<PAGE>

                SECURITIES AND EXCHANGE COMMISSION
                     WASHINGTON, D.C. 20549
                        --------------
                          FORM 10-K
                        --------------

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

         For the fiscal year ended December 31, 1998
                                       or
     [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 (No Fee Required) 

         For the transition period from ___________ to ___________

                        Commission file number: 0-26394

                       ACCENT SOFTWARE INTERNATIONAL LTD.
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

         Israel                                         N/A
-------------------------------           -----------------------------------
(State or Other Jurisdiction of           (I.R.S. Employer Identification No.)
Incorporation or Organization)

                           28 Pierre Koenig Street
                               P.O. Box 53063
                           Jerusalem 91530 Israel
                             011-972-2-6793-723

  (Address, Including Zip Code, and Telephone Number, Including Area Code, of 
                 Registrant's Principal Executive Offices)


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

Title of Each Class                    Name of Each Exchange on Which Registered
-------------------                    -----------------------------------------
     None                                                ---

          Securities registered pursuant to Section 12(g) of the Act:

             Ordinary Shares par value NIS .01 per share Units, 
consisting of one Ordinary Share and one Warrant to purchase one Ordinary Share

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 
405 of Regulation S-K is not contained herein, and will not be contained, to 
the best of registrant's knowledge, in a definitive proxy or information 
statement incorporated by reference in Part III of this Form 10-K or any 
amendment to this Form 10-K [x]. 

Aggregate market value of the voting stock of the registrant held by 
non-affiliates of the registrant on March 15, 1999 (computed by reference to 
the last reported closing sale price of the Common Stock on the 
over-the-counter market on such date): $4.96 million. 

On March 15, 1999, the registrant had outstanding 29,291,504 Ordinary Shares 
(including 2,000 Ordinary Shares included in the registrant's outstanding 
Units).

                      DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant's definitive Proxy Statement to be delivered to 
shareholders pursuant to Regulation 14A of the Securities Exchange Act of 
1934, as amended, in connection with the 1999 Annual Meeting of Shareholders 
of the Registrant are incorporated by reference into Part III of this Report.

<PAGE>

                                     FORM 10-K
                                 TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                      Page
                                                                                      ----
<S>                                                                                   <C>
                                             PART I
Item 1.  Business........................................................................1
Item 2.  Properties......................................................................8
Item 3.  Legal Proceedings...............................................................8
Item 4.  Submission of Matters to a Vote of Security Holders.............................8

                                             PART II

Item 5.  Market for Registrant's Common Equity and Related Shareholder Matters...........9
Item 6.  Selected Consolidated Financial Data...........................................11
Item 7.  Management's Discussion and Analysis of Financial Condition and Results
           of Operations................................................................13
Item 8.  Consolidated Financial Statements and Supplementary Data.......................23
Item 9.  Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure.........................................................44

                                            PART III

Item 10. Directors and Executive Officers of the Registrant.............................45
Item 11. Executive Compensation.........................................................45
Item 12. Security Ownership of Certain Beneficial Owners and Management.................45
Item 13. Certain Relationships and Related Transactions.................................45

                                             PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...............46

</TABLE>

                                       i

<PAGE>

                                     PART I

ITEM 1. BUSINESS.

OVERVIEW

Founded in Jerusalem in 1988, Accent Software International fills a niche 
within the Language Information Technology (LIT) industry by designing and 
developing software tools and services that simplify the processes of 
internationalization and make translation more accessible to everyone from 
ordinary consumers to multinational corporations. As the Internet creates an 
even greater demand for global communication, Accent's product lines have 
evolved to meet the needs of software developers as well as the publishers of 
international business media.

As recently as 1996, Accent's multilingual software tools were marketed in 
more than 30 countries through retail distribution channels. Although 
Accent's legacy products, such as Accent Professional and Accent Duo, gained 
a loyal following from those who had the need to type, edit and exchange 
information in different languages, the market proved to be too small to 
support the Company's ongoing development and operations. Following a 
significant loss in 1996, the Company restructured its operations and 
developed tools and services with broader market appeal.

Throughout 1997 and 1998, Accent's management team further refined the 
Company's strategies and shifted its focus away from the consumer retail 
market in order to concentrate on building tools and services for 
corporations needing to localize software and translate software-related 
documentation and marketing materials. By December 1998, fifteen employees 
remained with the Company--all involved in core business activities including 
software development, translation project management, operations, marketing 
and sales.

Substantial advancement into new markets was made in 1998 through the release 
of several new products, including:

         Loc@le 1.7, 2.0            Efficiently manages the process of 
                                    localizing the user
                                    interface of any Windows-TM- application.
                                    (Loc@le 2.0 was introduced in October.)

         WordPoint                  A real-time interactive dictionary for the
                                    bi-directional translation of English,
                                    French, Italian, German, Spanish, Hebrew,
                                    and Dutch.

         L@Port                     A tool for Macromedia Director-TM- that
                                    localizes multimedia content in Director
                                    movies. Macromedia Director is used
                                    extensively by Internet users to create
                                    multimedia advertisements and announcements.

         Loc@le for Translators     Contains the features of Loc@le that are 
                                    useful to translators. This product is 
                                    distributed free.

         LanguageWare               Based on Cortez technology, LanguageWare
                                    brings translations to desktops worldwide
                                    via the Internet.

This Form 10-K contains historical information and forward-looking 
statements. Statements looking forward in time are included in this Form 10-K 
pursuant to the "safe harbor" provision of the Private Securities Litigation 
Reform Act of 1995. Such statements involve known and unknown risks and 
uncertainties including, but not limited to, the timely availability of new 
products, market acceptance of the 

                                       1

<PAGE>

Company's existing products and products under development, the impact of 
competing products and pricing, the availability of sufficient resources 
including short- and long-term financing to carry out the Company's product 
development and marketing plans, and quarterly fluctuations in operating 
results. The Company's actual results in future periods may be materially 
different from any future performance suggested herein. Accent operates in an 
industry where securities' values may be volatile and may be influenced by 
economic and other factors beyond the Company's control.

