common shares on a one-for-one basis, either at the option of each holder
or automatically upon the effective date of an IPO. The Series A Convertible
Preferred Stock had a liquidation preference of $1.50 per share.

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

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



STOCK OPTIONS

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

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

                   Number     Exercise      Weighted -
                   of         Price          Average           Number of
                   Common     Range per      Exercise           Shares
                   Shares      Share         Price             Exercisable
                   ------------------------------------------------------
Granted            315,000     $ 1.50        $ 1.50
                   ---------
Outstanding at
December 31, 1995  315,000     $ 1.50        $ 1.50             260,714
                                                               =========
Granted             67,000 $ 2.00 - $ 5.75   $ 2.67

Exercised          (20,000)    $ 1.50        $ 1.50
                  ---------
Outstanding at
December 31, 1996  362,000 $ 1.50 - $ 5.75   $ 1.72             311,524
                  ---------                                    =========

   Effective July 17, 1995, the Company granted to its Vice President of

                                      F-16

<PAGE>

                           NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                         Notes to Financial Statements

Finance options to purchase 25,000 shares of common stock, exercisable at $1.50
per share. The first 10,714 options vested immediately, the remainder vest
equally on July 17, 1996 and July 17, 1997. The options expire on the fifth
anniversary of their vesting.

   On July 20, 1995, the Company granted to its President, as part of his
employment agreement, options to purchase 200,000 shares of common stock,
exercisable at $1.50 per share. The options were 100% vested at the date of
grant and expire on December 31, 2000. The options may be canceled if the
President resigns or is terminated for cause.

   On September 11, 1995, the Company granted to its Vice President of
Marketing/Technical Development, as part of his employment agreement, options to
purchase 70,000 shares of common stock, exercisable at $1.50 per share. 30,000
options vested immediately; the remainder vest equally on September 11, 1996 and
1997. The options expire on the fifth anniversary of their vesting.

   On November 9, 1995, the Company granted to a director options to purchase
20,000 shares of common stock, exercisable at $1.50 per share. The options
vested at the date of grant. The Director exercised his options as of June 30,
1996.

   On March 1, 1996, the Company granted to its Vice President of Finance
options to purchase 5,000 shares of common stock, exercisable at $2.00 per
share. The options vested immediately and expire on March 1, 2001.

   On March 1, 1996, the Company granted to a director options to purchase
15,000 shares of common stock, exercisable at $2.00 per share. The options
vested immediately and expire on March 1, 2001.

   On March 1, 1996, the Company granted to a director, options to purchase
35,000 shares of common stock, exercisable at $2.00 per share. The first 11,667
options vested immediately, 11,667 vest March 1, 1997, and 11,666 vest March 1,
1998. The options expire on the fifth anniversary of their vesting. The director
exercised his vested options as to 23,334 shares of common stock on March 19,
1997.

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



                                      F-17
<PAGE>


                           NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                         Notes to Financial Statements

with the grant of an incentive or nonqualified option under the Plan or
independently of any such stock option. The directors determine the vesting of
the options under the Plan at the date of grant. A maximum of 260,000 options
can be awarded under the Plan. As of December 31, 1995 and December 31, 1996,
respectively, no options have been issued.

   In connection with the underwriter's agreement, for a period of eighteen
months from the effective date of the IPO, the Company cannot issue any shares
of common or preferred stock, or any warrants, options or other rights to
purchase common or preferred stock except for 205,000 options to be issued under
the Plan for not less than $5.00 per share and not below the market price as of
the date of grant without the underwriter's prior written consent.

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

   On November 25, 1996, four Eligible Directors were each granted 3,000 stock
options at an exercise price of $5.75 per share. The maximum number of shares of
Common Stock with respect to which options may be granted under the Director's
Plan is 80,000 shares. As of December 31, 1996, there are 68,000 stock options
reserved for issuance in the Director's Plan.

   Adoption of the Director's Plan (which has been approved by the underwriter)
and the grants of the options provided for therein are subject to the approval
of the Company's shareholders.


   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.

