<PAGE>   1

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

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

                                  FORM 10-QSB

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

      For the quarterly period  ended March 31, 1997

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

      For the transition period from                to
                                     --------------    -------------

                         COMMISSION FILE NUMBER 0-21999

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

                          NHANCEMENT TECHNOLOGIES INC.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

          DELAWARE                                       84-1360852
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

                         1746 COLE BOULEVARD, SUITE 265
                            GOLDEN, COLORADO  80401
                    (Address of principal executive offices)

                                 (303)271-0505
                          (Issuer's telephone number)

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

         Check whether the Issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


                                Yes   X     No
                                    ------     ------

         APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                        DURING THE PRECEDING FIVE YEARS

         Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.

                               Yes         No
                                   ------     ------

                      APPLICABLE ONLY TO CORPORATE ISSUERS

         As of April 21, 1997, there were 4,228,440 shares of Common Stock,
$0.01 par value per share, outstanding.


         Transitional Small Business Disclosure Format (check one)  

                               Yes   X      No
                                   ------      ------

================================================================================

<PAGE>   2
                                     PART I
                             FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS.

         Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to SEC rules and
regulations, although the Company believes the disclosures made are adequate to
make the information presented not misleading, and, in the opinion of
management, all adjustments have been reflected which are necessary for a fair
statement of the information shown.





                                      1
<PAGE>   3


                                                    NHANCEMENT TECHNOLOGIES INC.
                                                     (FORMERLY BIOFACTORS, INC.)

                                                      CONSOLIDATED BALANCE SHEET


                                                                  MARCH 31, 1997

<TABLE>
<S>                                                                                       <C>
ASSETS                                                                                 
CURRENT                                                                                
     Cash and cash equivalents                                                             $ 4,057,600
     Accounts receivable, less allowance for doubtful accounts of $50,000                    1,511,100
     Inventory                                                                                 959,800
     Prepaid expenses and other                                                                268,100
                                                                                           -----------
         Total current assets                                                              $ 6,796,600
                                                                                       
FURNITURE AND EQUIPMENT                                                                        633,600
Less accumulated depreciation                                                                 (123,900)
                                                                                           ----------- 
FURNITURE AND EQUIPMENT, NET                                                               $   509,700
                                                                                       
EXCESS OF COST OVER NET ASSETS ACQUIRED, NET (Note 5)                                      $ 6,066,800
                                                                                       
OTHER ASSETS                                                                                    21,900
                                                                                           -----------
                                                                                           $13,395,000
                                                                                           ===========
                                                                                       
LIABILITIES AND STOCKHOLDERS' EQUITY                                                   
CURRENT LIABILITIES                                                                    
     Accounts payable                                                                      $   626,000
     Accrued liabilities                                                                       663,000
     Payroll related liabilities                                                               353,200
     Deferred revenue                                                                        1,511,600
     Deferred tax liabilities                                                                   40,000
                                                                                           -----------
         Total current liabilities                                                         $ 3,193,800
                                                                                       
LONG-TERM DEBT, due stockholder (Note 3)                                                     1,500,000
                                                                                           -----------
                                                                                       
TOTAL LIABILITIES                                                                            4,693,800
                                                                                       
STOCKHOLDERS' EQUITY (Notes 3, 4, 6 and 7)                                             
     Preferred stock, $0.01 par value, 2,000,000 shares authorized,                    
         no shares issued and outstanding                                                         --
     Common stock, $0.01 par value, 10,000,000 shares authorized,                      
         4,228,500 shares issued and outstanding                                                42,300
     Additional paid-in capital                                                             17,626,300
     Accumulated deficit                                                                    (8,967,400)
                                                                                           ----------- 
                                                                                       
TOTAL STOCKHOLDERS' EQUITY                                                                 $ 8,701,200
                                                                                           -----------
                                                                                       
                                                                                           $13,395,000
                                                                                           ===========
</TABLE>





                                      2
<PAGE>   4
                                                    NHANCEMENT TECHNOLOGIES INC.
                                                     (FORMERLY BIOFACTORS, INC.)