RISKS

The Company wishes to caution investors that the following significant 
factors, among others, have affected and in the future could affect the 
Company's financial and operating results as well as the return that may be 
achieved on investments in the Company.

GOING CONCERN. From its inception through December 31, 1998, Accent has 
accumulated deficits in excess of $53 million, including net losses of $6.8 
million, $13.5 million and $21.0 million for the fiscal years ended December 
31, 1998, 1997 and 1996, respectively. Although the Company believes it has 
made substantial progress in reducing its operating expenses and annual 
losses, its failure to achieve its revenue plan has significantly affected 
the Company's ability to generate adequate cash flow to meet its operating 
requirements. These factors create doubt about the Company's ability to 
continue as a going concern and there can be no assurance that the Company 
will be able to continue as a going concern.

LIQUIDITY/WORKING CAPITAL/DEBT. Although the Company has been successful on 
several occasions during the past two years in raising additional working 
capital through the sale of convertible securities, those funds were 
essentially exhausted by December 31, 1998. The Company secured $600,000 in 
additional working capital during the first quarter of 1999 and also 
successfully converted all of its long-term debt into equity. The Company 
believes that these accomplishments, coupled with an improved revenue outlook 
and cost reduction efforts that have substantially reduced its working 
capital requirements, will be sufficient to meet its requirements for 
approximately six months. Beyond that time, the Company believes it will be 
generating sufficient operating cash flow to meet its needs without 
additional external financing. If the Company fails to achieve its projected 
results and the Company must seek additional financing, there is no assurance 
that its efforts to obtain such financing will be successful. Any failure on 
the part of the Company to secure required financing will have a material 
adverse impact on the Company and may cause the Company to cease operations.

RESTRUCTURING. The Company restructured its activities during 1998 in 
response to disappointing operating results and the need to reduce its 
working capital requirements. The restructuring eliminated the Company's 
Israeli-based product development, sales and marketing functions. The Company 
has reestablished a product development capability in the United States and 
plans to gradually expand its sales and marketing operations, probably 
through the use of sales representatives and cooperative agreements with 
other businesses.

INDUSTRY BACKGROUND

The Language Information Technology market represents a potentially rapid 
growth segment of the software industry. It is not tied to any specific area 
of software development (for example, the Internet, multimedia or word 
processing), but rather, spans the entire spectrum of software development. 
The LIT market not only crosses all boundaries, but it does so at all levels, 
from the two-man development team to large, multinational corporations. 
Anyone who needs or wishes to produce software applications in more than one 
natural language is part of the LIT market. The market has grown rapidly as 
Internet communications spur increased demand for multilingual products. 
Accent has concentrated on developing LIT tools in addition to providing 
high-quality, language translation services.

                                       2

<PAGE>

THE ACCENT STRATEGY.  Accent's strategy involves building tools that funnel 
text or media files to a transaction server over the Internet. The files are 
then translated into different languages and returned in the same format as 
the source file. By simplifying the process of translation, Accent believes 
that more International business will localize media and products. These 
tools create an environment where localization is simplified to the point 
where after executing, Loc@le, L@Port or LanguageWare, all that remains is 
the need for high quality translation. With Accent's proven pool of 
high-quality freelance translators, providing translation services brings the 
Company full circle and positions it as the total LIT solution for 
corporations entering the worldwide marketplace.

THE ACCENT LANGUAGE INFORMATION TECHNOLOGY (LIT) SOLUTION

LANGUAGEWARE products offer complete language solutions for anyone needing 
multilingual versions of software, documentation, videos, web sites, 
marketing literature, and virtually any other type of media. With the 
introduction of LanguageWare in March, 1999, Accent brought access to its 
worldwide network of high-quality human translators to desktops around the 
globe. The product family consists of LanguageWare, a desktop application; 
LanguageWare VPN, a customized desktop application with a virtual private 
network for a specific corporation; or languageware.net, a similar 
functioning web site. Each of the LanguageWare products sends files from 
customers around the world to Accent's Transaction Server. Made up of Cortez 
technology, the Transaction Server is a complex system that tracks and relays 
status messages about files as they are going through the many stops on their 
way through the translation process and back to the customer's desktop.

DEVELOPMENT TOOLS FOR GLOBALIZATION AND LOCALIZATION. Companies selling 
products around the world need to adapt their products for the local language 
of each specific market or country. Loc@le and SingleSource, together provide 
a programming interface and a set of programming, translation and 
administrative tools that allows developers to write software once in English 
while, at the same time, "globalizing" the software so that it can quickly 
and easily be translated into any other language required. The products 
include a programming interface that allows dynamic translation of the 
software's display text and the resizing of display boxes made necessary by 
the different lengths of the translated texts. The result is the ability to 
distribute software products and penetrate markets around the world, quickly 
and economically. Accent's development tools answer the need of software 
publishers to localize their software into virtually any natural language 
(Loc@le) and to translate and localize their multimedia content (L@Port). 
Accent has also continued to maintain high quality translation services to 
meet the demand for translation that these products create.

TRANSLATION SERVICES. Accent's translation services department has 
historically supported in-house development efforts and, in the process, has 
employed world-class translators, handpicked and rigorously tested to ensure 
high quality results. Having gathered expertise while contributing to the 
development of Accent's product line, the Company is now making its 
translation services available to outside clients. In close coordination with 
the Company's engineering team and linked to translators around the globe 
through the Internet, Accent provides translation, localization and 
consultation services in virtually any natural language, virtually anywhere 
in the world.

