<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                ----------------
                                   FORM 10-QSB
          [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                  For the quarterly period ended June 30, 1999

          [ ] 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 AS SPECIFIED IN ITS CHARTER)

           DELAWARE                                    84-1360852
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
incorporation or organization)
                         39420 LIBERTY STREET, SUITE 250
                            FREMONT, CALIFORNIA 94538
                    (Address of principal executive offices)

                                 (510) 744-3333
                           (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
                                      ---     ---


 As of July 27, 1999, there were 6,954,000 shares of Common Stock outstanding.

      Transitional Small Business Disclosure Format (check one) Yes     No  X
                                                                    ---    ---
<PAGE>
                                     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 the rules
and regulations of the Securities and Exchange Commission, 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 presentation of the
information shown. These unaudited financial statements should be read in
conjunction with the audited financial statements for the nine months ended
September 30, 1998. The results for the nine months ended June 30, 1999 are
not necessarily indicative of the results of operations for a full year.

                                      2

<PAGE>

                                                   NHANCEMENT TECHNOLOGIES INC.
                                                               AND SUBSIDIARIES

                                                     CONSOLIDATED BALANCE SHEET
                                                                    (UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------ -------------------
                                                                                                   JUNE 30, 1999
------------------------------------------------------------------------------------------------ -------------------
<S>                                                                                              <C>
ASSETS
CURRENT
          Cash and cash equivalents                                                                      $3,211,100
          Restricted cash                                                                                   271,300
          Accounts receivable, less allowance for doubtful accounts of $228,300                           5,957,800
          Inventory                                                                                       1,494,800
          Current portion of notes receivable from related parties                                          206,600
          Prepaid expenses and other                                                                        345,900
------------------------------------------------------------------------------------------------ -------------------
 TOTAL CURRENT ASSETS                                                                                    11,487,500
------------------------------------------------------------------------------------------------ -------------------

PROPERTY AND EQUIPMENT                                                                                    2,006,600
          Less accumulated depreciation                                                                    (856,700)
------------------------------------------------------------------------------------------------ -------------------
PROPERTY AND EQUIPMENT, net                                                                               1,149,900
------------------------------------------------------------------------------------------------ -------------------

Excess of cost over net assets acquired of NHAN NA, net of accumulated amortization of $187,500             562,500
Excess of cost over net assets acquired of Infotel, net of accumulated amortization of $191,900           2,230,200
Long-term portion of notes receivable from related parties                                                  117,300
Other assets                                                                                                 24,600
------------------------------------------------------------------------------------------------ -------------------
                                                                                                        $15,572,000
------------------------------------------------------------------------------------------------ -------------------
------------------------------------------------------------------------------------------------ -------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
          Lines of credit                                                                                $1,087,400
          Accounts payable                                                                                3,335,600
          Accrued liabilities                                                                             2,117,400
          Deferred revenue                                                                                1,785,100
          Income tax payable                                                                                 47,100
          Notes payable to stockholders                                                                   1,250,000
          Capital lease obligations, current portion                                                         98,800
------------------------------------------------------------------------------------------------ -------------------
TOTAL CURRENT LIABILITIES                                                                                 9,721,400

CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION                                                            69,700
------------------------------------------------------------------------------------------------ -------------------

TOTAL LIABILITIES                                                                                         9,791,100
------------------------------------------------------------------------------------------------ -------------------

STOCKHOLDERS' EQUITY
          Convertible preferred stock, $0.01 par value, 2,000,000 shares authorized, 17,500
            shares issued and outstanding                                                                 1,341,800
          Common stock, $0.01 par value, 20,000,000 shares authorized, 6,954,000, shares
            issued and outstanding                                                                           69,500
          Additional paid-in capital                                                                     22,949,500
          Accumulated deficit                                                                           (18,376,500)
          Cumulative translation loss, net of tax                                                          (203,400)
------------------------------------------------------------------------------------------------ -------------------
TOTAL STOCKHOLDERS' EQUITY                                                                                5,780,900
------------------------------------------------------------------------------------------------- ------------------
                                                                                                        $15,572,000
------------------------------------------------------------------------------------------------- ------------------
------------------------------------------------------------------------------------------------- ------------------
</TABLE>

                                      3

<PAGE>

                                                   NHANCEMENT TECHNOLOGIES INC.
                                                               AND SUBSIDIARIES

                                          CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                    (UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------

                                                               THREE MONTHS ENDED           NINE MONTHS ENDED
                                                                     JUNE 30,                    JUNE 30,
                                                               1998          1999           1998           1999
----------------------------------------------------------- ----------- -------------- -------------- --------------
<S>                                                         <C>         <C>            <C>            <C>
NET REVENUES                                                 3,253,300     $6,652,800     $6,239,100    $15,629,300
Cost of sales                                                1,766,600      4,309,200      3,803,800     10,252,100
----------------------------------------------------------- ----------- -------------- -------------- --------------
GROSS PROFIT                                                 1,486,700      2,343,600      2,435,300      5,377,200
----------------------------------------------------------- ----------- -------------- -------------- --------------
OPERATING EXPENSES
Selling, general and administrative                          1,260,700      1,901,900      3,556,400      5,863,100
Restructuring charges (Note 9)                                     ---            ---            ---        189,000
Amortization of excess of cost over net assets
  acquired, including impairment loss of
  $4,084,300 in fiscal 1998                                     75,000        110,700      4,385,100        331,900
----------------------------------------------------------- ----------- -------------- -------------- --------------
TOTAL OPERATING EXPENSES                                     1,335,700      2,012,600      7,941,500      6,384,000
----------------------------------------------------------- ----------- -------------- -------------- --------------
INCOME (LOSS) FROM OPERATIONS                                  151,000        331,000     (5,506,200)    (1,006,800)

OTHER INCOME (EXPENSE)
Interest income                                                 17,900         37,100         70,800         81,300
Interest expense                                               (12,400)      (131,000)       (45,500)      (246,100)
Other                                                           36,800         15,800         72,900         30,300
----------------------------------------------------------- ------------ ------------- -------------- --------------
Total other income (expense)                                    42,300        (78,100)        98,200       (134,500)

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES                                                          193,300        252,900     (5,408,000)    (1,141,300)
INCOME TAX EXPENSE (BENEFIT)                                    26,000          1,100        (66,100)         1,100
----------------------------------------------------------- ------------ ------------- -------------- --------------
INCOME (LOSS) FROM CONTINUING OPERATIONS                       167,300        251,800     (5,341,900)    (1,142,400)
----------------------------------------------------------- ------------ ------------- -------------- --------------
DISCONTINUED OPERATIONS
   Loss from operations of Advantis                           (119,700)           ---       (217,900)           ---
----------------------------------------------------------- ------------ ------------- -------------- --------------
NET INCOME (LOSS)                                               47,600       $251,800    ($5,559,800)   ($1,142,400)

PREFERRED DIVIDENDS                                           (430,100)      (717,200)      (430,100)      (724,000)
----------------------------------------------------------- ------------ ------------- -------------- --------------
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS                     (382,500)     ($465,400)   ($5,989,900)   ($1,886,400)
----------------------------------------------------------- ------------ ------------- -------------- --------------
BASIC AND DILUTED NET LOSS FROM CONTINUING OPERATIONS PER
COMMON SHARE (NOTE 7)                                            ($.06)         ($.08)        ($1.31)         ($.32)
----------------------------------------------------------- ------------ ------------- -------------- --------------
BASIC AND DILUTED NET LOSS FROM DISCONTINUED OPERATIONS
PER COMMON SHARE (NOTE 7)                                        ($.02)           ---          ($.05)           ---
----------------------------------------------------------- ------------ ------------- -------------- --------------
BASIC AND DILUTED NET LOSS PER COMMON SHARE (NOTE 7)             ($.08)         ($.08)        ($1.36)         ($.32)
----------------------------------------------------------- ------------ ------------- -------------- --------------
</TABLE>

                                      4

<PAGE>

                                                   NHANCEMENT TECHNOLOGIES INC.
                                                               AND SUBSIDIARIES

                                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                                         AND COMPREHENSIVE LOSS
                                                                    (UNAUDITED)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                               PREFERRED STOCK         COMMON STOCK        ADDITIONAL                      CUMULATIVE
                                 PAR VALUE              PAR VALUE           PAID IN       ACCUMULATED     TRANSLATION
                             SHARES     AMOUNT      SHARES      AMOUNT       CAPITAL        DEFICIT          LOSS         TOTAL
--------------------------- -------- ------------ ----------- ----------- -------------- --------------- ------------ ------------
<S>                         <C>       <C>         <C>         <C>         <C>            <C>             <C>          <C>
Balance, September 30,
1998                          3,200     $252,200   5,579,235     $55,800    $21,020,900    ($16,510,100)   ($174,900)   $4,643,900

Dividends on preferred
stock converted to common
shares                          ---          ---      21,900         200         15,300         (15,500)         ---          ---

Preferred shares converted
into common stock            (3,200)    (252,200)    500,000       5,000        247,200             ---          ---          ---

Issuance of common stock
options and warrants for
payment of outside
service fees and
severance benefits              ---          ---         ---         ---         71,700             ---          ---       71,700

Issuance of Preferred
Stock, net of cash stock
issuance costs of
$265,000 (Note 5)            17,500    1,485,000         ---         ---            ---             ---          ---    1,485,000

Issuance of warrants for
Preferred financing (Note 5)    ---     (143,200)        ---         ---        143,200             ---          ---          ---

Deemed dividend on
preferred stock (Note 5)        ---          ---         ---         ---        708,500        (708,500)         ---          ---

Shareholder debt
converted to equity (Note
1)                              ---          ---     559,100       5,600        629,000             ---          ---      634,600