                                           CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                    PRO FORMA
                                                                                            -----------------------------
                                                                                                     (Note 2)
                                                        THREE MONTHS ENDED                       THREE MONTHS ENDED
                                                   ------------------------------           -----------------------------
                                                     March 31          March 31              March 31          March 31
                                                       1996              1997                  1996              1997
                                                   ------------      ------------           -----------       -----------
 <S>                                               <C>               <C>                    <C>               <C>
 NET SALES                                         $    379,800      $  1,431,900           $ 2,261,700       $ 2,283,000

 COST OF SALES                                           49,500           636,600             1,351,500         1,228,800
                                                   ------------      ------------           -----------       -----------
 GROSS PROFIT                                           330,300           795,300               910,200         1,054,200
                                                   ------------      ------------           -----------       -----------
 OPERATING EXPENSES
       Research and development  . . . . . .             23,200            23,700                23,200            23,700
       Selling, marketing and administrative            337,600           611,900             1,007,000           864,100
                                                   ------------      ------------           -----------       -----------
 TOTAL OPERATING EXPENSES                               360,800           635,600             1,030,200           887,800
                                                   ------------      ------------           -----------       -----------
 INCOME (LOSS) FROM OPERATIONS                          (30,500)          159,700              (120,000)          166,400
                                                   ------------      ------------           -----------       -----------
 OTHER INCOME (EXPENSE)
       Interest income . . . . . . . . . . .                --             38,400                10,600            40,700
       Interest expense  . . . . . . . . . .           (116,300)          (46,200)             (134,300)          (52,300)
       Amortization of excess of cost over
       net assets acquired . . . . . . . . .                 --           (98,900)             (148,400)         (148,400)
       Other                                             (2,000)               --                (2,000)            7,500
                                                   ------------      ------------           -----------       -----------
                                                       (118,300)         (106,700)             (274,100)         (152,500)
                                                   ------------      ------------           -----------       -----------
 INCOME (LOSS) BEFORE INCOME TAXES                     (148,800)           53,000              (394,100)           13,900

 INCOME TAXES                                                --            10,400                    --             9,500
                                                   ------------      ------------           -----------       -----------
 NET INCOME (LOSS)                                     (148,800)           42,600              (394,100)            4,400
                                                   ============      ============           ===========       ===========
 NET INCOME (LOSS) PER COMMON SHARE
 (Note 7)                                          $      (0.15)     $       0.02           $     (0.19)      $      0.00
                                                   ============      ============           ===========       ===========

 WEIGHTED AVERAGE COMMON AND COMMON
 EQUIVALENT SHARES OUTSTANDING                        1,024,615         2,875,339             2,074,615         3,371,172
                                                   ============      ============           ===========       ===========
</TABLE>





                                      3
<PAGE>   5
                                                    NHANCEMENT TECHNOLOGIES INC.
                                                     (FORMERLY BIOFACTORS, INC.)

                                  CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY



<TABLE>
<CAPTION>
                                               COMMON STOCK
                                                 PAR VALUE             ADDITIONAL  
                                           ------------------------      PAID-IN      ACCUMULATED  
                                            Shares         Amount        CAPITAL       DEFICIT         TOTAL
                                           ---------      ---------    -----------   -----------    -----------
<S>                                        <C>            <C>          <C>           <C>            <C>
BALANCE, December 31, 1996                   612,800      $   6,100    $ 5,363,900   $(9,010,000)   $(3,640,000)

Issuance of common stock for
acquisition (Notes 1 and 3)                1,312,500         13,100      4,666,900                    4,680,000

Initial public offering of common
stock at $4.00 per share, net of
offering costs of $1,594,000 (Note 4)      2,045,000         20,500      6,565,500                    6,586,000

Issuance of common stock for
conversion of notes payable and
accrued interest (Note 4)                    258,200          2,600      1,030,000                    1,032,600

Net income                                                                                42,600         42,600
                                           ---------      ---------    -----------   -----------    -----------
BALANCE, March 31, 1997                    4,228,500      $  42,300    $17,626,300   $(8,967,400)     8,701,200
                                           =========      =========    ===========   ===========    ===========
</TABLE>





                                      4
<PAGE>   6
                                                    NHANCEMENT TECHNOLOGIES INC.
                                                     (FORMERLY BIOFACTORS, INC.)