MULTILINGUAL TEXT PRODUCTS. Accent is currently producing two word processor 
products from its older product lines. Accent is currently giving away Accent 
Express, which provides basic multilingual word processing and has an upgrade 
to Accent Special Edition, which adds support for multilingual dictionaries 
and thesauruses. These products are used to help users produce multilingual 
documents. Accent's Dagesh line of Hebrew word processors are being supported 
by Galtech, Ltd in Israel. Dagesh, the Company's first multilingual word 
processing product has been sold to Torah Education Software, of Monsey, New 
York, which has the rights of upgrading and supporting this product.

WORDPOINT, an interactive, word-for-word translation program that utilizes 
Accent's patent pending Screen-

                                       3

<PAGE>

Text technology, was introduced in September 1997. WordPoint allows a user to 
obtain instantaneous translations of words appearing in virtually any Windows 
application by simply pointing the mouse at the word in question. The latest 
version of WordPoint includes Lernout & Hauspie's text-to-speech technology, 
allowing a user to hear the correct pronunciation of the English word being 
translated. WordPoint is also currently available in French, German, Spanish, 
Italian, Dutch and Hebrew versions, and was officially released February, 
1998. The underlying technology was sold in January of 1999 to Guru, Inc. of 
New York. Accent has retained the rights to sell WordPoint and updates of the 
products to its customers.

AGENTSOFT. During 1998, the Company sold the assets of AgentSoft, which 
produced intelligent agents for the Internet. The Company decided to focus 
its resources on LIT technologies. The financial burden of the division was 
too high because no revenues were being generated by the product line. The 
Company did not have the financial resources available to create a more 
marketable product line so it sold the Company.

SALES AND MARKETING

The Company's principal target market segments are international companies 
that need media or software applications localized. The Company reaches these 
market segments through OEMs, direct sales, channel sales and Web-based 
e-commerce. The Company's principal markets have historically been the United 
States, Canada and Western Europe but more recently the Company has placed 
added emphasis on Eastern Europe and the Pacific Rim which are emerging as 
large markets for software sales.

ORIGINAL EQUIPMENT MANUFACTURERS (OEMS). Accent has made OEM sales to such 
major manufacturers as IBM, Digital Equipment Corporation, Compaq, Lotus, 
Packard Bell, AT&T and Creative Labs. OEM sales are typically low unit cost 
but high volume transactions that require little or no marketing, 
manufacturing, shipping or handling costs. The OEM market lends itself to 
free software that connects to Accent's translation services.

DIRECT SALES. Accent uses a combination of direct and manufacturer's 
representatives worldwide which focuses on the OEM market and key corporate 
accounts.

CHANNEL SALES. Accent offers some of its products through catalog sales aimed 
specifically at software developers and publishers. The Company believes that 
this sharply focused marketing approach provides a highly cost-effective 
means of reaching its primary market.

E-COMMERCE "TRY BEFORE YOU BUY". Recent advances in Internet technologies 
have made it possible for customers to purchase and receive software directly 
via the Web. Additionally, "time-bombed" software or "try before you buy" has 
become the normal expectation of purchasers in the software development 
environment. Accent is now providing fully functional evaluation copies of 
its new products via the Web on a trial basis. The products can be purchased 
and "unlocked" (that is, made usable) either online or by phone through the 
use of a credit card.. Accent believes electronic distribution of its 
products will become increasingly important as bandwidth on the Internet 
increases and e-commerce becomes widely accepted. The Company believes that 
sales of its low end products through this channel can help increase high-end 
upgrades by quickly increasing market penetration and positively qualifying 
those customers who are potential buyers.

MARKETING. The Company has historically utilized a variety of marketing 
programs to stimulate and build long-term demand for its products, including 
public relations, advertising, trade shows, direct mail, catalogs and 
on-going customer communications. During fiscal 1998, the Company introduced 
market programs that were specifically sales-oriented, rather than image or 
brand-awareness-oriented. Specific programs have been targeted toward the 
Company's primary revenue sources, OEM and direct sales, as well as to 
specific market segments such as corporate, academic and government. With the 
refined focus of the LIT marketplace, the Company will also advertise in 
software development and translation industry publications 

                                       4

<PAGE>

and attend appropriate trade shows. These highly focused efforts are designed 
to rapidly get products into the hands of potential customers.

PRODUCT DEVELOPMENT. Product development plays a significant role at Accent. 
Such tasks as project engineering, quality assurance, documentation and 
project management are key to the development of new products. The 
development of the Company's first LIT products generated a vast amount of 
market knowledge that has been leveraged within the Company to define the 
direction of future products and services.

Since its first collaboration with Microsoft in 1991 to develop the 
bi-directional Hebrew and Arabic versions of Microsoft's Windows operating 
system, the Company has also continued to undertake contracted development 
projects for other major software developers.

In November 1998, after the release of Loc@le 2.0, the product development 
team in Israel was dissolved, leaving all remaining development team members 
working out of the Colorado Springs office. The Cortez technology and the 
LanguageWare product line have been developed in the Colorado Springs 
facility.

COMPETITION

SOFTWARE GLOBALIZATION AND LOCALIZATION. While the range of software 
development products on the market today is vast, the need for multilingual 
development tools has just recently emerged. This is a new and fertile market 
as virtually every software developer has some desire to move their product 
into foreign language markets. Accent was one of the first companies to 
provide robust development tools for single-source, single-binary 
globalization of software products with SingleSource. Competitors include: 
Alis' Bantam and Reword's Studio

With the release of Loc@le, the Company entered the much broader market of 
software localization. While there has always been a need for products in 
this market, the competitors here are also few. Most products on the market 
are simple utilities that provide limited functionality for software 
localization. The only direct competitor for Loc@le of which the Company is 
aware is Corel Corporation's Catalyst; but while Catalyst does perform 
localization tasks similar to those dealt with by Loc@le, it provides none of 
the management and administrative tools found in Accent's product which cover 
the entire process of localizing involving many different disciplines. Accent 
believes that its approach to software localization/globalization gives it a 
distinct advantage over its competitors. By addressing the needs of software 
developers, translators, and managers, all within stand_-alone products, 
Accent believes it has established a competitive advantage over other 
seemingly similar products.