Shareholder debt
converted to equity (Note
1)                              ---          ---     116,565       1,200        115,400             ---          ---      116,600

Additional Common stock
issued for Infotel
acquisition                     ---          ---     177,200       1,800         (1,800)            ---          ---          ---

Comprehensive loss:

Net loss                        ---          ---         ---         ---            ---      (1,142,400)         ---    (1,142,400)

Cumulative translation
loss                            ---          ---         ---         ---            ---             ---      (28,500)      (28,500)

--------------------------- -------- ------------ ----------- ----------- -------------- --------------- ------------ ------------
Total comprehensive loss        ---          ---         ---         ---            ---             ---          ---    (1,170,900)
--------------------------- -------- ------------ ----------- ----------- -------------- --------------- ------------ ------------
--------------------------- -------- ------------ ----------- ----------- -------------- --------------- ------------ ------------
Balance, June 30, 1999       17,500   $1,341,800   6,954,000     $69,600    $22,949,400    ($18,376,500)   ($203,400)   $5,780,900
--------------------------- -------- ------------ ----------- ----------- -------------- --------------- ------------ ------------
--------------------------- -------- ------------ ----------- ----------- -------------- --------------- ------------ ------------
</TABLE>

                                      5

<PAGE>

                                                   NHANCEMENT TECHNOLOGIES INC.
                                                               AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF CASH FLOW
                                                                    (UNAUDITED)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------- -------------------------------------
                                                                                         NINE MONTHS ENDED JUNE 30,
                                                                                               1998           1999
---------------------------------------------------------------------------------- --------------------- ---------------
<S>                                                                                <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                                                                 ($5,559,800)     (1,142,400)
   Adjustments to reconcile net loss to net cash provided by (used in) operating
     activities:
   Loss from discontinued operations                                                            217,900             ---
    Depreciation and other amortization                                                         352,600         300,300
    Amortization of excess cost over net assets acquired, including impairment loss           4,185,500         331,900
    Gain on sale of fixed assets                                                                    ---         (11,600)
    Compensation related to grant of stock options and warrants                                     ---          71,700
    Other                                                                                       (57,500)         18,100
    Changes in operating assets and liabilities:
       Accounts receivable                                                                   (1,177,100)     (1,402,300)
       Inventory                                                                                330,000        (166,500)
       Prepaid expenses and other                                                              (181,000)       (100,300)
       Other assets                                                                             223,200         221,500
       Income tax payable                                                                      (186,000)       (174,700)
       Accounts payable and other current liabilities                                           289,400       2,001,800
---------------------------------------------------------------------------------- ---------------------- ---------------
CASH USED IN CONTINUING ACTIVITIES                                                           (1,562,800)        (52,500)
CASH PROVIDED IN DISCONTINUED OPERATIONS                                                        (57,800)           ---
---------------------------------------------------------------------------------- ---------------------- --------------
NET CASH USED IN OPERATING ACTIVITIES                                                        (1,620,600)        (52,500)
CASH FLOWS FROM INVESTING ACTIVITIES
   Restricted cash                                                                                  ---          93,100
   Cash purchase price of Infotel, net of cash acquired of $2,326,000                           (30,300)            ---
   Deferred acquisition costs                                                                  (135,600)            ---
   Note receivable from related party                                                            (1,100)         12,100
   Proceeds on sale of fixed assets                                                                 ---         145,800
   Purchase of property and equipment                                                          (236,400)       (192,200)
---------------------------------------------------------------------------------- ---------------------- --------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                                            (403,400)         58,800
---------------------------------------------------------------------------------- ---------------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
   Net borrowing under line of credit                                                            80,000         856,400
   Proceeds from shareholders notes payable                                                   1,400,000             ---
   Proceeds from sale of preferred stock                                                      1,047,400       1,485,000
   Principal payments on capital leases                                                             ---         (50,200)
   Principal payment on notes payable                                                               ---        (741,600)
   Principal payment on long-term debt due to stockholders                                     (187,500)            ---
---------------------------------------------------------------------------------- ---------------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                                     2,339,900       1,549,600
---------------------------------------------------------------------------------- --------------------- ---------------
   Effect of exchange rate changes on cash                                                     (139,000)        (22,000)
---------------------------------------------------------------------------------- --------------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                            176,900       1,533,900
---------------------------------------------------------------------------------- --------------------- ---------------

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                2,326,300       1,677,200
---------------------------------------------------------------------------------- --------------------- ---------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                                     $2,503,200       3,211,100
---------------------------------------------------------------------------------- --------------------- ---------------
---------------------------------------------------------------------------------- --------------------- ---------------

SUPPLEMENTAL DATA:
        Interest paid                                                                           $67,000        $317,000
</TABLE>

                                      6

<PAGE>

DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

         On December 15, 1997, the Company issued 208,500 shares of its Common
     Stock in exchange for all the outstanding shares of Advantis pursuant to a
     purchase and plan of merger agreement.

         On June 22, 1998, the Company acquired all outstanding shares of Common
     Stock of Infotel Technologies (Pte) Ltd. in exchange for approximately
     433,000 shares of the Company's Common Stock with an estimated value of
     $1,840,400 and $2,356,300 in cash. Additionally, management recorded
     additional purchase consideration of $1,390,400 based on Infotel's profits
     through June 30, 1998.

     During the nine months ended June 30, 1999, property and equipment
     additions of $150,400 were financed by capital lease obligations.

         On June 7, 1999, the Company issued 116,600 shares of its Common Stock
     for conversion of $116,600 of debt from a stockholder.

         On June 15, 1999, the Company recorded the final additional purchase
     consideration of $494,600 based on Infotel's profits in fiscal 1999. The
     Company issued 559,100 shares of its Common Stock for conversion of
     $634,600 of the additional consideration due the former stockholders of
     Infotel.

                                      7

<PAGE>




1.   LIQUIDITY

     The Company had net income of $251,800 and $21,900 for the third and second
     quarters of fiscal 1999. However, the Company incurred losses from
     continuing operations of $5.6 million and $1.1 million for the nine months
     ended June 30, 1998 and 1999 respectively. The losses in 1998 included
     non-cash charges for goodwill impairment of $4.1 million, amortization of
     the excess over net assets acquired of $0.3 million and a loss of $0.2
     million from discontinued operations. At June 30, 1999, the Company had
     working capital of $1,766,100, an improvement of $2,296,400 from March 31,
     1999. The major reasons for the improvement in working capital were (i) the
     issuance of $1,750,000 of its Series A Convertible Preferred Stock, less
     approximately $265,000 in related expenses, (ii) the acceptance by the
     former Infotel shareholders of additional shares of the Common Stock of
     NHancement Technologies Inc. in lieu of $634,600 in performance payments
     due under the terms of the acquisition agreement, (iii) the conversion of
     $116,600 of debt owed to a major shareholder into shares of the
     NHancement's Common Stock and (iv) profitability in the quarter. Although
     no assurance can be given, management believes its cash balance as of June
     30, 1999 of about $3.5 million coupled with continuing profits will provide
     sufficient cash flow for future operations. The Company believes that the
     changes in management, cost cutting measures and its renewed focus on its
     core businesses implemented in the second and third fiscal quarters, along
     with its current customer order backlog of $5.0 million have positioned it
     for continued profitability. However if the Company fails to maintain
     profitable operations, its financial condition will be adversely affected.

          On February 17, 1999, the Company received written notification from
     The Nasdaq Stock Market that the Company's Common Stock would be delisted
     from the Nasdaq SmallCap Market, effective with the close of business on
     February 24, 1999, due to the Company's non-compliance with the net
     tangible assets/market capitalization/net income requirement for continued
     listing, as set forth under Marketplace Rule 4310(c)(2).

         The Company's subsequent request for an oral hearing with the Nasdaq
     Listing Qualifications Panel was granted and the Company attended the
     hearing on April 29, 1999. On June 3, 1999, the Nasdaq Listing
     Qualifications Panel issued a positive determination on the Company's
     request for continued inclusion on The Nasdaq SmallCap Market pursuant to
     an exception to the net tangible assets/market capitalization/net income
     requirement. Consequently, the Company's Common Stock continues to be
     listed, without interruption, on the Nasdaq SmallCap Market.

         Pursuant to the Infotel Technologies (Pte) Ltd ("Infotel") acquisition
     agreement, the Company was required to pay $1,390,000 to the former Infotel
     shareholders 30 days after the filing of the 10-KSB, which was filed on
     January 13, 1999. The Company failed to make payment to the former Infotel
     shareholders as required by the terms of the acquisition agreement.
     Consequently, the former Infotel shareholders had the option of accepting
     either NHancement Common Stock or a minority interest in the Common Stock
     of Infotel in lieu of cash. The former Infotel shareholders had 45 days
     after non-payment by the Company to notify the Company in writing of which
     option they had elected. Since the former Infotel shareholders did not
     elect either option, the debt began accruing interest on February 15, 1999,
     daily at the rate of 3% per year above the prime lending rate of The
     Development Bank of Singapore Ltd. Furthermore, based on Infotel's 1999
     fiscal year performance the Company has recorded an additional $494,600 due
     to the former shareholders of Infotel. These two amounts represent the
     entire contingent amount of SD$3,200,000 (or US$1,884,600) which was due
     the former shareholders of Infotel under the terms of the acquisition
     agreement upon satisfaction of all contingencies. On April 29, 1999 the
     Company negotiated a settlement agreement with the former Infotel
     shareholders, contingent on the Company's continued listing on Nasdaq, to
     defer $1,250,000 of the cash payment until 60 days after the Company met
     Nasdaq's requirements for continued listing and

                                      8

<PAGE>

     to accept $634,600 of the performance payment in additional shares of the
     Company's Common Stock. Subsequently, the Company was successful in
     meeting the requirements imposed by Nasdaq for continued listing and the
     settlement with Infotel became effective, without contingency. A closing
     meeting with the former Infotel shareholders is scheduled for August 13,
     1999 at which the $1.25 million plus accrued interest will be distributed.
     The Company will have no further payment obligations under the terms of
     the acquisition agreement following delivery of this amount.