                                            CONSOLIDATED STATEMENTS OF CASH FLOW

<TABLE>
<CAPTION>
                                                                             THREE MONTHS ENDED
                                                                --------------------------------------------
                                                                   MARCH 31, 1996          MARCH 31, 1997
                                                                --------------------    --------------------
 <S>                                                            <C>                     <C>      
 CASH FLOWS FROM OPERATING ACTIVITIES
       NET INCOME (LOSS) . . . . . . . . . . . . . . . . . .    $           (148,800)   $             42,600
       ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH USED
          IN OPERATING ACTIVITIES:
       DEPRECIATION  . . . . . . . . . . . . . . . . . . . .                   8,800                  27,300
       AMORTIZATION OF EXCESS COST OVER NET ASSETS ACQUIRED                                           98,900
       AMORTIZATION OF DEBT ISSUANCE COSTS ON NOTES PAYABLE                   41,600
       CHANGES IN ASSETS AND LIABILITIES:
          ACCOUNTS RECEIVABLE  . . . . . . . . . . . . . . .                  (2,000)                420,000
          INVENTORY  . . . . . . . . . . . . . . . . . . . .                                          17,400
          PREPAID EXPENSES AND OTHER . . . . . . . . . . . .                  (9,400)               (220,300)
          OTHER ASSETS . . . . . . . . . . . . . . . . . . .                                          51,700
          ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES . .                (212,300)             (2,405,000)
                                                                --------------------    --------------------
 NET CASH USED IN OPERATING ACTIVITIES . . . . . . . . . . .    $           (322,100)   $         (1,967,400)

 CASH FLOWS FROM INVESTING ACTIVITIES:
       CASH ACQUIRED FROM VPI ACQUISITION  . . . . . . . . .                                         851,900
       PURCHASE OF FURNITURE AND EQUIPMENT . . . . . . . . .                  (3,700)                (35,200)
                                                                --------------------    --------------------
 NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES . . . .    $             (3,700)   $            816,700

 CASH FLOWS FROM FINANCING ACTIVITIES:
       PROCEEDS FROM INITIAL PUBLIC OFFERING OF COMMON STOCK,
          NET OF OFFERING COSTS  . . . . . . . . . . . . . .                                       6,962,200
       PREPAID STOCK OFFERING COSTS  . . . . . . . . . . . .                 (71,600)
       PROCEEDS FROM LONG-TERM DEBT  . . . . . . . . . . . .                 327,500
       PRINCIPAL PAYMENT OF LONG-TERM DEBT . . . . . . . . .                 (21,800)             (1,814,000)
                                                                --------------------    --------------------
 NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . .    $            234,100    $          5,148,200

 NET (DECREASE) INCREASE IN CASH . . . . . . . . . . . . . .    $            (91,700)   $          3,997,500

 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD  . . . . . .                 170,400                  60,100
                                                                --------------------    --------------------
 CASH AND CASH EQUIVALENTS, END OF PERIOD  . . . . . . . . .    $             78,700    $          4,057,600
                                                                --------------------    --------------------
</TABLE>





                                      5
<PAGE>   7

DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

On February 3, 1997, the Company acquired all outstanding shares of common
stock of Voice Plus, Inc. in exchange for 1,312,500 shares of the Company's
Common Stock with an estimated value of $4,680,000 and two promissory notes in
an aggregate principal amount of $1,500,000.  See Notes 1 and 3.


<TABLE>
 <S>                                                    <C>       
 Total Consideration:
       1,312,500 shares of Common Stock                 $         4,680,000
       Promissory notes                                           1,500,000
                                                        -------------------
                                                        $         6,180,000
       Cost of acquisition                                          270,100
                                                        -------------------
                                                        $         6,450,100
                                                        ===================
 Consideration was used for:
       Net assets acquired                                          555,100
       Excess of cost over net assets acquired                    5,895,000
                                                        -------------------
                                                        $         6,450,100
                                                        ===================
</TABLE>




On February 4, 1997, the Company completed its initial public offering (see
Note 4).  In connection therewith, the Company converted certain notes and
related accrued interest in an aggregate amount of $1,032,600 into shares of
its Common Stock.





                                      6
<PAGE>   8
                                                    NHANCEMENT TECHNOLOGIES INC.
                                                     (FORMERLY BIOFACTORS, INC.)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




1.       ORGANIZATION

         NHancement Technologies Inc., a Delaware corporation (the "Company"),
         was incorporated in October 1996 as a holding company and successor to
         the business of BioFactors, Inc. ("BFI"), a Delaware corporation.  On
         February 3, 1997, prior to the February 4, 1997 consummation of the
         initial public offering (the "IPO") of the Company's common stock (see
         Note 4), BFI merged with a subsidiary of the Company whereupon BFI, as
         the surviving corporation, became a wholly owned subsidiary of the
         Company (the "BFI Merger").  Also on February 3, 1997, the Company
         acquired Voice Plus, Inc. ("VPI"), a California corporation, a systems
         integrator and national distributor of voice processing equipment,
         pursuant to a transaction by which VPI merged with a subsidiary of the
         Company, whereupon VPI, as the surviving corporation, became a wholly
         owned subsidiary of the Company (the "VPI Acquisition").  The business
         of the Company is conducted by its operating company subsidiaries, BFI
         and VPI (see Note 3).