MULTILINGUAL TEXT PRODUCTS. In the multilingual word processing market, 
principal competitors include Gamma Productions Inc.'s Universe program and 
WYSIWYG Corp.'s Universal Word program.

The Company's products compete with a number of single-language Windows word 
processing programs that are available in different languages. The Company 
competes primarily with Word for Windows and WordPerfect for Windows in those 
markets where these competitors have add-on kits to add additional languages 
to their products.

Accent believes that this market will be dominated by Microsoft and is not 
investing additional resources into these product lines.

PRODUCT SUPPORT AND MAINTENANCE

Accent's Technical Support group provides the services needed to deliver and 
support the Company's products in the marketplace. These services include 
translation, technical support and fulfillment 

                                       5

<PAGE>

(warehousing and shipping).

Accent delivers high-quality technical support to its customer base of 
software engineers and developers located around the world via Internet email.

MANUFACTURING AND FULFILLMENT

During 1998, the Accent product line was manufactured (printing, CD-ROM 
duplication and packaging) primarily by internal duplicating capabilities and 
CMS, Inc. out of Denver, Colorado. With the emphasis on the Internet, most 
product fulfillment was done on-line. All of Accent's future products will 
emphasize Internet fulfillment. Translation services are all done over the 
Internet. The Company also uses space available on other manufacturer's CD's 
to deliver product inexpensively to the market.

PROPRIETARY RIGHTS

    The Company regards its products and the processes used to produce them 
as proprietary trade secrets and confidential information. Like many software 
companies, the Company relies on a combination of trademarks, trade secret 
and copyright law to establish and protect proprietary rights in its 
products. In addition, the Company attempts to protect trade secrets and 
other proprietary information through confidentiality agreements with its 
employees, outside consultants and potential business partners. The Company 
requires all of its employees to sign confidentiality agreements as a 
condition of employment.

    The Company currently holds no patents. Accent has established an 
internal process, however, which has resulted in the filing of two patent 
applications (both of which have been transferred to third parties for 
appropriate consideration) and which will ensure that protection will be 
sought for any future patentable inventions. There can be no assurance that 
Accent will develop any further patentable inventions or that any patent 
applications filed by the Company for technology or products derived 
therefrom will be granted.

    The Company provides its products to customers under non-exclusive, 
non-transferable licenses. The Company has not required end-users of its 
retail, mass-market products to sign license agreements. Instead, the Company 
includes an on-line "click wrap" license and/or a printed "shrink wrap" 
license with each copy of its products. It is uncertain whether license 
agreements of this type are legally enforceable in all countries and 
jurisdictions in which the products are marketed.

    The Company believes that its products are proprietary and are protected 
by copyright, trade secret and trademark law, as well as by the contractual 
agreements described above. However, certain protections, such as limitations 
on use of a product and limitations on warranties and liability, are not 
afforded by copyright law and may not be available without an enforceable 
license agreement. Moreover, there can be no assurance that the proprietary 
technology of the Company will continue to be secret or that others will not 
develop similar technology and use such technology to compete with the 
Company. The Company does not currently include in its products any mechanism 
to prevent or inhibit unauthorized copying or usage.

                                       6

<PAGE>

    The following chart describes the status of the Company's trademarks.

<TABLE>
<CAPTION>
         Mark                                        Status
------------------------     ---------------------------------------------------------
                                       Registered                  Application Pending
                             ------------------------------        -------------------
<S>                          <C>                                   <C>
Accent                       United States, United Kingdom,        Italy
                             Germany, France, Benelux
LanguageWare                 United States, United Kingdom,
                             France, Israel
AccentDuo                    United States, United Kingdom,        Spain, Switzerland
                             France, Germany, Mexico
Dagesh                       Israel
Global Development Kit                                             United States
Global Foundation Class                                            United States
WordPoint                                                          United States
Loc@le                                                             United States
WebTamer                     United States, United Kingdom,        Canada, Italy
                             France                                Germany

</TABLE>

    The Company does not believe that its products or their trademarks 
infringe upon the proprietary rights of third parties. However, there can be 
no assurance that a third party will not make a contrary assertion. The cost 
of responding to such assertions may be material whether or not the 
assertions are validated.

    The Company licenses, pursuant to non-exclusive licenses, proprietary 
technology from other companies including Lernout & Hauspie C.V. 
(text-to-speech software), Globalink, Inc. (translation software), INSO, Inc. 
(language utilities and filters), Bitstream, Inc. (fonts) and URW, GmbH 
(fonts), for inclusion in its products. These licenses are generally for a 
one year term with automatic renewal. There can be no assurance that these 
third parties will continue to license their software programs to the Company 
on commercially reasonable terms, particularly if such companies develop 
products which they perceive as competitive with those developed and marketed 
by the Company. Although the Company believes that multiple sources are 
available for such licensed products, if any of the Company's license 
agreements were terminated and the Company was unable to replace those 
licenses with comparable licenses from alternate suppliers, such terminations 
could have a material adverse effect on the Company's ability to market 
certain of its products.

EMPLOYEES

    Following the restructuring which was completed during the fourth quarter 
of 1998, the Company had 15 full time employees, including 7 at Accent 
Software in Jerusalem and 8 at Accent Worldwide in the United States. Future 
staffing requirements cannot be predicted at this time.

Also, pursuant to Israeli law, the Company is legally required to pay 
severance benefits upon the retirement or death of an employee or the 
termination of employment of an employee without due cause. The Company has 
met its obligations with respect to all employees.

                                       7

<PAGE>

ITEM 2.   PROPERTIES.