2.   ORGANIZATION

         NHancement Technologies Inc., a Delaware corporation headquartered in
     Fremont, California ("NHancement" or the "Company"), was incorporated in
     October 1996 as a holding company. The business of NHancement is conducted
     by its operating company subsidiaries: NHancement Technologies North
     America, Inc. ("NHAN NA", formerly Voice Plus, Inc.) and Infotel. NHAN NA,
     a California corporation headquartered in Fremont, California, is a systems
     integrator and national distributor of voice processing and multimedia
     messaging equipment. Infotel, a Singapore corporation acquired on June 22,
     1998, is a systems integrator of infrastructure data communications
     equipment, turnkey project management services, and radar systems and a
     provider of test measuring systems. Accordingly, the consolidated financial
     statements include the results of the operations from NHancement and its
     NHAN NA subsidiary for both periods presented and those of Infotel for the
     eight days ended June 30, 1998 and the three months and nine months ended
     June 30, 1999. Furthermore, the results of operations of Advantis Network &
     Systems Sdn Bhd, which was acquired on December 15, 1997, are classified as
     discontinued as this subsidiary was divested on September 30, 1998.

3.   FINANCIAL STATEMENT PRESENTATION

         The accompanying consolidated financial statements as of June 30, 1999
     and for the three and nine months ended June 30, 1999 and 1998 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 nine months ended
     September 30, 1998 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.

                                      9

<PAGE>

4.   STOCK OPTIONS AND WARRANTS

         During the nine months ended June 30, 1999, the Company granted options
     to purchase approximately 1,024,500 shares of the Company's Common Stock to
     employees, and options to purchase 75,000 shares of Common Stock to outside
     directors, with exercise prices for these employees and director options
     ranging from $1.125 to $1.375 per share. During the same period, the
     Company also issued warrants to purchase 50,000 shares of Common Stock to
     the former CEO; warrants to purchase 50,000 shares of Common Stock to James
     S. Gillespie (the former owner of NHAN NA (formerly Voice Plus, Inc.) and
     currently a consultant to and a Director of the Company); warrants to
     purchase 500,000 shares of Common Stock to outside advisors to assist the
     Company with acquisitions and additional financing and warrants to purchase
     175,000 shares of Common Stock to the buyers of the Preferred Stock issued
     on June 15, 1999, with exercise prices for these various warrant issuances
     ranging from $1.00 to $1.368 per warrant. In addition, the Company issued
     warrants to purchase 200,000 shares of Common Stock to the buyers of the
     Preferred Stock that are exercisable only if the Company redeems the
     Preferred Stock in accordance with the terms of the Securities Purchase
     Agreement, as amended, and the Certificate of Designations, as amended.

5.   FINANCING ACTIVITIES

         On June 15, 1999 the Company completed the remaining $1,750,000 tranche
     of Series A Convertible Preferred Stock (less commissions and certain other
     costs and expenses of approximately $265,000). The Preferred Stock bears a
     5% cumulative dividend and has a liquidation preference equal to the
     original purchase price plus cumulative but unpaid dividends. The Preferred
     Stock is convertible into Common Stock at the lesser of the five day
     average closing bid price at the time of signing or 75% of the five day
     average closing bid price at the time of the conversion, except in no event
     will the conversion price per share be less than $0.80 before applying the
     25% discount. The 25% conversion discount was reflected as a preferred
     stock deemed dividend and resulted in a $583,300 decrease in income or
     increase in the loss applicable to Common Stock in computing the net
     income/loss per share. In addition, the warrants to purchase 175,000 shares
     of the Company's Common Stock were granted to the Preferred investors and
     are reflected as a $125,200 deemed dividend.

         In October 1998, the Company through its NHAN NA subsidiary obtained a
     $1.0 million accounts receivable credit line with an U.S. finance company
     with an advance rate of 80% of eligible receivables at an interest rate of
     2.75% per month. In January 1999, the Company's lender increased the credit
     line from $1.0 million to $2.0 million and restrictions were eased on the
     receivables eligible for inclusion in the Company's borrowing base. The
     Company, through its Infotel subsidiary, is attempting to complete a credit
     line with a major Singapore bank for S$3.5 million with interest at 1.25%
     above the bank prime rate to be used for Infotel's overdraft protection,
     letters of credit, letters of guarantee, foreign exchange and revolving
     credit. The Company hoped to complete this facility during the quarter, but
     because of the extensive amount of information and documentation required
     by foreign banks, the facility is expected to be completed during the
     fourth fiscal quarter.

         In June 1998, funds were loaned to the Company by certain management
     stockholders totaling $650,000. Of this amount, $125,000, $225,000 and
     $300,000 were loaned to NHancement by Esmond T. Goei, Former Chairman of
     the Board and Chief Executive Officer of the Company, Douglas S. Zorn,
     current President and Chief Executive Officer of the Company, and James S.
     Gillespie, currently a member of the Board of Directors of the Company,
     respectively. The total principal and interest, originally due September
     30, 1998, was repaid on November 5, 1998 without penalty.

                                      10

<PAGE>

6.   UNAUDITED PRO FORMA FINANCIAL DATA

         The unaudited pro forma statements of operations combine the results of
     operations of the Company and Infotel for the nine months ended June 30,
     1998, as if the acquisition had occurred at the beginning of the period,
     after giving effect to certain adjustments, including the amortization of
     excess of costs over net assets acquired and interest expense on notes
     payable to related parties. The following unaudited pro forma summary does
     not necessarily reflect the results of operations as they would have been
     had the Infotel acquisition occurred at the beginning of the period
     presented and is not necessarily indicative of the results of operations
     for any future period. These pro forma results exclude the loss from
     discontinued operations.

<TABLE>
<CAPTION>
     ----------------------------------------------------------------------------- ---------------------------------
                                                                                         UNAUDITED PRO FORMA
                                                                                          NINE MONTHS ENDED
                                                                                            JUNE 30, 1998
     ----------------------------------------------------------------------------- ---------------------------------
     <S>                                                                           <C>
     Net revenues                                                                               $14,488,600
     Net loss                                                                                   ($4,754,800)
     Preferred stock dividend                                                                      (430,100)
     Basic and diluted net loss available to common shareholders                                 (5,184,900)
     Basis and diluted net loss per common share                                                      ($.92)

     Weighted average common and common equivalent shares outstanding                             5,616,200
     ------------------------------------------------------------------------------------- -----------------
</TABLE>

7.   EARNINGS PER SHARE

         Earnings per share were computed under the provisions of SFAS 128,
     Earnings Per Share. The following is a reconciliation of the numerators and
     denominators of the basic and diluted earnings per share computations:

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED               NINE MONTHS ENDED
                                                          JUNE 30,                        JUNE 30,
                 NET LOSS - NUMERATOR                1998           1999            1998            1999
                 --------------------                ----           ----            ----            ----
        --------------------------------------- ---------------- -------------- --------------- ----------------
        <S>                                     <C>             <C>            <C>             <C>
        Net income (loss)                              $47,600       $251,800     ($5,559,800)     ($1,142,400)
        Preferred stock dividends                     (430,100)      (717,200)       (430,100)        (724,000)
        --------------------------------------- ---------------- -------------- --------------- ----------------
        Basic and diluted net loss applicable
        to common stock                              ($382,500)     ($465,400)    ($5,989,900)     ($1,886,400)
        --------------------------------------- ---------------- -------------- --------------- ----------------
        --------------------------------------- ---------------- -------------- --------------- ----------------

        COMMON SHARES - DENOMINATOR
        Basic weighted average common shares
        outstanding                                  4,506,300      6,201,000       4,389,000        5,912,400
        Options and warrants                               ---            ---             ---              ---
        --------------------------------------- ---------------- -------------- --------------- ----------------
        --------------------------------------- ---------------- -------------- --------------- ----------------
        Diluted weighted average common
        shares outstanding                           4,506,300      6,201,000       4,389,000        5,912,400
        --------------------------------------- ---------------- -------------- --------------- ----------------
        --------------------------------------- ---------------- -------------- --------------- ----------------
</TABLE>

         Options and warrants to purchase 2,568,900 shares and Preferred Stock
     convertible into approximately 1,750,000 shares of Common were outstanding
     at June 30, 1999 and options and warrants to purchase 1,009,300 shares and
     Preferred Stock convertible into 614,200 shares of Common Stock were
     outstanding at June 30, 1998 but were not included in the computation of
     diluted loss per common share because the effect would be antidilutive.
     Also, 177,200 additional consideration shares, which would be issuable
     according to the antidilution provisions in the Infotel acquisition
     agreement are not included in the computation of the diluted loss per
     Common share.

                                      11

<PAGE>

8.   SEGMENT REPORTING

          NHancement's reportable operating segments include NHancement
     Technologies North America, Inc. ("NHAN NA", formerly Voice Plus, Inc.) and
     Infotel Technologies (Pte) Ltd ("Infotel"). Infotel is based in Singapore
     and derives substantially all of its revenue from sales in Asia.