2.       FINANCIAL STATEMENT PRESENTATION AND NEW STANDARD

         The accompanying consolidated financial statements as of March 31,
         1997, and for the three months ended March 31, 1997 and 1996, are
         unaudited.  Certain information and footnote disclosures normally
         included in the financial statements prepared in accordance with
         generally accepted accounting principles ("GAAP") have been omitted.
         These consolidated financial statements should be read in conjunction
         with the audited financial statements and accompanying notes for the
         year ended December 31, 1996 presented in the Company's latest annual
         report on Form 10-KSB.

         The preparation of financial statements in conformity with GAAP
         requires management to make estimates and assumptions that affect the
         reported amounts of assets and liabilities, disclosure of contingent
         assets and liabilities at the date of the financial statements, and
         the reported amounts of revenues and expenses during the reported
         period.  Actual results could differ from those estimates.

         The consolidated financial statements presented herein reflect all
         adjustments which are, in the opinion of management, necessary for a
         fair presentation of the financial condition and results of operations
         for the periods presented.

         The unaudited pro forma statements of operations combine the results
         of operations of the Company and VPI for the three months ended March
         31, 1997 and 1996, as if the VPI Acquisition had occurred at the
         beginning of the respective periods, after giving effect to certain
         adjustments, including the amortization of excess of costs over assets
         acquired, interest expense on notes payable to stockholder, additional
         salaries, and recalculation of estimated income taxes.

         This unaudited pro forma summary does not necessarily reflect the
         result of operations as they would have been had the VPI Acquisition
         occurred at the beginning of the periods presented and is not
         necessarily indicative of the results of operations for any future
         period.

         On March 3, 1997, the Financial Accounting Standards Board issued SFAS
         No. 128, "Earnings per Share."  This pronouncement provides a
         different method of calculating earnings per share than is currently
         used in accordance with APB No. 15, "Earnings per Share."  SFAS No.
         128 provides for the calculation of Basic and Diluted earnings per
         share.  Basic earnings per share includes no dilution and is computed
         by dividing income available to common shareholders by the weighted
         average number of common shares outstanding for the period.  Diluted
         earnings per share reflects the potential dilution of securities that
         could share in the earnings of an entity, similar to fully diluted
         earnings per share.  Calculations under the new standard, which will
         be adopted in the fourth quarter of 1997, are not expected to result
         in a significant difference from those under the current method.





                                      7
<PAGE>   9
                                                    NHANCEMENT TECHNOLOGIES INC.
                                                     (FORMERLY BIOFACTORS, INC.)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.       ACQUISITION AND MERGER TRANSACTIONS

         Pursuant to the BFI Merger agreement, shares of the Company's common
         stock ("Common Stock") were exchanged for all the issued and
         outstanding common stock of BFI, in a ratio of three shares of Common
         Stock for every four shares of BFI common stock.  In addition, the
         Company assumed (i) the obligations of BFI's outstanding stock
         options, by which assumption the optionee has the right to purchase
         5.625 shares of the Company's Common Stock for every 10 shares of BFI
         common stock the optionee could have purchased prior to the BFI Merger
         at an exercise price per share equal to 80% of the IPO Price, (ii) the
         obligations of BFI's issued and outstanding warrants in accordance
         with their terms, and (iii) the obligations of the Registration Rights
         Agreement dated as of September 1, 1996.  The Company also undertook
         to issue to certain holders of BFI notes, warrants to purchase an
         aggregate of 109,900 shares of the Company's Common Stock, exercisable
         one year from the close of the IPO at an exercise price of 120% of the
         IPO Price.

         The VPI Acquisition agreement provided for the exchange of (i) the
         Company's unsecured promissory note in a principal amount of
         $1,000,000, bearing interest at the medium term T-bill rate, due on
         the third anniversary of the consummation of the VPI Acquisition, (ii)
         the Company's unsecured promissory note in a principal amount of
         $500,000, bearing interest at the medium term T-bill rate, due on the
         third anniversary of the consummation of the VPI Acquisition, and
         (iii) shares of the Company's Common Stock with an estimated fair
         market value of $4,680,000 (of which shares valued at $2,400,000 were
         sold in the IPO, and the remainder of the shares are subject to
         restrictions on transferability under the Securities Act of 1933, as
         amended, and pursuant to a lock-up agreement with the underwriter of
         the IPO), for all the issued and outstanding common stock of VPI.  In
         connection with the VPI Acquisition, the Company entered into a
         three-year employment agreement with the president and sole
         stockholder of VPI, pursuant to which the Company agreed to pay a base
         salary of $150,000 per year, commissions of approximately $200,000 per
         year and an annual performance based bonus.  The employment agreement
         provides that, if the Company materially breaches the agreement or
         terminates the employee without "cause," the Company will continue to
         pay base salary and 50% of the commissions for the duration of the
         term and, in the event of a material breach by the Company, the two
         promissory notes will be accelerated and immediately become due and
         payable.  In addition, the Company committed to pay signing bonuses in
         the aggregate amount of $170,000 to three employees of VPI.  The
         bonuses, of which 50% was paid upon consummation of the IPO and the
         remainder is due in August 1997, are not contingent upon continued
         employment.