                                      F-18
<PAGE>

                           NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                         Notes to Financial Statements

   Exercise prices and weighted-average contractual lives for stock options
outstanding as of December 31, 1996 are as follows:

                   Options Outstanding                   Options Exercisable
         -------------------------------------------   -----------------------
                            Weighted
                            Average         Weighted                Weighted
Range of                    Remaining       Average                 Average
Exercise   Number         Contractual       Exercise  Number      Exercisable
 Prices  Outstanding          Life           Price   Exercisable     Price
-------- -----------       -----------      -------- -----------  -----------
$ 1.50 -
$ 2.00     350,000             3.9           $ 1.57   299,524        $ 1.58

$ 5.75      12,000             4.9           $ 5.75    12,000        $ 5.75


   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 option grants awarded during
1995 and 1996 vest over several years and additional awards are expected to be
issued in the future, the pro forma results noted below are not likely to be
representative of the effects on future years of the application of the fair
value based method.

                                         1995              1996
                                     -----------       -----------

Pro forma net loss                   $ 1,041,936      $ 4,496,349

Pro forma net loss per share              $ (.52)         $ (1.19)



   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
1995 and 1996 was $.48 and $.84, respectively. The following weighted-average
assumptions were used in computing the fair value of option grants for 1995 and
1996: weighted-average risk-free interest rates of 5.78% for 1995 and 5.32% for
1996; zero dividend yields for both years; volatility of the Company's Common
Stock of 50% for both years; and an expected life of the options of two years
for 1995 and 1996, respectively.

8. INCOME TAXES:

   There is no provision for federal, state or local income taxes for the period
from July 17, 1995 (inception) to December 31, 1995, and for the year ended
December 31, 1996, since the Company has incurred an operating loss. In
addition, the Company has fully reserved the net potential future tax benefits
resulting from its organization costs, property and equipment and net
operating loss carryforward.

      The tax effect of temporary differences consists of the following:

                                      F-19
<PAGE>

                           NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                         Notes to Financial Statements

                                              December 31,  December 31,
                                                     1995          1996
                                              -----------   -----------
Deferred tax assets:
   Organization costs . . . . . . .           $   187,998   $ 1,003,333
   Property and equipment                             344         7,886
   Net operating loss carryforward                168,921     1,113,801
                                              -----------   -----------
                                                  357,263     2,125,020
   Valuation allowance  . . . . .                 357,263     2,125,020
                                              -----------   -----------
                                              $        --   $        --
                                              -----------   -----------

   The net operating loss for tax purposes is composed of Internal Revenue Code
Section 174 research and development expenses plus interest expense. In
addition, certain costs in the statement of operations have been capitalized
under Internal Revenue Code Section 195 and will be amortized over five years
commencing with the date the Company begins its trade or business, as defined by
Internal Revenue Service regulations. The valuation allowance offsets all of the
deferred tax assets as of December 31, 1995 and December 31, 1996.

    As of December 31, 1996, the Company has unused net operating loss
carryforwards of $2,784,502 available for income tax purposes. The unused net
operating loss carryforwards expire in various years from 2010 to 2011.

9. COMMITMENTS AND CONTINGENCIES:

LICENSE AND DEVELOPMENT AGREEMENTS

   Pursuant to the terms of the License Agreement dated July 21, 1995, the
Company is obligated to pay to Rave royalties ("Royalties") of (i) 2 1/2 % of
net sales ("Sales Royalties"), as defined, of products sold by the Company
utilizing Rave's technology and (ii) 25% of any sublicensing fees received by
the Company from sublicenses of the products and technology covered by the
License Agreement. Payments of Sales Royalties will commence upon the earlier of
(i) accumulated net sales of licensed products and technology sold by the
Company or its future sublicensees reaching an aggregate of $50,000,000, or (ii)
the Company's aggregate net profits from sales of licensed products and
technology equaling $5,000,000, whichever comes first. In addition, the License
Agreement obligates the Company to pay $60,000 per annum to Rave for consulting
services, for a period of three years, payable in $15,000 quarterly
installments, in advance, plus reasonable expenses. The License Agreement also
provides that Rave will receive minimum aggregate payments of Royalties and
Development Fees of at least $65,000 per month (the "Rave Minimum Payments")
pursuant to the Development Agreement described below. If Rave does not receive
the Rave Minimum Payments, it may elect to make the License Agreement
non-exclusive. If the Company fails to pay the Royalties, Rave may terminate the
License Agreement and become the licensor with respect to licenses granted by
the Company.