<TABLE>
<CAPTION>
         Financial information for these segments includes the following:
         Three months ended June 30, 1999
       ------------------------------------------ -------------- ---------------- --------------- -----------------
                                                     NHAN NA         INFOTEL         OTHER(2)          TOTAL
       ------------------------------------------ -------------- ---------------- --------------- -----------------
       <S>                                        <C>            <C>              <C>             <C>
       Net Sales to external customers               $4,062,000       $2,590,800             ---        $6,652,800
       Income (loss) from continuing operations         615,300          240,300       ($603,800)          251,800
       Total assets                                   5,306,400        8,027,000       2,238,600        15,572,000
       ------------------------------------------ -------------- ---------------- --------------- -----------------

         Three months ended June 30, 1998
       ------------------------------------------ -------------- ---------------- --------------- -----------------
                                                     NHAN NA         INFOTEL         OTHER(2)          TOTAL
       ------------------------------------------ -------------- ---------------- --------------- -----------------
       Net Sales to external customers               $3,003,300         $235,000         $15,000        $3,253,300
       Income (Loss) from continuing operations         468,900           71,000        (372,600)          167,300
       Total assets                                   4,652,600        5,742,700       4,807,800        15,203,100
       ------------------------------------------ -------------- ---------------- --------------- -----------------

         Nine months ended June 30, 1999
       ------------------------------------------ -------------- ---------------- --------------- -----------------
                                                     NHAN NA         INFOTEL         OTHER(2)          TOTAL
       ------------------------------------------ -------------- ---------------- --------------- -----------------
       Net Sales to external customers               $9,096,000       $6,533,300             ---       $15,629,300
       Income (loss) from continuing operations         649,000          480,000     ($2,271,400)      ($1,142,400)
       Total assets                                   5,306,400        8,027,000       2,238,600        15,572,000
       ------------------------------------------ -------------- ---------------- --------------- -----------------

         Nine months ended June 30, 1998
       ------------------------------------------ -------------- ---------------- --------------- -----------------
                                                   NHAN NA(1)        INFOTEL         OTHER(2)          TOTAL
       ------------------------------------------ -------------- ---------------- --------------- -----------------
       Net Sales to external customers               $5,987,700         $235,000         $16,400        $6,239,100
       Income (Loss) from continuing operations      (4,290,200)          71,000      (1,122,700)       (5,341,900)
       Total assets                                   4,652,600        5,742,700       4,807,800        15,203,100
       ------------------------------------------ -------------- ---------------- --------------- -----------------
         (1) NHAN NA loss includes an impairment loss of $4,084,300.
         (2) Other includes corporate expenses.
</TABLE>

9.   RESTRUCTURING CHARGES

          The Company restructured its operations in the second quarter ended
     March 31, 1999. Restructuring charges consisted mostly of severance
     payments to the former CEO and operational and administrative employees of
     NHAN NA. A total of five employees were terminated in the quarter ended
     March 31, 1999 and a total of $189,000 of expenses related to severance
     benefits were expensed and paid in the quarter. No restructuring charges
     were incurred in the third quarter ended June 30, 1999.

10.  SUBSEQUENT EVENTS

         Effective July 16, 1999, the Acting Chief Financial Officer resigned to
     pursue other interests. The Company, which was already conducting a search
     for a Chief Financial Officer, will continue its search. A temporary senior
     financial executive is being sought in the interim from established local
     temporary professional employment agencies.

                                      12

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

    NHancement Technologies Inc. ("NHancement" or the "Company") through its
North American subsidiary, specializes in multimedia systems that improve
internal and external communication functions and provides customized
software development for each client's individualized needs. The Company's
Asian subsidiary is an integrator and distributor of communication systems
and test equipment.

    The Company's consolidated financial statements include the accounts of
the Company and its two operating segments: NHancement Technologies North
America, Inc. ("NHAN NA" formerly Voice Plus, Inc.) and Infotel Technologies
(Pte) Ltd ("Infotel").

    During 1998, the Company changed its fiscal year end from December 31 to
September 30. As a result of this change the Company's 1998 fiscal year ended
on September 30, 1998 and its 1999 fiscal year began on October 1, 1998.

    The following contains forward-looking statements regarding future events
or the future financial performance of the Company that involve risks and
uncertainties. Certain statements included in this Form 10-QSB, including,
without limitation, statements related to anticipated cash flow sources and
uses under "Liquidity and Capital Resources", the mitigation of the Year 2000
issue under "Impact of the Year 2000 Issue" and other statements contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's financing alternatives, financial
position, business strategy, plans and objectives of management of the
Company for future operations, and industry conditions, are forward-looking
statements. Any forward-looking statements herein are subject to certain
risks and uncertainties in the Company's business, including but not limited
to, reliance on key customers and competition in its markets, market demand,
business strategy, product performance, technological developments,
maintenance of relationships with key suppliers, difficulties of hiring and
retaining key personnel and the changes in current accounting rules, all of
which may be beyond the control of the Company. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth herein.

    GENERAL

    Management's Discussion and Analysis of Consolidated Results of Financial
Condition and Results of Operations ("MD&A") should be read in conjunction
with the consolidated financial statements included herein. Further, this
third fiscal quarterly report on Form 10-QSB should be read in conjunction
with the Company's Consolidated Financial Statements and Notes to
Consolidated Financial Statements included in its 1998 Annual Report on Form
10-KSB. In addition, you are urged to read this report in conjunction with
the risk factors described herein.

    In this MD&A, the Company explains its results of operations and
discusses its financial condition for the three and nine-month fiscal periods
ended June 30, 1999, as compared to the corresponding periods in 1998. The
discussion of financial condition includes: (1) changes in the voice
processing, data processing and communications industries, including how the
Company expects these changes to influence future results of operations; and
(2) liquidity and capital resources, including discussions of capital
financing activities and uncertainties that could affect future results.

    On February 17, 1999, the Company received written notification from The
Nasdaq Stock Market that the Company's Common Stock would be delisted from
the Nasdaq SmallCap Market, effective with the close of business on February
24, 1999, due to the Company's non-compliance with the net tangible

                                      13

<PAGE>

assets/market capitalization/net income requirement for continued listing, as
set forth under Marketplace Rule 4310(c)(2).

    The Company's subsequent request for an oral hearing with the Nasdaq
Listing Qualifications Panel was granted and the Company attended the hearing
on April 29, 1999.

    On June 3, 1999, the Nasdaq Listing Qualifications Panel issued a
positive determination on the Company's request for continued inclusion on
The Nasdaq SmallCap Market pursuant to an exception to the net tangible
assets/market capitalization/net income requirement. The terms of the ruling
included the following exceptions to which the Company was required to adhere
in order to continue listed status on the Nasdaq SmallCap Market:

1.   By June 15, 1999, the Company was required to have completed a $1,750,000
     sale of its Series A Convertible Preferred Stock.
2.   On or before June 15, 1999, the Company was required to have made a public
     filing with the SEC and Nasdaq detailing a minimum of $2,700,000 in net
     tangible assets.
3.   The Company was required to demonstrate compliance with all requirements
     for continued listing on the Nasdaq SmallCap Market.
4.   Until June 15, 1999, the Company was required to provide prompt
     notification to Nasdaq of any significant events that may have occurred.
5.   The Company was required to have maintained a minimum closing bid price of
     $1.00 per share until June 15, 1999 (the "exception period") and would have
     been subject to an additional 90-day exception period if its stock had
     fallen below the minimum bid price. In that event, the Company would have
     been required to sustain the minimum closing bid price for a minimum of 10
     consecutive trading days during the additional exception period.

    On June 15, 1999, the Company completed the $1,750,000 tranche of Series
A Convertible Preferred Stock. This transaction was accomplished by means of
an Amendment dated June 11, 1999 to the Securities Purchase Agreement dated
April 13, 1998, and an Amendment dated June 11, 1999 to the Certificate of
Designations as filed with the Delaware Secretary of State on April 9, 1998,
as amended on April 13, 1998.

     On June 15, 1999, the Company completed its public filing with the SEC
and Nasdaq of the Form 8-K detailing a minimum of $2,700,000 in net tangible
assets. Throughout the exception period ended June 15, 1999, the Company had
maintained a minimum closing bid price of $1.00 per share, had no significant
events to report to Nasdaq and had demonstrated compliance with all
requirements for continued listing on the Nasdaq SmallCap Market.
Consequently, the Company's Common Stock continues to be listed, without
interruption, on the Nasdaq SmallCap Market.

RESULTS OF OPERATIONS

     In this section, the Company provides the components of its earnings and
explains variances within revenues and expenses for the fiscal three and
nine-month periods ended June 30, 1999 and 1998.

     The following table shows results of operations, as a percentage of net
sales, for the nine-month periods ended June 30, 1999 and 1998.

                                      14

<PAGE>

                  NHANCEMENT TECHNOLOGIES INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
               --------------------------------------------------------- --------------------------
                                                                              NINE MONTHS ENDED
                                                                                   JUNE 30,
                                                                             1998         1999
               --------------------------------------------------------- ------------- ------------
               <S>                                                       <C>           <C>
               Net sales                                                   100.0 %       100.0 %
               Cost of sales                                                61.0 %        65.6 %

               Gross profit                                                 39.0 %        34.4 %
               Selling, general and administrative expenses                 57.0 %        38.7 %
               Loss on impairment and amortization of excess of cost
                   over net assets acquired                                 70.3 %         2.1 %
               Loss from operations                                        (88.3)%        (6.4)%
               Other income (expense)                                        1.6 %        (0.9)%
               Loss from continuing operations before income taxes         (86.7)%        (7.3)%
               Income tax benefit                                           (1.1)%         0.0 %
               Loss from continuing operations                             (85.6)%        (7.3)%
               Loss from discontinued operations                            (3.5)%         ---
               Net loss                                                    (89.1)%        (7.3)%
               --------------------------------------------------------- ------------- ------------
</TABLE>