The Company occupies approximately 2,600 square feet of leased office space 
in Colorado Springs, Colorado, pursuant to a 24 month lease agreement with an 
option to terminate the lease after 12 months, and approximately 600 square 
feet of leased office space in Jerusalem, Israel, pursuant to a 
month-to-month lease agreement. Any expansion of its Colorado-based 
operations will require the Company to lease additional office space. 
Additional space suitable to the Company's potential needs is readily 
available and space limitations are not likely to inhibit any future growth.

ITEM 3.  LEGAL PROCEEDINGS.

    Other than as described below, no material legal proceedings are pending 
as of the date of this filing. The Company is not aware of any other pending 
or threatened litigation that could have a material adverse effect on the 
Company.

    The Company filed an action in the District Court in Jerusalem against 
Mainframe Education Consulting GmbH, a German software distributor that 
ordered a large amount of the Company's software in 1995, but refused to pay 
for it. In the action, the Company is seeking approximately $360,000 as 
compensation for Mainframe's breach of contract. In 1998, the Company 
received a default judgment against Mainframe for the full amount sought in 
the complaint after Mainframe failed to respond in court. The Company has 
been informed by its German counsel that Mainframe appears to be bankrupt. 
The Company is attempting to enforce the judgment in Germany against 
Mainframe and its principals. The probability that this enforcement attempt 
will be successful is low.

    On September 9, 1997, AgentSoft, Ltd., at that time a subsidiary of the 
Company, was served with a complaint filed by its former president and vice 
president, both of whom are also AgentSoft shareholders. The complaint named 
as defendants AgentSoft, Accent and certain officers and directors of 
AgentSoft in the Israeli Labor Court. The complaint alleges wrongful 
termination of the plaintiffs' employment agreements in May 1997, failure to 
pay the contractually required severance, and failure to pay, in a complete 
and timely manner, the statutory severance payments required by Israeli law 
upon the termination of an employee. Plaintiffs seek compensation in excess 
of NIS 650,000 (or approximately $186,000). The Company believes that the 
termination of these individuals was done in accordance with Israeli law and 
the employees' employment agreements and that, therefore, any claim is 
without merit and will not have a material adverse impact on the Company.

    In the course of its business, the Company may become subject to various 
claims, some or which may mature into litigation. Although the Company is 
aware of claims asserted against it, the Company is not aware of any claims 
that have a reasonable possibility of adverse outcome in a material amount. 
There can be no assurance, however, that unforeseen circumstances will not 
cause such claims, or other, currently unknown claims, to result in adverse 
outcomes in material amounts.

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

    On May 28, 1998, the Company held its annual and extraordinary general 
meeting of its shareholders, pursuant to a proxy mailed to all shareholders, 
to authorize additional shares to be issued by the Company as needed. The 
shareholders voted 21,747,527 shares in favor, 499,763 against and 146,842 
abstaining to authorize the amendment of the Articles of Association to 
increase the capitalization of the Company by 20,000,000 new Ordinary Shares 
on terms set forth in the proxy statement. The shareholders further voted 
21,658,207 shares in favor, 570,543 against and 165,382 abstaining to 
increase the number of shares reserved for issuance pursuant to the ESOP and 
NESOP from 1,125,000 to 1,875,000, and from 200,000 to 300,000, respectively.

                                       8

<PAGE>

                                    PART II

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

    (a)  MARKET INFORMATION

    The Company's Ordinary Shares and Units are quoted on the OTC Bulletin 
Board under the symbols "ACNTF" and "ACNUF," respectively. Prior to March 12, 
1999, the shares and units were traded on the Nasdaq SmallCap Market. The 
following table sets forth, for the periods indicated, the high and low 
closing prices of the Company's Ordinary Shares and Units as reported by the 
OTC Bulletin Board and Nasdaq SmallCap Market.

<TABLE>
<CAPTION>
                      Ordinary Shares           Units
                      ----------------    ----------------
                       Low       High      Low       High
                      ------    ------    ------    ------
<S>                   <C>       <C>       <C>       <C>
          1999
First Quarter*        $ 0.13    $ 0.44    $ 0.09    $ 0.34

          1998
First Quarter         $ 0.41    $ 1.16    $ 0.38    $ 1.25
Second Quarter        $ 0.38    $ 0.78    $ 0.34    $ 0.77
Third Quarter         $ 0.22    $ 0.52    $ 0.25    $ 0.69
Fourth Quarter        $ 0.13    $ 0.34    $ 0.06    $ 0.34

          1997
First Quarter         $ 2.19    $ 8.13    $ 2.13    $ 8.38
Second Quarter        $ 1.47    $ 2.38    $ 1.63    $ 2.56
Third Quarter         $ 1.47    $ 3.63    $ 1.44    $ 3.75
Fourth Quarter        $ 0.44    $ 3.13    $ 0.44    $ 3.25

</TABLE>

    *  Through March 15, 1999

    Market quotations for the Company's Ordinary Shares and Units reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent actual transactions. On March 15, 1999, the last
reported sales price of the Ordinary Shares and Units on the OTC Bulletin Board
was $0.17 per Ordinary Share and $0.125 per Unit, respectively.

    (b)  HOLDERS

     As of March 15, 1999 there were approximately 4,000 record holders of 
the Ordinary Shares (including 376 record holders of the Units). Such number 
of record holders was determined from the Company's shareholder records, and 
does not include beneficial owners of the Ordinary Shares whose shares are 
held in the names of various shareholders, dealers and clearing agencies.

     (c)  DIVIDENDS

     The Company has paid no cash dividends to date and does not currently 
intend to declare any dividends on its Ordinary Shares. The Company intends 
to retain earnings, if any, to fund the development and growth of its 
business. Payment of cash dividends on the Ordinary Shares will depend upon 
the Company's earnings, its capital requirements and financial condition, and 
other relevant factors.