4.       INITIAL PUBLIC OFFERING

         On February 4, 1997, the Company completed its IPO of 2,300,000 shares
         of $0.01 par value Common Stock, of which 1,700,000 shares were sold
         by the Company and 600,000 shares, representing a portion of the
         consideration for the outstanding shares of VPI, were sold by a
         stockholder of the Company.  On February 11, 1997, the underwriters
         exercised an option to purchase from the Company an additional 345,000
         shares of Common Stock to cover over-allotments.  The Company raised
         approximately $6.6 million of funds, net of underwriting commissions,
         printing costs, legal and accounting fees and other offering expenses,
         totaling approximately $1,594,000, from the offering (including the
         over-allotment shares) and did not receive any of the proceeds from
         the sale of shares by the stockholder.  The Company's Common Stock is
         quoted on The Nasdaq Stock Market SmallCap System.

         In connection with the closing of the IPO, the Company repaid
         principal amounts and the related accrued interest of various notes in
         an aggregate amount of approximately $2,027,000.  In addition, the
         Company converted to its Common Stock certain notes and related
         accrued interest in an aggregate amount of $1,032,600 and issued to
         certain note holders warrants to purchase an aggregate of 109,900
         shares of the Company's Common Stock at an exercise price of 120% of
         the IPO price.





                                      8
<PAGE>   10
                                                    NHANCEMENT TECHNOLOGIES INC.
                                                     (FORMERLY BIOFACTORS, INC.)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5.       EXCESS OF COST OVER NET ASSETS ACQUIRED, NET

         The excess of cost over net assets acquired is amortized over a
         10-year period using the straight-line method.  The carrying value is
         periodically evaluated for impairment by the Company based on the
         expected future undiscounted cash flows of the related business.  As
         of March 31, 1997, the excess of cost over net assets acquired
         consisted of the following:

<TABLE>
<CAPTION>
                                                 Excess of Costs
                                                 over Net Assets      Accumulated
                                                    Acquired         Amortization           Net
                                                -----------------   --------------    --------------
 <S>                                            <C>                 <C>               <C>
 Acquisition of Phonetics, Inc. by VPI
     in October 1996                            $         280,900   $      (10,200)   $      270,700

 VPI Acquisition                                        5,895,000          (98,900)        5,796,100
                                                -----------------   --------------    --------------
                                                $       6,175,900   $     (109,100)   $    6,066,800
                                                =================   ==============    ==============
</TABLE>



         The Company is in the process of valuing the net assets acquired from
         VPI.  Accordingly, the allocation of purchase price may be adjusted in
         future periods.

6.       STOCK OPTIONS

         During the three months ended March 31, 1997, the Company granted
         options to purchase approximately 453,000 shares of the Company's
         Common Stock principally to employees, including option grants to
         purchase 100,000 shares made in connection with the VPI Acquisition,
         with exercise prices ranging from $3.20 to $4.00 per share.

7.       NET INCOME (LOSS) PER SHARE

         Net income (loss) per common and common equivalent share using the
         weighted average of common and common equivalent shares outstanding
         was computed by applying Securities and Exchange Commission Staff
         Accounting Bulletin No. 83 (SAB 83) for the three months ended March
         31, 1996.  Pursuant to SAB 83, common and common equivalent shares
         issued by the Company during the 12 months immediately preceding its
         initial public offering at a price below the initial public offering
         price, together with common share equivalents which result from the
         grant of common stock options having exercise prices below the initial
         public offering price during the same period, have been included in
         the calculation of the shares used in computing net loss per share as
         if they were outstanding for all periods prior to the initial public
         offering.  Net income (loss) per share for periods subsequent to the
         initial public offering have been computed using the treasury stock
         method, under which the number of shares outstanding includes an
         assumed use of the proceeds from the issuance of such shares and from
         the assumed exercise of such options and warrants to repurchase shares
         of the Company's Common Stock at current market prices.