   The Company's primary focus in the nine months ended June 30, 1999 was as
an integrator and distributor of voice processing, data processing and
communications systems. These operations were conducted through the Company's
NHAN NA and Infotel subsidiaries. Company-wide revenue for the quarter ended
June 30, 1999 increased $3.4 million to $6.7 million as compared to $3.3
million for the same period in 1998. Fiscal year to date revenue increased
150% from $6.2 million in fiscal 1998 to $15.6 million. The increase in
revenues for the three and nine month periods in 1999 is due primarily to:
(i) the fact that only eight days of Infotel revenue or $235,000, were
recorded in the three and nine month periods ended June 30, 1998, while all
Infotel revenues or $6.5 million are included in the same fiscal periods in
1999 (Infotel was acquired on June 22, 1998) and (ii) an increase in NHAN
NA's second and third quarter 1999 revenues as the Company refocused on its
core business. NHAN NA's net sales increased 35%, from $3.0 million for the
three months ended June 30, 1998 to $4.1 million for the three months ended
June 30, 1999. On a fiscal year to date basis, NHAN NA's sales increased 52%
from $6.0 million to $9.1 million for the nine-month periods ended June 30,
1998 and 1999. The increase in NHAN NA revenues came from both its existing
customer base and from new customers and includes one-time Year 2000 revenues
of about $650,000 related to upgrades. Almost half of NHAN NA's third quarter
revenue came from its single largest customer, while 13% came from customers
who purchased the new interactive communication systems that merge voice and
data. Infotel's net sales for the third quarter decreased 38% from $4.2
million at June 30, 1998 (pre-acquisition operating results) to $2.6 million
for the same period in 1999. Infotel's project management revenues in the
third fiscal quarter of 1998 were exceptionally high due to the completion of
a $2.0 million project compared to less than $0.1 million for the same
quarter in 1999. On a fiscal year to date basis, Infotel's revenues are down
23% from $8.5 million (includes pre-acquisition operating results) to $6.5
million. The shortfall in fiscal year to date revenue is due to the same
decrease in project management revenues, however management is projecting
substantially higher revenues in the fourth fiscal quarter which are expected
to result in Infotel's fiscal 1999 revenues being about 6% below those in the
previous fiscal year.

Company-wide order backlog at June 30, 1999 reached an all time high of $5.0
million. NHAN NA's order backlog at June 30, 1999 decreased slightly to $2.4
million from $2.9 million the previous quarter however Infotel's backlog
increased to $2.6 million from $1.4 million the previous quarter.
Consequently, management believes that revenues for the fourth fiscal quarter
will continue to be strong.

                                      15

<PAGE>

    Based on the estimated future undiscounted operating cash flows of its
related businesses, the Company periodically evaluates the carrying value of
goodwill associated with its subsidiaries. Due to issues not known by
management at the time of the NHAN NA acquisition, the estimated future
undiscounted operating cash flows of NHAN NA were calculated to be less than
those estimated at the time of its acquisition, February 1997, and less than
the period ending carrying amounts of the excess of cost over net assets
acquired. On December 31, 1997 and September 30, 1998, the Company recorded
impairment losses of $4,084,300 and $525,000, representing the difference
between the carrying amount of goodwill over its estimated fair value. As a
result of these changes, the remaining balance of the NHAN NA goodwill at
September 30, 1998 was reduced to $750,000 and the useful life was reduced to
three years.

    Management believes that by the end of calendar 1999 after an initial
increase due to Year 2000 upgrades, revenues for legacy systems will decline
and that NHAN NA revenues will come increasingly from new technologies and
products that have been recently introduced to the marketplace and which
constituted 13% of NHAN NA's third quarter revenue. The Company is in the
process of repositioning its NHAN NA subsidiary to take advantage of the new
trends in the voice processing industry, specifically the migration from
legacy systems to the new interactive communication systems that merge voice
and data communications into a single computer based system.

    Management believes that the carrying value of the goodwill resulting
from the Infotel acquisition is recoverable based on Infotel's performance
and management's current estimates of future operating cash flows.

     Company-wide gross margins for the three months ended June 30, 1999
declined to 35.2% from 45.7% in the same period in 1998. For the nine months
ended June 30, 1999, company-wide gross margins declined to 34.4% from 39.0%.
NHAN NA's gross margin for the quarter ended June 30, 1999 decreased to 38.8%
from 45.2% as compared to the same period in 1998. NHAN NA's fiscal year to
date gross margin, as a percent of revenues, declined from 39.0% to 36.4%
compared to the same period a year earlier. The decrease in the gross margin
within North American operations was due equally to increased product costs
and increased implementation costs associated with legacy system product
problems during Year 2000 upgrades. While Infotel contributed only eight days
or $113,000 in gross margins during the fiscal 1998 period, its contribution
in fiscal 1999 was over $2 million resulting in a decrease in company-wide
gross margins as Infotel's historical gross margin is significantly below
gross margins attained in North American operations. However, on a standalone
basis, Infotel's gross margin for the quarter (29.7%) and year to date
(34.3%) is virtually unchanged from the same periods a year earlier.

    Company-wide selling, general and administrative ("SG&A") expenses as a
percentage of net sales decreased to 28.6% for the three months ended June
30, 1999 versus 38.8% for the same period in 1998. For the nine months ended
June 30, 1999, SG&A decreased to 38.7% from 57.0% on a company-wide basis.
SG&A for NHAN NA decreased to 19.7% for the third fiscal quarter of 1999
compared to 27.3% for the same three-month period in 1998. For the nine
months ended June 30, 1999 NHAN NA's SG&A expenses as a percentage of
revenues decreased to 25.1% from 39.5% for the same period the prior year.
The decreases in the quarter and fiscal year to date are due primarily to:
(i) a substantial increase in the quarter and fiscal year to date revenue
versus the prior year and (ii) a decrease in expenses, including salaries,
due to a reduction in personnel from the implementation of management's
restructuring and cost reduction plan. Infotel's SG&A as a percent of
revenues increased to 20.5% for the three months ended June 30, 1999 compared
to 15.1% for the three months ended June 30, 1998. On a fiscal year to date
basis, Infotel's SG&A as a percent of revenues increased to 26.6% from 22.3%
a year ago. These percentage increases were due to decreases in the revenue
levels during the periods, as Infotel's actual spending for SG&A during the
quarter and nine month periods was less than the same periods a year ago.
NHancement's corporate overhead costs increased by $77,000 for the three
months ended June 30, 1999 due primarily to an increase in interest expense
related substantially to the note payable to the former

                                      16

<PAGE>

shareholders of Infotel. Fiscal year to date corporate overhead costs
increased by $805,000, of which substantially all occurred in the first
fiscal quarter prior to the cost reductions implemented by current management
or in the second fiscal quarter as part of the restructuring costs. This
increase was primarily due to (i) increased outside services as a result of a
financing that was not completed; (ii) increased costs for audit and legal
services related to the reporting requirements resulting from the acquisition
of Infotel, the preparation of a special proxy statement related to the
Company's Preferred Stock financing, and legal fees associated with the
Nasdaq listing compliance requirements; (iii) relocation and severance
expenses related to the former CEO, and (iv) increased interest expense
related substantially to the note payable to the former shareholders of
Infotel.

      At June 30, 1999, the Company provided a 100% reserve against its
deferred tax assets. The Company believes sufficient uncertainty exists
regarding the realizability of the deferred tax assets, such that a full
valuation allowance is required. The Company currently has a $2.65 million
federal net operating loss carryforward available, after considering
limitations on the use of such carryforwards.

LIQUIDITY AND CAPITAL RESOURCES

    Although the acquisition of complimentary businesses and products
previously has been an element of the Company's business strategy, the
Company's current ability to engage in acquisitions is subject to limitations
given the Company's present financial condition. To engage in such activity,
the Company will need to obtain additional debt or equity financing, neither
of which may be available or, if available, may not be on terms acceptable to
the Company. Debt financing may require the Company to pay significant
amounts of interest and principal payments, thus reducing the resources
available to expand its existing businesses. Equity financing may dilute the
Company's existing stockholders' interest in the assets or earnings of the
Company. There can be no assurance that the Company will be able to obtain
either debt or equity financing if and when it is needed for acquisitions or
general working capital purposes. In April, 1998, the Company negotiated a
Series a Convertible Preferred Stock financing for $3.0 million, of which
$1,250,000 was received less $265,300 of stock issuance costs, with
substantially all of the net proceeds having been used for the acquisition of
Infotel. On June 15, 1999 the Company completed the remaining $1,750,000
tranche of Series A Convertible Preferred Stock, less commissions and certain
other costs and expenses of approximately $265,000. This transaction was
accomplished by means of an Amendment dated June 11, 1999 to the Securities
Purchase Agreement dated April 13, 1998 and an Amendment dated June 11, 1999
to the Certificate of Designations as filed with the Delaware Secretary of
State on April 9, 1998, as amended on April 13, 1998.

    During the nine months ended June 30, 1999, net cash used by operating
activities was $52,500. Sources of cash consisted primarily of increases in
accounts payable, offset by cash used to fund the Company's net operating
losses and increases in accounts receivable. Since the losses in the first
fiscal quarter, revenues have been increasing and profitability has return
and as such the increase in both accounts payable and accounts receivable are
due to this increased business activity. Net cash provided by investing and
financing activities totaled $1.6 million consisting of: (i) proceeds from
the sale of the second tranche of Series A Convertible Preferred Stock, and
(ii) increased borrowings under the Company's line of credit, offset by
purchases of property and equipment for the Company's internal computer
system. At June 30, 1999, the Company's working capital was $1.8 million, an
improvement of $2.3 million over the quarter ended March 31, 1999 due
primarily to the proceeds from the sale of Preferred Stock, which resulted in
the Company's current ratio improving from less than one to 1.2 to 1.0 at
June 30, 1999. The Company had a cash balance of $3.5 million at June 30,
1999.