                                       9

<PAGE>

      The Company's decisions with respect to dividend payments will be 
determined by its Board of Directors. Under Israeli law, certain dividends, 
referred to as final dividends (which are comparable to annual dividends and 
are not related to distributions on dissolution or liquidation or similar 
final distributions), are recommended by the Board of Directors and may be 
declared by shareholders at the annual meeting of shareholders, but only in 
an amount per share equal to or less than the amount recommended by the Board 
of Directors. In addition, the Board of Directors may declare and pay interim 
dividends on account of the final dividend. Cash dividends may be paid by an 
Israeli Company only out of the profits of such Company, as determined for 
statutory purposes.

     Under Israeli law, cash dividends paid by the Company to its 
shareholders (other than Israeli corporate shareholders) are subject to a 
withholding tax. The applicable withholding tax rate will depend on the 
particular operations that have generated the earnings constituting the 
source of dividends.

     (d)  EXCHANGE CONTROLS AND TAXATION MATTERS AFFECTING NON-ISRAELI 
          SHAREHOLDERS

          EXCHANGE CONTROLS

          All non-residents of Israel who purchase equity securities of the 
Company with certain non-Israeli currencies (including dollars) may freely 
repatriate in such non-Israeli currencies all amounts received in respect of 
such securities in Israeli currency, whether as a dividend, as a liquidating 
distribution or as proceeds from the sale of such securities (provided in 
each case that any applicable Israeli income tax is paid or withheld on such 
amounts) at the rate of exchange prevailing at the time of conversion, 
pursuant to the general permit issued under the Israeli Currency Law, 1978.

         CAPITAL GAINS TAXATION OF THE COMPANY AND ITS SHAREHOLDERS

         Israeli law imposes a capital gains tax on the sale of capital 
assets, including securities held by the Company and securities of the 
Company sold by holders thereof. The law distinguishes between "Real Gain" 
and "Inflationary Surplus." Real Gain is the excess of the total capital gain 
over Inflationary Surplus, computed on the basis of the increase in the 
Israeli CPI between the date of purchase and the date of sale. Inflationary 
Surplus accumulated until December 31, 1993 is taxed at a rate of 10% for 
residents of Israel in respect of securities (in respect of securities 
reduced to no tax for non-residents if calculated according to the exchange 
rate of the dollar instead of the Israeli CPI), while Real Gain is added to 
ordinary income, which is taxed at the applicable ordinary rates for 
individuals (30% to 50%) and for corporations (36% in 1996 and thereafter), 
while Inflationary Surplus accumulated from and after December 31, 1993 is 
exempt from any capital gains tax. Under current law, the Ordinary Shares of 
the Company are exempt from Israeli capital gains tax so long as they are 
listed on a stock exchange recognized by the Israeli Ministry of Finance and 
the Company qualifies as an "Industrial Company" as defined in the "Law for 
the Encouragement of Industry (Taxes), 1969." There can be no assurance that 
the Company will maintain such listing or qualifications.

         Pursuant to the Convention Between the Government of the United 
States of America and the Government of Israel with Respect to Taxes on 
Income (the "U.S.-Israel Tax Treaty"), the sale, exchange or disposition of 
Ordinary Shares by a person who qualifies as a resident of the United States 
within the meaning, and who is entitled to claim the benefits afforded to 
such resident under, the U.S.-Israel Tax Treaty ("Treaty U.S. Resident") will 
not be subject to the Israeli capital gains tax unless such Treaty U.S. 
Resident holds, directly or indirectly, shares representing 10% or more of 
the voting power of the Company during any part of the 12-month period 
preceding such sale, exchange or disposition (assuming that Israeli law would 
otherwise tax such gain). If such gain is taxed by Israel, the gain will be a 
foreign source under the U.S.-Israel Tax Treaty and such U.S. Holder can 
elect to credit such Israeli tax against the U.S. federal income tax imposed 
on the gain, subject to the limitations imposed by U.S. law.

                                       10

<PAGE>

         OTHER TAXATION MATTERS UNDER ISRAELI LAW AFFECTING NON-ISRAELI 
         SHAREHOLDERS; ESTATE TAXES

         Individuals who are non-residents of Israel are subject to a 
graduated income tax on income derived from sources in Israel. Israeli source 
income is defined under Israeli law as income derived or accrued in Israel 
and income derived or accrued outside of Israel, if such income is received 
in Israel. A corporate entity is deemed an "Israeli resident" under Israeli 
law if it is controlled and managed from Israel or if it is registered in 
Israel and its business activities are primarily in Israel. On the 
distribution of dividends other than bonus shares to foreign residents, 
income tax at the rate of 25% (15% in the case of dividends distributed from 
the taxable income attributable to an Approved Enterprise) is withheld at the 
source unless a different rate is provided for in a treaty between Israel and 
the shareholder's country of residence. The U.S.-Israel Tax Treaty provides 
for a maximum tax of 25% on dividends paid to a Treaty U.S. Resident.

         A non-resident of Israel who has interest, dividend or royalty 
income derived from, accrued or received in Israel from which tax was 
withheld at the source is generally exempt from the duty to file tax returns 
in Israel in respect of such income, provided that such income was not 
derived from a business conducted in Israel.

         Residents of the United States generally will have withholding tax 
in Israel deducted at the source. Such persons may be entitled to a credit or 
deduction for United States federal income tax purposes for the amount of 
such taxes withheld.

         Israel currently has no estate tax.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA.

         The following selected financial data have been summarized from the 
Company's consolidated financial statements and are qualified in their 
entirety by reference to, and should be read in conjunction with, such 
consolidated financial statements and "Management's Discussion and Analysis 
of Financial Condition and Results of Operations."