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

                                      F-20
<PAGE>

                           NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                         Notes to Financial Statements

   The Company has entered into a development agreement (the "Development
Agreement") with Rave, pursuant to which the Company has formulated a
development plan (the "Development Plan") extending through October 1998, with
annual renewals, subject to one year's written notice. The Development Plan
focuses principally on the development of the products, as defined, and will be
revised from time to time to provide for the development of additional related
products. The Development Agreement provides for the payment to Rave of a
monthly fee which, when aggregated with the Royalties provided for in the
License Agreement, must equal at least $65,000 per month. The Development Plan
is to be revised by October 2, 1998 and on each anniversary thereafter for each
year the Development Agreement remains in effect. The Development Agreement
terminates on October 2, 1998, provided that it continues for successive
12-month periods if the parties agree to additional services to be performed by
Rave and related compensation at least 12 months prior to its expiration. In
addition, the Development Agreement provides for Rave to be paid an aggregate of
$850,000 to purchase or lease equipment (the "Equipment") for use in developing
the licensed products and technology. The payments are to be made by the Company
in monthly installments of $23,611, with a lump-sum payment of $283,336 due in
March 1998. The Development Agreement provides that all results of development,
including unrelated developments, shall belong to the Company, and Rave will not
undertake any development activities for any third parties without the consent
of the Company.

   The Rave research and development expenses charged to the statement of
operations for the cumulative period from July 17, 1995 (inception) to December
31, 1996 amounted to $1,560,453; from July 17, 1995 (inception) to December 31,
1995 amounted to $416,628 and for the year ended December 31, 1996 amounted to
$1,143,825.


AGENCY AGREEMENT

   In order to assist it in obtaining sublicensing revenue, the Company has
entered into an Agency Agreement (the "Agency Agreement") with Prime. The Agency
Agreement provides that Prime will be the Company's exclusive agent for entering
into sublicenses with respect to the licensed products and technology. Because
its products are not fully developed, the Company has not developed a licensing
program, established proposed royalties, or otherwise determined the terms or
conditions of the arrangements it may want to make with proposed licensees or
others. These programs will be developed in conjunction with product research
and development, and with Prime pursuant to the Agency Agreement. For its
services, with respect to the first $50,000,000 of aggregate net sales of the
Company's licensees and sublicensees, after subtracting the payments to Rave and
licensing expenses, Prime will receive 35% of net sublicense fees received by
the Company, and thereafter 45%. Because the Company has retained the right 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 is payable in equal
monthly installments of $15,000 commencing on January 1, 1996 provided that such
fee shall increase to $40,000 per month after the IPO, (ii) $400,000 is payable
out of the Company's first sublicensing royalties and (iii) $700,000 is payable
out of the Company's portion of sublicensing royalties when net sublicensing
sales exceed $200,000,000. The Agency Agreement provides that Prime will
contribute its royalty participation to pay Rave in any month in which the
Company, after making reasonable commercial effort, is unable to

                                      F-21

<PAGE>

                           NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                         Notes to Financial Statements

make the $65,000 Rave Minimum Payment necessary to maintain the License
Agreement on an exclusive basis with such amounts to be repaid by the Company to
Prime out of the Company's next available royalty payment or 12 months from the
date of such advance.

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

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

   The minimum annual commitments under the Rave License and Development
Agreements, and the Agency Agreement, as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>


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

<S>              <C>             <C>           <C>            <C>         <C>
   1997       $  780,000       $ 60,000       $287,201      $ 70,000     $1,197,201
   1998          585,000         60,000        354,169                      999,169
   1999                          15,000                                      15,000
            -------------   ------------    -----------   -----------   ------------
              $1,365,000       $135,000       $641,370      $ 70,000     $2,211,370
            =============   ============    ===========   ===========   ============
</TABLE>


EMPLOYMENT AGREEMENT

   The Company has entered into an employment agreement with its President
expiring December 31, 2000. The employment agreement provides for a minimum
annual salary, and bonus incentives, based upon the Company meeting profit
levels to be set by the Board of Directors. The agreement also provides for
termination payments to the President under certain circumstances. The minimum
annual salary commitment as of December 31, 1996, excluding bonus arrangements,
amounts to $120,000 per annum. In addition, the President, was paid a consulting
fee of $37,500 plus out-of-pocket costs in connection with the formation of the
Company. The Company charged these costs to operations.