    In October 1998, the Company through its NHAN NA subsidiary obtained a
$1.0 million accounts receivable credit line with a local finance company
with an advance rate of 80% of eligible receivables at an interest rate of
2.75% per month. In January 1999, the Company's lender increased the credit
line from

                                      17

<PAGE>

$1.0 million to $2.0 million and restrictions were eased on the receivables
eligible for inclusion in the Company's borrowing base. The Company, through
its Infotel subsidiary, is attempting to complete a credit line with a major
Singapore bank for S$3.5 million (approximately US$2 million) with interest at
1.25% above the bank prime rate to be used for Infotel's overdraft
protection, letters of credit, letters of guarantee, foreign exchange and
revolving credit. The Company had hoped to complete this facility during the
quarter, but because of the extensive amount of information and documentation
required by foreign banks, the facility is expected to be completed during
the fourth fiscal quarter.

    The Company's management estimates that it will incur about $500,000 in
capital expenditures during the next 12 months, representing mostly
company-wide business systems hardware and communication systems. The Company
anticipates that all major capital expenditures will be financed through
equipment leases and will not require significant direct outlays of cash.

    Pursuant to the Infotel Technologies (Pte) Ltd ("Infotel") acquisition
agreement, the Company was required to pay $1,390,000 to the former Infotel
shareholders 30 days after the filing of the 10-KSB, which was filed on
January 13, 1999. The Company failed to make payment to the former Infotel
shareholders as required by the terms of the acquisition agreement.
Consequently, the former Infotel shareholders had the option of accepting
either NHancement Common Stock or a minority interest in the Common Stock of
Infotel in lieu of cash. The former Infotel shareholders had 45 days after
non-payment by the Company to notify the Company in writing of which option
they had elected. Since the former Infotel shareholders did not elect either
option, the debt began accruing interest on February 15, 1999, daily at the
rate of 3% per year above the prime lending rate of The Development Bank of
Singapore Ltd. and will continue to accrue interest until the date payment in
full is made. Furthermore, based on Infotel's fiscal 1999 performance the
Company has recorded an additional $494,600 due to the former shareholders of
Infotel. These two amounts represent the entire contingent amount of
SD$3,200,000 (or US$1,884,600) which was due to the former shareholders of
Infotel under the terms of the acquisition agreement, upon satisfaction of
all contingencies. On April 29, 1999, the Company negotiated a settlement
agreement with the former Infotel shareholders, contingent on the Company's
continued listing on Nasdaq, to defer $1,250,000 of the cash payment until 60
days after the Company met Nasdaq's requirements for continued listing and to
accept $634,600 of the performance payment in additional shares of the
Company's Common Stock. Subsequently, the Company was successful in meeting
the requirements imposed by Nasdaq for continued listing and the settlement
with Infotel became effective, without contingency. A meeting with the former
Infotel shareholders is scheduled for August 13, 1999 at which the $1.25
million plus accrued interest. The Company will have no further payment
obligations under the terms of the acquisition agreement following delivery
of this amount.

    Based upon its present earnings and cost reduction plans, management
believes that operating cash flow, available cash and available credit are
adequate to meet the working capital needs of the Company and its
subsidiaries 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 successfully implement
any acquisition program.

RISK FACTORS

    The following risk factors, in addition to the risks described
elsewhere in the description of the Company's business in this report on Form
10-QSB, may cause actual results to differ materially from those in any
forward-looking statements contained in the business description, MD&A or
elsewhere in this report or made in the future by the Company or its
representatives. Such forward-looking statements involve known risks,
uncertainties and other factors that may cause the actual results,
performance or achievements of the Company to differ materially from those
expressed or implied by such forward-looking statements.

                                      18

<PAGE>

RISKS ASSOCIATED WITH DELISTING OF COMMON STOCK; PENNY STOCK RULES.

    Although the Common Stock was approved for quotation on the Nasdaq
SmallCap Market System in connection with the Company's IPO, there can be no
assurance that it will remain eligible to be included on the Nasdaq SmallCap
Market System. On February 17, 1999, the Company received written
notification from The Nasdaq Stock Market that the Company's Common Stock
would be delisted from the Nasdaq SmallCap Market, effective with the close
of business on February 24, 1999, due to the Company's non-compliance with
the net tangible assets/market capitalization/net income requirement for
continued listing, as set forth under Marketplace Rule 4310(c)(2).

    The Company's subsequent request for an oral hearing with the Nasdaq
Listing Qualifications Panel was granted and the Company attended the hearing
on April 29, 1999. On June 3, 1999, the Nasdaq Listing Qualifications Panel
issued a positive determination on the Company's request for continued
inclusion on The Nasdaq SmallCap Market pursuant to an exception to the net
tangible assets/market capitalization/net income requirement. Consequently,
the Company's Common Stock continues to be listed, without interruption, on
the Nasdaq SmallCap Market.

    However if the Company's Common Stock were to become delisted from the
Nasdaq SmallCap Market System in the future, the Company would become subject
to the Securities and Exchange Commission's "penny stock" rules. As a result,
an investor would find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, the Company's Common Stock.

    The "penny stock" rules under the Securities and Exchange Act of 1934
impose additional sales practice and market-making requirements on
broker-dealers who sell and/or make a market in such securities. For
transactions covered by the penny stock rules, a broker-dealer must make
special suitability determinations for purchasers and must have received the
purchaser's written consent to the transaction prior to sale. In addition,
for any transaction involving a penny stock, unless exempt, the rules require
delivery prior to any transaction in a penny stock of a disclosure schedule
prepared by the Commission relating to the penny stock market. Disclosure is
also required to be made about commissions payable to both the broker-dealer
and the registered representative and current quotations for the securities.
Finally, monthly statements are required to be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market and penny stocks. As a result, if the Company were to be
delisted from the Nasdaq SmallCap Market System and become subject to the
rules on penny stocks, it would negatively affect the ability or willingness
of broker-dealers to sell or make a market in the Company's securities and,
therefore, would severely and adversely affect the market liquidity for the
Company's Common Stock.

PRIOR LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY.

    Although the Company recorded net income of $251,800 on net revenues of
$6.7 million for the quarter ended June 30, 1999, and net income of $21,900
on revenues of $5.7 million for the second quarter ended March 31, 1999, on a
fiscal year-to-date basis the Company has incurred a loss of $1.1 million on
$15.6 million in revenue. The failure of the Company to produce positive
operating results in the future may affect the future value of its Common
Stock, may contribute to the Company losing its eligibility for listing of
the Common Stock on the Nasdaq SmallCap Market System, may adversely affect
the Company's ability to obtain debt or equity financing on terms acceptable
to the Company, may prevent the Company from engaging in acquisition activity
and could have a material adverse effect on the overall financial condition
of the Company.

                                      19

<PAGE>

VOLATILITY OF STOCK PRICES.

    The over-the-counter markets for securities such as the Company's Common
Stock historically have experienced extreme price and volume fluctuations
during certain periods. Other factors that may also adversely affect the
market price of the Common Stock include new product developments, trends in
the Company's industry, trends in the investment markets generally, as well
as economic conditions and quarterly variations in the Company's results of
operations. In addition, there can be no assurance that the Company's Common
Stock will in the future remain eligible for listing on the Nasdaq SmallCap
Market System.

FINANCING RISKS.

    Although the acquisition of complimentary businesses and products
previously has been an element of the Company's business strategy, the
Company's current ability to engage in acquisitions is subject to limitations
given the Company's present financial condition. To engage in such activity,
the Company will need to obtain additional debt or equity financing, neither
of which may be available or, if available, may not be on terms acceptable to
the Company. If a cash payment in excess of available working capital is
required to make an acquisition, the Company will need to obtain additional
debt or equity financing. Debt financing may require the Company to pay
significant amounts as interest and principal payments, thus reducing the
resources available to expand its existing businesses. Equity financing may
be dilutive to the Company's existing stockholders' interest in the assets or
earnings of the Company. There can be no assurance that the Company will be
able to obtain either debt or equity financing if and when it is needed for
acquisitions or that, if available, such financing will be available on terms
the Company deems acceptable. The inability of the Company to obtain such
financing would have a material adverse effect on the Company's acquisition
strategy. Further, the refusal of potential acquisition candidates to accept
Common Stock in payment of the Company's purchase price obligations, in whole
or in part, could require the Company to curtail its acquisition strategy
altogether. To the extent that Common Stock is used as consideration in an
acquisition transaction, such stock issuance may be dilutive to the Company's
existing stockholders. Even if the Company is able to obtain financing needed
for an acquisition, the terms of such financing may involve considerable
costs to the Company. In this regard, as of June 30, 1999, of the original
12,500 shares of convertible Preferred Stock sold in April of 1998, all
shares plus accrued dividends were converted into 1,231,180 shares of Common
Stock at an average price per share of about $1.04.

RELIANCE UPON COMPANY'S DISTRIBUTOR AND SUPPLIER RELATIONSHIPS; DEPENDENCE ON
SIGNIFICANT CUSTOMERS.

    The Company's business is based upon the integration of hardware,
software, and communications and data processing equipment manufactured by
others into systems designed to meet the needs of its customers. Although the
Company has distributor agreements with a number of equipment manufacturers,
a major portion of its revenue is based upon products manufactured by
Centigram Communications Corporation ("Centigram") or Baypoint Innovations
("Baypoint"), the Mitel Corporation subsidiary which purchased Centigram's
customer premises equipment ("CPE") business. The Company depends upon
Centigram and Baypoint to offer products that are competitive with products
offered by other manufacturers as to technological advancement, reliability
and price. If Centigram's or Baypoint's competitors should surpass them in
any of these qualities, the Company may be required to establish alternative
strategic relationships. Any such development, or any other adverse change in
the Company's distributor relationship with Centigram or Baypoint, would
adversely affect the Company's business for an indeterminate period of time
until new supplier relationships could be established. In this regard, the
distributor agreement entered into with Centigram may be canceled by either
party upon ninety (90) days' notice and is subject to termination in the
event that the Company defaults on or is otherwise in breach of various of
its obligations under the agreement. Baypoint has continued to distribute the
CPE products and

                                      20

<PAGE>

honor the NHAN NA distribution agreement. Any disruption to product supplied
by Centigram or Baypoint would have a significant adverse impact upon the
Company's business for an indeterminate period of time until new supplier
relationships could be established.