                                       11

<PAGE>

                      SELECTED CONSOLIDATED FINANCIAL DATA
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE FIGURES)

<TABLE>
<CAPTION>
                                              FOR THE YEAR ENDED DECEMBER 31,
                               --------------------------------------------------------------
                                 1998          1997          1996         1995         1994
                               --------      --------      --------     --------     --------
<S>                            <C>           <C>           <C>          <C>          <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net Sales                      $ 2,091       $  3,125      $  4,953     $ 5,135      $ 1,851
Cost of Sales                      997          3,062         6,767       2,972        1,155
                               -------       --------      --------     -------      -------
  Gross Margin                   1,094             63        (1,814)      2,163          696

Product Development              2,540          4,813         3,386       1,097          507
Marketing Expenses               1,404          2,177         9,242       5,955        2,115
General & Administrative         2,365          3,169         6,437       2,796        1,071
Restructuring Charge             1,257             --            --          --           --
                               -------       --------      --------     -------      -------
  Operating Expenses             7,566         10,159        19,065       9,848        3,693
                               -------       --------      --------     -------      -------
Operating Loss                  (6,472)       (10,096)      (20,879)     (7,685)      (2,997)

Other Expense                      105          3,378           155         163          137
                               -------       --------      --------     -------      -------
Net Loss                       $(6,577)      $(13,474)     $(21,034)    $(7,848)     $(3,134)
                               -------       --------      --------     -------      -------
                               -------       --------      --------     -------      -------
Net Loss per Share             $ (0.25)      $  (1.08)     $  (2.12)    $ (1.22)     $ (0.68)
                               -------       --------      --------     -------      -------
                               -------       --------      --------     -------      -------
Weighted Average Number
  of Shares Outstanding         26,332         12,495         9,926       6,421        4,619
                               -------       --------      --------     -------      -------
                               -------       --------      --------     -------      -------

</TABLE>

<TABLE>
<CAPTION>
                                                            AS OF DECEMBER 31,
                                    --------------------------------------------------------------
                                      1998          1997          1996         1995         1994
                                    --------      --------      --------     --------     --------
<S>                                 <C>           <C>           <C>          <C>          <C>
CONSOLIDATED BALANCE SHEET DATA:

Cash and Cash Equivalents            $    141        2,499         8,723        9,633           78
Working Capital (Deficit)            $ (1,214)         109         3,628       10,329       (1,009)
Total Assets                         $    841        6,438        13,789       17,650        2,503
Total Liabilities                    $  1,980        5,415         4,062        2,358        1,680
Accumulated Deficit                  $(53,298)     (46,721)      (33,247)     (12,213)      (4,365)
Shareholders' Equity (Deficit)       $ (1,139)       1,023         2,974       10,133       (1,064)

</TABLE>

                                       12

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS.

OVERVIEW

    Accent Software International, is a language solutions Company which 
designs develops, markets and supports software products and provides 
translation services for the rapidly emerging Language Information Technology 
(LIT) industry. Accent commenced operations in 1988 in Jerusalem, Israel, and 
from 1988 to 1992, generated nearly all of its revenues from consulting 
services. The Company introduced its first word processing software product 
in Israel in 1992 and began shipping its first product intended for the 
international market in 1994. Accent's revenues during this period were 
almost entirely attributable to sales of word processing software.

    From its inception through December 31, 1998, Accent has accumulated 
deficits in excess of $53 million, including net losses of $6.8 million, 
$13.5 million and $21.0 million for the fiscal years ended December 31, 1998, 
1997 and 1996, respectively. Although the Company believes it has made 
substantial progress in reducing its operating expenses and annual losses, 
its failure to achieve its revenue plan has significantly affected the 
Company's ability to generate adequate cash flow to meet its working capital 
requirements. These factors create doubt about the Company's ability to 
continue as a going concern and there can be no assurance that the Company 
will be able to continue as a going concern.

    The Company completed a restructuring during 1998 designed to reduce its 
working capital requirements and to align its operating expenses with its 
revised revenue projections. The restructuring eliminated the Company's 
Israeli-based product development, sales and marketing functions and various 
general and administrative activities. Staffing was reduced to 15 people as 
of December 31, 1998. The Company's product development capability is located 
in the U.S.

    The Company's revenue during both 1998 and 1997 fell short of management 
expectations, the Company believes, due primarily to significant concerns of 
potential customers as to the Company's ability to continue to support and 
expand its product offerings. Also during this period, working capital 
constraints forced the Company to reduce its level of spending on sales and 
marketing activities. The Company is continuing to work on significant new 
sales opportunities and intends to gradually expand its sales and marketing 
operations through the expanded use of sales representatives and cooperative 
agreements with other businesses. There can be no assurance, however, that 
the concerns of potential customers can be alleviated and that future revenue 
will meet management's expectations.

    The Company's ability to generate increased revenue and to fund planned 
expenditures is dependent on a number of factors, some of which are outside 
its control. In particular, revenue growth and profitability, if any, will 
depend on the ability of the Company to develop and market new products and 
product enhancements, demand for the Company's products, the level of product 
and price competition, the success of the Company in attracting and retaining 
motivated and qualified personnel, the ability of the Company to control its 
costs and general economic conditions. There can be no assurance that the 
Company will meet such challenges successfully. Any of these or other factors 
could have a material adverse effect on the Company's business, operating 
results or financial condition.

    The decline in revenue experienced during 1998 and 1997 created pressure 
on the Company's working capital and its ability to fund its current 
operations. Although the Company has been successful on several occasions 
during the past two years in raising additional working capital through the 
sale of convertible securities, those funds were essentially exhausted by 
December 31, 1998. The Company secured $600,000 in additional working capital 
during the first quarter of 1999 and also successfully converted all of its 
long-term debt into equity. The Company believes that these accomplishments, 
coupled with an improved revenue outlook and cost reduction efforts that have 
substantially reduced its working capital requirements, will be sufficient to 
meet its requirements for approximately six months. Beyond that time, the 
Company believes it will be generating sufficient operating cash flow to meet 
its needs without additional external 

                                       13

<PAGE>

financing. If the Company is unable to achieve its projections and the 
Company must seek additional financing, there is no assurance that its 
efforts to obtain such financing will be successful. Any failure on the part 
of the Company to secure required financing will have a material adverse 
impact on the Company and may cause the Company to cease operations.