8.       SUBSEQUENT EVENT

         In April 1997, three of the Company's executive officers and
         stockholders purchased a total of 150,000 shares of the Company's
         Common Stock.





                                      9
<PAGE>   11



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

THREE MONTHS ENDED MARCH 31, 1997 VERSUS MARCH 31, 1996

         The following contains forward-looking statements regarding future
events or the future financial performance of the Company that involve risks
and uncertainties.  The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors.

GENERAL

         NHancement Technologies Inc. ("NTI") was formed in 1996 as a holding
company.  On February 4, 1997, NTI completed the initial public offering of its
common stock pursuant to a registration statement filed with the Securities and
Exchange Commission.  Immediately prior to the closing of the IPO, through two
separate mergers, BFI and VPI became wholly owned subsidiaries of  NTI.  The
VPI merger was accounted for as a purchase, and the BFI merger was accounted
for in a manner similar to a pooling-of-interests.  Prior to these business
combinations, each of BFI and VPI had been operating as an  independent entity.
For accounting purposes, BFI is considered the acquiror; accordingly, the
financial data presented for the quarter ended March 31, 1996 include only BFI
results of operations.  The financial data presented for the quarter ended
March 31, 1997 include three months' operating results of BFI and also includes
two months (February and March) operating results of VPI (VPI was a separate
company until February 4, 1997).  The unaudited pro forma financial information
for the three months ended March 31, 1997 and 1996 gives effect to the BFI and
VPI mergers as if they occurred at the beginning of each period, with the
assets and liabilities of BFI reflected at historical amounts, and assets and
liabilities of VPI presented at estimated current fair values.

                          NHANCEMENT TECHNOLOGIES INC.
                          (FORMERLY BIOFACTORS, INC.)

<TABLE>
<CAPTION>
                                                          QUARTERS ENDED
                                                         1996         1997
                                                         ----         ----
     <S>                                                 <C>         <C>
     Net sales                                           100.0 %     100.0 %
     Cost of sales                                        13.0 %      44.5 %
     Gross profit                                         87.0 %      55.5 %
     Research, selling and administration                 95.0 %      44.4 %
              Income (loss) from operations               (8.0)%      11.2 %
     Other expense                                       (31.2)%      (7.5)%
     Income (loss) before income taxes                   (39.2)%       3.7 %
     Income taxes                                          0.0 %      (0.7)%
     Net income (loss)                                   (39.2)%       3.0 %
</TABLE>


         BFI is continuing development of its technology relating to employee
impairment testing systems and had insignificant revenues during the first 
quarter of 1997.  VPI is an integrator and distributor of voice processing and
telecommunications systems for businesses and had significant revenues during
the first quarter of 1997. Increased NTI revenue for the first quarter of 1997
of $1,052,100 (compared to $379,800 in the first quarter of 1996) was
exclusively due to the acquisition of VPI and the recording of $1,419,400 of
VPI revenues for February and March 1997; no such revenues were included in the
first quarter of 1996.  NTI's gross margin for the first quarter of 1997
decreased to 55.5% from 87.0% as a result of recording VPI revenues for
February and March of 1997 with an associated gross margin of 56.8%.  VPI's
gross margin for February and March  are usually high due to the recording of
$250,000 in  extremely high gross margin revenues during the period.
Management expects gross margin percentage in the low to mid- 40% range on
future VPI sales, which is slightly higher than historical gross margin
percentages, due to pricing adjustments





                                      -10-
<PAGE>   12
from a key supplier.  In the first quarter of 1996, BFI's net sales and gross
margins were attributed to a $350,000 royalty fee with significantly high gross
margin, and to early "beta" type customer installations of the FACTOR 1000
system with significant negative gross margins and high engineering and
customer installation costs.  In the first quarter of 1997, BFI's gross margins
on revenues were negative as revenues were negligible with no royalty fees
collected.

         Research, selling and administrative ("RS&A") expenses as a percentage
of net sales decreased during the first quarter of 1997 versus the first
quarter of 1996 ( 95.0% versus 44.4%) due to the acquisition of VPI, whose
significant revenues materially altered operating percentages.  RS&A expenses
increased from $360,800, in the first quarter of 1996 to $635,600 in the first
quarter of 1997, due to the recording of two months of VPI operating expenses
offset by BFI's RS&A expenses, which decreased from $360,800 in the first
quarter of 1996 to $118,300 for the first quarter of 1997 due to expense
reductions and the allocation of expenses to the VPI operation.