    In July 1998, the Company signed a "Premier Partner" distribution
agreement with Interactive Intelligence, Inc. ("I3") for the distribution of
its Enterprise Information Center ("EIC") product, a next generation
communication server which merges voice and data functions into a single
computer-based system. Revenue from this product accounted for 13% of NHAN NA
revenues in the current quarter ended June 30, 1999 and is expected to
increase rapidly in future quarters. Any disruption to this relationship or
to the products supplied by I3 would have a significant adverse impact upon
the Company's business for an indeterminate period of time until a new
supplier relationship could be established.

    NHAN NA has distributor agreements with a number of equipment
manufacturers in addition to Centigram, Baypoint and I3. In accordance with
the terms of these distributor agreements, a manufacturer may discontinue the
distributor relationship because of factors related to a particular
distributor or because of a manufacturer's decision to change its method of
distributing its products to all or parts of its markets. In making such a
change, a manufacturer of key products sold by a distributor may effectively
become a direct competitor of its former distributor. Moreover, a
manufacturer may reduce its dealer discounts, eliminate any exclusive
distribution rights, and/or reduce the manufacturer's support of a
distributor or otherwise adversely affect the competitive environment in
which the distributor sells the manufacturer's products. Any material change
in NHAN NA's distributor relationships with its key suppliers or any
interruption of the delivery of equipment to NHAN NA by any of its key
suppliers would have a material adverse effect upon the Company.

    Infotel offers a wide range of infrastructure communications equipment
products. Products supported include manufacturers such as Motorola,
Ericsson, Raytheon, Newbridge and Shiva Corp., Rohde & Schwartz Gmbh, and
Siemans. Infotel also has an established business providing test measuring
instrumentation and testing environments. This business grew out of a
communications relationship with a German conglomerate, Rohde & Schwartz
Gmbh, which evolved into a dependency on Infotel to service other Rohde &
Schwarz products such as test instruments. Infotel is now the regional
distributor and test and repair center for Rohde & Schwarz test instruments,
which provides a steady stream of revenues. Infotel has since expanded its
repair capability to include Alcatel mobile telephones. Infotel focuses
principally on large projects in the government and institutional sectors as
well as in the commercial sector. Any material change in Infotel's
relationship with these manufacturers or any interruption to deliveries to
Infotel by any of its key suppliers would have a material adverse effect upon
the Company.

     The Company currently services approximately 1000 customers. Revenues
from the Company's single largest customer accounted for approximately 21% of
total revenues during the nine-month period ended June 30, 1999. No other
customer accounted for over 5% of total revenues during this period. While
the Company has broadened its customer base, the concentration of revenues
derived from the Company's single largest customer results in additional risk
to the Company and any disruption of orders from this customer would have an
adverse effect on the Company.

COMPETITION IN NHAN NA'S VOICE PROCESSING AND CUSTOMER PREMISES EQUIPMENT
BUSINESSES.

    The voice processing and customer premises equipment markets are highly
competitive and competition in this industry is expected to intensify with
the introduction of new product enhancements and new competitors. NHAN NA
competes with a number of larger integrated companies that provide
competitive voice processing products and services as subsets of larger
product offerings, including all the former regional Bell operating companies
and major PBX equipment manufacturers, such as Fujitsu Limited and Lucent
Technologies Inc. ("Lucent"), formerly a division of AT&T. These integrated
public company

                                      21

<PAGE>

competitors are substantially larger than the Company and have substantially
greater revenues than the Company, and, as a result, may encroach on the
Company's voice processing equipment and service markets. Additionally, in
the CPE markets, NHAN NA competes with two types of equipment companies: (i)
interconnects (PBX providers), including Lucent, Northern Telecom Limited,
Fujitsu Limited and NEC Corporation, and (ii) independent voice processing
manufacturers, such as Octel Communications Corporation (now owned by
Lucent), Digital Sound Corporation, Active Voice Corporation, Applied Voice
Technology, Inc., Glenayre Technologies, Inc. and Comverse Technology, Inc.,
among others, also compete with the Company in the service provider market.
NHAN NA's competitors have better name recognition in the market, a larger
installed base of customers and greater financial, marketing and technical
resources than the Company. Although competition has not intensified to the
same extent in the market for the new interactive communication systems,
significant competition from much larger better-financed companies, such as
Lucent and Northern Telecom, is expected within the next few quarters.

COMPETITION IN INFOTEL'S INFRASTRUCTURE COMMUNICATIONS EQUIPMENT BUSINESSES.

    Infotel competes against several large companies in Singapore that are
better capitalized. Although Infotel has in the past managed to compete
successfully against such larger companies on the basis of its engineering
and project management expertise, there can be no assurance that such
expertise will permit Infotel to compete effectively with such larger
companies in the future. Further, various large manufacturers have
established their own branch offices in Singapore and compete against Infotel.

RISKS IN INTEGRATING ACQUIRED COMPANIES.

    Acquisitions may involve a number of special risks, including adverse
short-term effects on the Company's operating results, diversion of
management's attention from the operations of the Company, dependence on
retention, hiring and training of key personnel, risks associated with
unanticipated problems or legal liabilities and amortization of acquired
intangible assets, some or all of which could have a material adverse effect
on the Company's operations and financial performance. Successfully
integrating the operations of additional companies into those of the Company
will require the cooperative efforts of the managers and employees of the
respective business entities, including the integration of the owners or
managers of smaller companies into roles that require them to report to
supervisors. Significant costs and management time may be required to
integrate management control systems. Furthermore, to manage its operations
effectively, the Company must continue to improve its operational, financial
and management controls and information systems, to accurately forecast sales
demand, to control its overhead and to manage its marketing programs. As
discussed elsewhere in this report, the acquisition of NHAN NA and Advantis,
prior to its divestiture, have yielded operating results that were
significantly lower than expected. Other acquisitions could generate results
different from our expectations. Accordingly, no assurance can be given that
the future performance of the Company's subsidiaries will be commensurate
with the consideration paid to acquire such companies. If management fails to
establish the needed controls and to manage growth effectively, the Company's
operating results, cash flows and overall financial condition will be
adversely affected.

RISKS INVOLVED IN CHANGES OF MANAGEMENT.

     Management changes often have a disruptive effect on businesses and can
lead to the loss of key employees because of the uncertainty inherent in
change. On January 6, 1999, Esmond Goei resigned his position as President
and Chief Executive Officer of the Company. Douglas S. Zorn was promoted from
Executive Vice President and Chief Financial Officer to interim President and
Chief Executive Officer to fill the vacancies created by Mr. Goei's
resignation, and on February 2, 1999 the Board of Directors elected Mr. Zorn
to the offices of President and Chief Executive Officer. On April 20, 1999,
the Board appointed Donna M. Pulvermacher as Acting Chief Financial Officer
and Treasurer, and Linda V. Moore

                                      22

<PAGE>

to the office of Secretary of the Company. Ms. Pulvermacher and Ms. Moore
left the Company in July 1999, to pursue other opportunities. The Company
will be operating without a Chief Financial Officer or General Counsel until
these positions are filled. While hiring efforts are underway, the job market
in the greater San Francisco Bay Area is intensely competitive and there is
no assurance that these posts will be filled in the near future. In the
interim, the Company is conducting a search for a Chief Financial Officer and
will rely on its outside counsel for the performance of legal services. The
loss of these or other key employees of the Company could have a material
adverse effect on the Company's operations. Furthermore, no assurances can be
given that the recent changes in management of the Company will be adequate
to sustain the Company's profitability or to meet future growth targets.

RISKS ASSOCIATED WITH YEAR 2000 ISSUE

    The Year 2000 issue is the result of computer programs being written
using two digits (rather than four) to define the applicable year. Software
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations.

    The Company has completed its assessment of the Year 2000 problem and
presently believes that, with modifications to or replacement of existing
software, the Year 2000 problem will not pose significant operational
problems for the Company's computer systems. The Company believes that the
costs associated with any such upgrade or replacement of software will not be
material, and that all such changes will be implemented by the end of
calendar year 1999. However, if such modifications are not made in a timely
manner, or are not made properly, the Company may be unable to implement
appropriate Year 2000 solutions, which could have a material adverse effect
on the Company's business, financial condition and results of operations.

    The Company's internal computer systems for North American operations
were purchased in 1998 from well recognized companies and are stipulated by
the manufacturers to be Year 2000 compliant. The estimated cost of the new
business systems for North American locations combined is $425,000 of which
$350,000 has been incurred; such systems are needed not only to remedy Year
2000 compliance problems but also to maintain proper controls for management
of the Company. Any remaining changes to be made at North American locations
are expected to be of a routine nature and are not expected to have a
materially adverse effect on the Company. As for Asian operations, management
recently completed its review of the internal computer systems of Infotel and
discovered that Infotel's systems are not Year 2000 compliant. The Company
has identified a package that is Year 2000 compliant and installation of the
system will begin in the fourth fiscal quarter of 1999 and is expected to be
completed by the end of the calendar year. The estimated cost of the new
business systems for Infotel is $180,000.