CONSULTING AND REPRESENTATIVE AGREEMENTS

   The Company has a consulting agreement with a Limited Partnership (the
"Consultant") rendering business advice. One of the general partners of the
Consultant is a former member of the Company's Board of Directors. In addition,
this general partner is a partner in two other affiliated entities. Together the
Consultant and the two other affiliated entities (which also provided services
to the Company) received 450,000 shares of the Company's common stock for an
aggregate consideration of $4,500 (see Note 7). The term of the agreement is for
two years. The Consultant received fees of $7,500 per month until the completion
of the IPO. Once the IPO was completed, the fee was reduced to $5,000 per month
until the agreement terminates. In addition, the Company incurred $45,000 for
consulting services rendered by the principal of the Consultant in connection
with the formation of the

                                      F-22
<PAGE>

                           NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                         Notes to Financial Statements

Company. The total consulting fee per the consulting agreement charged to the
statement of operations for the cumulative period from July 17, 1995 (inception)
to December 31, 1996 amounted to $115,000 plus out-of-pocket expenses; from July
17, 1995 to December 31, 1995 amounted to $37,500 plus out of pocket expenses
and for the year ended December 31, 1996 amounted to $77,500 plus out of pocket
expenses. The total aggregate consideration charged to operations in connection
with the services rendered by the principal of the Consultant and his affiliated
entities for the cumulative period from July 17, 1995 (inception) to December
31, 1996 amounted to $198,669; from July 17, 1995 (inception) to December 31,
1995 amounted to $88,302 and for the year ended December 31, 1996 amounted to
$110,367.

   The initial bridgeholder is a limited partner in the Consultant.

   The Company entered into a consulting agreement with a consultant who is the
president of Harvest Technologies, Inc. ("Harvest"). Effective August 1, 1995,
the consultant provided, on a non-exclusive basis, certain services, among
others: evaluation of the Company's technologies and products, assistance in the
development of a marketing strategy and plan, and the recommendation of
candidates for marketing and sales positions. Since inception to December 31,
1996 the Company has incurred $232,465; from July 17, 1995 (inception) to
December 31, 1995 amounted to $36,497 and for the year ended December 31, 1996
amounted to $195,968 of consulting fees and out of pocket expenses for product
development, which have been charged to research and development expenses.

   The Company entered into a Representative Agreement with a third party
("Representative") whereby the Representative was appointed as an exclusive
sales representative for selected accounts, identified in the agreement, to
obtain Strategic Alliance Contracts for the Company and to sell Products during
the term of the Agreement. The term of the Agreement is from November 15, 1996
to April 30, 1997. Under the terms of the Agreement, the Representative will
receive options to purchase 15,000 shares of common stock of the Company for
each Strategic Alliance Contract the Company enters into solely through the
efforts of the Representative. If options are granted, the options price will be
equal to the fair market value as of the date of the grant and will expire five
years after the date of grant. In addition, the Company shall pay the
Representative a commission on net sales of all products sold by the Company
solely through the efforts of the Representative if the Representative made
substantial efforts to sell the Products to the purchaser during the term of
this Agreement. The commission rate is based on type of sale and timing of sale,
however, in no case exceeds 5% of net sales. As of December 31, 1996, no
commissions have been earned, and no options have been granted, pursuant to
this Agreement.

LEASES

   The Company leases shared office space on a month-to-month basis for a
monthly rental of $4,200. Additional office space at a separate facility is
leased for a monthly rental of $1,569. The lease for additional space expires on
August 31, 1997, and is cancelable upon ninety days notice. Rent expense
incurred for the cumulative period from July 17, 1995 (inception) to December
31, 1996 amounted to $43,852; from July 17, 1995 (inception) to December 31,
1995 amounted to $6,400 and for the year ended December 31, 1996 amounted to
$37,452.

                                      F-23

<PAGE>

                           NUWAVE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                         Notes to Financial Statements

10.   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.

11.   SUBSEQUENT EVENTS

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

   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.






                                      F-24