         Other expense decreased from $118,300 in the first quarter of 1996 to
$106,700 in the first quarter of 1997, primarily due to a decrease in interest
expense on bridge financings which were repaid or converted into shares of NTI
common stock upon consummation of the IPO.  After the application of proceeds
from the IPO, the Company has no interest-bearing debt except $1.5 million in
promissory notes payable in connection with the VPI merger, and a capital lease
liability of approximately $4,000.  This reduction in interest expense of
$70,100, and the increase in interest income of $38,400, was offset by the
recording of the amortization of excess of cost over net assets acquired
("goodwill") associated with the VPI merger of $98,900 during February and
March of 1997.  The goodwill amount recorded and the associated amortization of
goodwill may be adjusted in future periods as management continues to assess
the proper valuation of the net assets acquired for the purpose of allocating
the purchase price of VPI.  Management is required to finalize the allocation
of the purchase price within twelve months of the date of acquisition.

         The effective income tax rate of 19.6% in the first quarter of 1997
was substantially different from the federal statutory income tax rate of 42%
principally due to the application of BFI's current losses and net operating
loss carrying forward which offset the profits of VPI on a consolidated tax
return basis.  The zero effective income tax rate for the first quarter of 1996
reflects only BFI which operated at a significant loss during the period and
thus recorded no income tax expense.  VPI operated as a Subchapter S
corporation status during 1996.  NTI will file consolidated tax returns as a C
corporation in future periods.

LIQUIDITY AND CAPITAL RESOURCES

         During the first quarter of 1997, net cash used in the operating
activities of NTI was $1,967,400.   Net cash provided by investing and
financing activities totaled $5,964,900 due to NTI's completion of the
acquisition of VPI, which had $851,900 in cash, and to the completion of the
IPO with net proceeds of about $7.0 million to the Company of which $1.8
million repaid long-term debt, the remainder of which resulted in a net
increase in cash of about $4.0 million during the quarter.  NTI's working
capital at March 31, 1997 was $3.7 million.  The current ratio at March 31,
1997 was 2.1 to 1, primarily due to the completion of the IPO and acquisition
of Voice Plus, Inc.

         As of March 31, 1997, NTI had outstanding debt of $1.5 million and
$12,200 of associated accrued interest all payable to its largest shareholder
(the former owner of VPI). The Company utilized proceeds from its IPO to repay
about $2.1 million of debt and interest accrued at rates between 10% and 12%
per annum.  The Company intends to spend remaining IPO proceeds to fund
approximately $500,000 of product and market development costs for the FACTOR
1000 system and for general corporate purposes, including future acquisitions.

         Management estimates that it will incur minimal capital expenditures
during 1997.  However, the Company plans to relocate and consolidate its
corporate offices in California and, in connection with that move and
consolidation, may incur certain costs associated with new leasehold
improvements.  It is anticipated that all other capital expenditures will be
financed through equipment leases and will not require significant direct
outlays of cash.

         Based upon its present plans, management believes that operating cash
flow, available cash and available credit resources are adequate to make the
repayments of indebtedness described herein, to meet the working capital cash
needs of the Company and to meet anticipated capital needs during the next 12
months.  Although the Company intends to issue shares of Common Stock as its
primary method of financing acquisitions, it anticipates that additional funds
will be required to implement successfully its





                                      -11-
<PAGE>   13
acquisition program, and it will use various methods to finance acquisitions,
including the payment of cash, for this purpose.

ACCOUNTING STANDARDS

         On March 3, 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings per Share."  This pronouncement provides a different method
of calculating earnings per share than is currently used in accordance with APB
No. 15, "Earnings per Share."  SFAS No. 128 provides for the calculation of
Basic and Diluted earnings per share.  Basic earnings per share includes no
dilution and is computed by dividing income available to common shareholders by
the weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of securities that
could share in the earnings of an entity, similar to fully diluted earnings per
share.  Calculations under the new standard, which will be adopted in the
fourth quarter of 1997, are not expected to result in a significant difference
from those under the current method.



                                    PART II
                               OTHER INFORMATION


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

(a)      The following Exhibits are filed as part of the Quarterly Report on
Form 10-QSB