    The Company distributes products from third party voice product equipment
manufacturers in North America, some of which are susceptible to Year 2000
problems. During fiscal year 1997, the Company initiated a review of the
products that its domestic subsidiary, NHAN NA, distributes to determine
which, if any, are not capable of recognizing the year 2000. Infotel, the
Company's Singapore subsidiary has recently completed a review of the
products it distributes to determine which, if any, are not capable of
recognizing the year 2000. To determine product compliance, Infotel provides
its customers with the suppliers' compliance information or directs its
customers to the suppliers' websites. Communications were initiated with all
of the manufacturers of the Company's products to determine the nature and
extent of any Year 2000 problems. Where potential Year 2000 computer problems
contained in the products used or distributed by the Company have been
identified, the manufacturers have stated that they have committed resources
to resolve such problems prior to year 2000. However, there can be no
assurance that these manufacturers will, in fact, timely complete the
resolution of their Year 2000 problems or, even if timely completed, that
those solutions will be acceptable in the marketplace. The solution to be
provided

                                      23

<PAGE>

by some manufacturers will involve a significant upgrade cost to the end
user, which may give rise to disputes and/or litigation between the end user
and the manufacturer, which may also involve the Company. The costs of such
possible disputes or litigation could be significant, thereby resulting in a
material adverse effect on the Company's business, financial condition and
results of operations. The Company also has not been able to determine
whether the legal systems of Singapore would result in more or less
litigation exposure to the Company and its subsidiaries if there were
disputes between the end user of a product installed by Infotel, and the
manufacturer.

    The Company believes it has taken reasonable steps to identify and
correct all Year 2000 problems within its control. However, the Company may
suffer business interruptions if customers, vendors and other third parties
with which it conducts business are unsuccessful in remedying their own Year
2000 problems. Further, the Company could be adversely affected by any
widespread economic or financial market disruption. The Company has not
adopted a contingency plan that addresses widespread disruption outside of
its control.

                                      24

<PAGE>

                                     PART II
                                OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

    On July 30, 1998, a case entitled C.C. & Associates, et al. V. NHancement
Technologies, Inc., et al. was filed in Santa Clara County Superior Court.
The complaint was allegedly served in September 1998. The dispute arises out
of the request for payment of legal and accounting expenses pursuant to a
non-binding letter of intent. On December 19, 1998, plaintiff filed with the
court a Request for Entry of Default and Clerk's Judgement ("Request")
against the Company in the amount of $54,722.00. On January 30, 1999,
plaintiff agreed to withdraw the Request and allow the Company to answer the
complaint. The Company is contesting the allegations, in particular, the
amount allegedly owing. The Company cannot presently make any determination
regarding the probable outcome of the litigation; however, the parties have
agreed to mediate the dispute on August 24, 1999 and it is not anticipated
that the resolution will have a material adverse effect on the financial
condition and operations of the Company.

ITEM 2.   CHANGES IN SECURITIES

                               OPTION AND WARRANT GRANTS IN LAST FISCAL QUARTER

<TABLE>
<CAPTION>
             CLASS OF                  DATE OF           TITLE OF         NUMBER OF SHARES     AGGREGATE         FORM OF
           PURCHASERS(1)                 SALE           NHANCEMENT                              PURCHASE      CONSIDERATION
                                                        SECURITIES                               PRICE
------------------------------------ ------------- ---------------------- ----------------- ----------------- --------------
<S>                                  <C>           <C>                    <C>               <C>               <C>
Options granted to five employees      4/19/99           Shares of
(2)                                                    Common Stock           135,000             (2)              (2)

Warrants granted to Director (3)                         Shares of
                                        6/7/99         Common Stock            50,000             (3)              (3)

Warrants granted to outside                              Shares of
financial consultant (4)               6/15/99         Common Stock           200,000             (4)              (4)

Warrants granted to buyers of                            Shares of
Preferred Stock (5)                    6/15/99         Common Stock           375,000             (5)              (5)
</TABLE>

(1)      The grant of options and warrants to the individuals identified in the
         table above were made in reliance on Section 4(2) of the Securities Act
         of 1933, as amended (the "1933 Act"), and/or Regulation D promulgated
         thereunder.
(2)      The options were granted to employees of NHancement under the Company's
         Equity Incentive Plan. The options are incentive stock options,
         generally expire ten years from the date of grant and become
         exercisable based on the Company and individual performance for 1/3 of
         the shares on the first year anniversary of the date of grant, 1/3 on
         the second anniversary of the date of grant and 1/3 on the third
         anniversary of the date of grant. The exercise price on the date of
         grant was equal to or greater than 100% of the fair market value as
         determined on the date of grant.
(3)      The warrants were granted to a Director of the Company. The terms of
         the warrants are for three years. The exercise price on the date of
         grant was equal to or greater than 100% of the fair market value as
         determined on the date of grant.
(4)      The warrants were granted to an outside consultant retained to assist
         the Company in acquisitions and financings. The terms of the warrants
         are for three years. The exercise price on the date of grant was equal
         to or greater than 100% of the fair market value as determined on the
         date of grant.
(5)      The warrants were granted to the buyers of the Series A Convertible
         Preferred Stock issued by the Company pursuant to the terms of the
         Amendment dated June 11, 1999 to the Securities Purchase Agreement
         dated April 13, 1998. The terms of the warrants are for three years.
         The exercise price on the date of grant was equal to or greater than
         110% of the fair market value as determined on the date of grant.
         200,000 of these warrants may only be exercised if the Company redeems
         the Preferred Stock pursuant to the terms of the Securities Purchase
         Agreement, as amended, and the Company's Certificate of Designations,
         as amended.

                                      25

<PAGE>

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

    On April 12, 1999, a Special Meeting of Shareholders of NHancement
Technologies Inc. was held at the Company's offices in Fremont, California.
At the meeting the shareholders approved the following proposals:

<TABLE>
<CAPTION>
                                                                       FOR            WITHHELD
                                                                    ---------         --------
              <S>                                                   <C>               <C>
              Ratify and Approve the issuance of 2,441 shares       2,263,939         113,463
              of Series A Convertible Preferred Stock of the
              Company, $0.01 par value per share, and all
              shares of Common Stock, $0.01 par value per share,
              issuable upon conversion thereof, pursuant to a
              Securities Purchase Agreement entered into between
              the Company and certain purchasers.

              To Approve the issuance of an additional 17,500       2,263,939         113,463
              shares of Series A Convertible Preferred Stock of
              the Company, $0.01 par value per share, and all
              shares of Common Stock, $0.01 par value per share,
              issuable upon conversion thereof, on substantially
              the same terms and conditions as set forth in the
              Securities Purchase Agreement.
</TABLE>

     The foregoing matters are described in the Company's definitive proxy
statement dated March 25, 1999.

     On April 20, 1999 the 1999 Annual Meeting of Shareholders of NHancement
Technologies Inc. was held at the Company's offices in Fremont, California.
At the meeting the following individuals were elected to serve as directors
until the next Annual Meeting of Shareholders:

<TABLE>
<CAPTION>
                  NOMINEES                                      FOR              WITHHELD
                  --------                                   ---------           --------
                  <S>                                        <C>                 <C>
                  Douglas S. Zorn                            4,537,003            15,104
                  James S. Gillespie                         4,537,003            15,104
                  Robert J. Schmier                          4,537,003            15,104
                  N. Bruce Walko                             4,529,003            23,104
</TABLE>

    In addition the shareholders approved the following proposal:

<TABLE>
<CAPTION>
                                                         FOR          WITHHELD       ABSTAINED       NOT VOTED
                                                      ---------       --------       ---------       ---------
   <S>                                                <C>             <C>            <C>             <C>
   Ratify the appointment of BDO Seidman as the       4,518,966        26,541          6,100            500
   Company's auditors for the fiscal year ending
   September 30, 1999.
</TABLE>

     The foregoing matters are described in the Company's definitive proxy
statement dated March 26, 1999.

                                      26

<PAGE>

     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>
         4.10     Form of Warrant dated June 15, 1999, delivered to purchasers
                  of Series A Convertible Preferred Stock.

         4.11     Form of Warrant dated June 15, 1999, delivered to purchasers
                  of Series A Convertible Preferred Stock (exercise
                  contingent on redemption of Preferred Stock).

         4.12     Warrant Agreement dated June 7, 1999, between the Company and
                  James S. Gillespie.

         4.13     Warrant Agreement dated June 15, 1999, between the Company and
                  Grady & Hatch and Company, Inc.

        10.50     Termination, Consulting and Confidentiality Agreement dated
                  June 7, 1999 between James S. Gillespie and the Company.

         27.0     Financial Data Schedule
</TABLE>

(b)      Reports on Form 8-K:

         A report on Form 8-K dated June 3, 1999 was filed with the Commission
     on June 15, 1999 reporting matters under Item 5 (Other Events).

                                      27

<PAGE>



                                   SIGNATURES

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

                               NHANCEMENT TECHNOLOGIES INC.



                               By:   /s/ Douglas S. Zorn
                                   -------------------------------
Date: July 27, 1999                  Douglas S. Zorn
                                     President and Chief Executive Officer
                                     (Acting Principal Accounting Officer)

                                      28

<PAGE>

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
      EXHIBIT
      NUMBER                       DESCRIPTION OF EXHIBIT
    ------------ ---------------------------------------------------------------
    <S>          <C>
         4.10     Form of Warrant dated June 15, 1999, delivered to purchasers
                  of Series A Convertible Preferred Stock.

         4.11     Form of Warrant dated June 15, 1999, delivered to purchasers
                  of Series A Convertible Preferred Stock (exercise
                  contingent on redemption of Preferred Stock).

         4.12     Warrant Agreement dated June 7, 1999, between the Company and
                  James S. Gillespie.

         4.13     Warrant Agreement dated June 15, 1999, between the Company and
                  Grady & Hatch and Company, Inc.

        10.50     Termination, Consulting and Confidentiality Agreement dated
                  June 7, 1999 between James S. Gillespie and the Company.

         27.0     Financial Data Schedule
</TABLE>

                                      29