<TABLE>
<CAPTION>
         EXHIBIT
          NUMBER                                      DESCRIPTION OF EXHIBIT
          ------                                      ----------------------
          <S>           <C> 
           3.1          --  Certificate  of Incorporation  with  the  Amended and  Restated  Certificate of
                            Incorporation (1)
           3.2          --  Amended and Restated Bylaws (1)
          10.2          --  Agreement and  Plan  of  Merger, dated  as  of October  30, 1996,  between  the
                            Company, BFI Acquisition Corporation and BFI (1)
          10.3          --  Agreement  and Plan  of  Merger, dated  as  of  October 25,  1996,  between the
                            Company,  VPI  Acquisition Corporation,  VPI and  James S.  Gillespie, together
                            with Forms of Promissory Notes (1)
          10.12         --  Equity Incentive Plan (1)
          10.13         --  Employment Agreement,  dated as  of October 30,  1996, between Douglas S.  Zorn
                            and the Company (1)
          10.14         --  Employment Agreement, dated  as of October 25, 1996, between James S. Gillespie
                            and the Company (1)
          10.15         --  Employment Agreement,  dated as of October 30, 1996, between Esmond T. Goei and
                            the Company (1)
          10.21         --  Stockholder Agreement,  dated October 25, 1996,  between the Company  and James
                            S. Gillespie (1)
          10.22         --  1997 Management and Company Performance Bonus Plan (1)
          10.23         --  Employment  Agreement, dated as of November 1, 1996, between Diane E. Nowak and
                            VPI (1)
          10.24         --  Employment Agreement,  dated as  of November  1, 1996, between  Bradley Eickman
                            and VPI (1)
          10.27         --  Registration Rights Agreement, dated October 25,  1996, between the Company and
                            James S. Gillespie (1)
          11            --  Statement regarding computation of per share earnings
          27            --  Financial Data Schedule
</TABLE>

                 _________________
                 (1)      Incorporated by reference to the Registration
                          Statement on Form SB-2, File Number 333-15563, as
                          filed with the Securities and Exchange Commission on
                          January 30, 1997.



                                      -12-
<PAGE>   14


(b)      Reports on Form 8-K

         Report on Form 8-K filed by the Company on April 7, 1997, reported on
the expiration of the letter of intent to acquire C.C. & Associates previously
disclosed in the Company's Prospectus.



                  (Rest of this page intentionally left blank)





                                      -13-
<PAGE>   15
                                   SIGNATURES

         In accordance with the requirements of the Exchange Act , the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                                NHANCEMENT TECHNOLOGIES INC.



                                By:   /s/ Esmond T. Goei     
                                   ------------------------------------------
Date: May 1, 1997                     Esmond T. Goei
                                      Chairman of the Board, Chief Executive 
                                      Officer, President and Director



                                By:  /s/ Douglas S. Zorn  
                                   ------------------------------------------
Date: May 1, 1997                    Douglas S. Zorn
                                     Executive Vice President-Finance,
                                     Secretary, Treasurer, Chief Operating
                                     and Financial Officer and Director





                                      -14-
<PAGE>   16
                                 EXHIBIT INDEX



<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                      DESCRIPTION OF EXHIBIT
         ------                                      ----------------------
         <S>           <C>
          3.1          --  Certificate of  Incorporation with  the  Amended  and Restated  Certificate  of
                           Incorporation (1)
          3.2          --  Amended and Restated Bylaws (1)
         10.2          --  Agreement  and Plan  of  Merger, dated  as  of  October 30,  1996,  between the
                           Company, BFI Acquisition Corporation and BFI (1)
         10.3          --  Agreement and  Plan  of Merger,  dated as  of  October 25,  1996,  between  the
                           Company, VPI  Acquisition  Corporation, VPI  and James  S. Gillespie,  together
                           with Forms of Promissory Notes (1)
         10.12         --  Equity Incentive Plan (1)
         10.13         --  Employment Agreement,  dated as  of October 30,  1996, between Douglas S.  Zorn
                           and the Company (1)
         10.14         --  Employment Agreement, dated  as of October 25, 1996, between James S. Gillespie
                           and the Company (1)
         10.15         --  Employment Agreement,  dated as of October 30, 1996, between Esmond T. Goei and
                           the Company (1)
         10.21         --  Stockholder Agreement,  dated October 25, 1996,  between the Company  and James
                           S. Gillespie (1)
         10.22         --  1997 Management and Company Performance Bonus Plan (1)
         10.23         --  Employment Agreement, dated as of  November 1, 1996, between Diane E. Nowak and
                           VPI (1)
         10.24         --  Employment Agreement,  dated as  of November  1, 1996, between  Bradley Eickman
                           and VPI (1)
         10.27         --  Registration Rights Agreement, dated October 25,  1996, between the Company and
                           James S. Gillespie (1)
         11            --  Statement regarding computation of per share earnings
         27            --  Financial Data Schedule
</TABLE>

_________________

(1)      Incorporated by reference to the Registration Statement on Form SB-2, 
         File Number 333-15563, as filed with the Securities and Exchange 
         Commission on January 30, 1997.