    REVENUE RECOGNITION

    As required by U.S. generally accepted accounting principles, revenue 
from the sale of software products to end-users and resellers (including 
distributors and OEMs) is generally recognized when a customer purchase order 
has been received, the software has been shipped, the Company has a right to 
invoice the customer, collection of the receivable is determined to be 
probable and there are no significant obligations remaining on the part of 
the Company. Revenue recognition is deferred if any of these conditions are 
not met. The Company also maintains appropriate allowances for anticipated 
returns.

    OEM and licensing arrangements may include non-refundable payments in the 
form of guaranteed sublicense and license fees. These guaranteed fees are 
recognized as revenue upon shipment of the master copy of all software to 
which the fees relate provided there are no significant post-delivery 
obligations and the customer is creditworthy. Additionally, such revenue is 
recognized only to the extent that the obligation to pay such fees is not 
subject to price adjustment, is non-recoverable and non-refundable, and is 
due within twelve months.

    CURRENCY

    The functional currency for the Company is the dollar, which is the 
currency of the primary economic environment in which the operations of the 
Company are conducted. The majority of the Company's sales and expenses are 
made or incurred in the United States. Transactions and balances originally 
denominated in dollars are presented at their original amounts. Transactions 
and balances in other currencies (including the New Israeli Shekel (NIS)) are 
remeasured into dollars in accordance with principles set forth in FASB 
Statement No. 52. Exchange gains and losses arising from remeasurement are 
reflected in other income or expenses, as applicable.

RESULTS OF OPERATIONS (DOLLARS ARE STATED IN THOUSANDS EXCEPT PER SHARE FIGURES)

    The table on the next page sets forth for the periods indicated the 
percentage of sales represented by certain items reflected in the Company's 
Consolidated Statements of Operations.

                                       14

<PAGE>

         COST OF SALES AND OPERATING EXPENSES AS A PERCENTAGE OF SALES

<TABLE>
<CAPTION>
                                FOR THE YEAR ENDED DECEMBER 31,
                                -------------------------------
                                 1998         1997        1996
                                ------       ------      ------
<S>                             <C>          <C>         <C>
Net Sales                        100.0%       100.0%      100.0%
Cost of Sales                     51.2%        98.0%      136.6%
                                ------       ------      ------
  Gross Margin                    48.8%         2.0%      (36.6)%
                                ------       ------      ------
Product Development              130.3%       154.0%       68.4%
Marketing Expenses                72.0%        69.7%      186.6%
General & Administrative         126.5%       101.4%      130.0%
Restructuring Charge              64.5%         0.0%        0.0%
                                ------       ------      ------
  Operating Expenses             393.3%       325.1%      385.0%
                                ------       ------      ------
Operating Loss                  (344.5)%     (323.1)%    (348.4)%
                                ------       ------      ------
                                ------       ------      ------

</TABLE>

YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997

NET SALES. Net sales decreased approximately 37% to $1,949 in 1998 from 
$3,125 in 1997. Recent sales have fallen short of management expectations, 
the Company believes, due to potential customers' concerns about Accent's 
ability to continue to support and expand its product offerings.

     The percentage of the Company's total sales derived from its translation 
services business increased substantially during 1998 and accounted for 
approximately 40% of total revenue.

COST OF SALES. The Company's cost of sales improved to just over 50% of sales 
in 1998, or $997 on sales of $1,949, from almost 100% of sales, $3,062 on 
sales of $3,125 in the year earlier. The Company's continuing movement away 
from retail sales with "boxed software" and relatively high cost of goods 
sold towards the OEM and business-to-business market where manufacturing and 
production costs are minimal, is primarily responsible for the improved cost 
of sales. The translation services businesses, which received expanded 
emphasis in 1998, relies on an international network of human translators and 
a correspondingly higher cost of sales.

     Cost of sales during 1997 included a charge of $555 to amortize 
capitalized software development costs compared to no charge for this expense 
in 1998. 1997 cost of sales also included the cost of technical support which 
the Company provided primarily in support of its retail sales and a $666 
charge related to the sale of excess inventory.

GROSS MARGIN. Although net sales declined by over one-third from 1997 to 
1998, the significant reduction in the cost of sales as a percentage of 
revenue led to an improvement in the Company's gross margin to 49% in 1998 
from just 2% in 1997.

PRODUCT DEVELOPMENT COSTS. Product development costs consist almost entirely 
of compensation and other personnel-related costs for the Company's staff of 
software engineers. As the Company's sales and 

                                       15

<PAGE>

marketing focus shifted away from "boxed software" for the retail market and 
towards software developers, software content providers and software 
localizers/translators, new lines of products were developed and introduced 
with corresponding large increases in product development costs in 1997 
compared to 1996 and continuing into 1998. By the latter quarters of 1998, 
however, much of the personnel-intensive development effort had been 
concluded and it became possible to achieve significant cost reductions in 
this area. Product development costs for the full year, 1998, were $2,540, a 
47% reduction from the $4,813 spent on product development during 1997.

     During the fourth quarter of 1998, because significant development 
efforts had been concluded and also due to the need to reduce the Company's 
overall expenses and working capital requirements, the Israeli-based product 
development department was disbanded. The product development staff in Israel 
consisted of 44 individuals at the beginning of 1998. The Company has 
reestablished its product development capability in the United States.

     Product development costs included costs of the Company's former 
subsidiary, AgentSoft, of $674 in 1998 and $1,265 in 1997. During 1998, the 
Company concluded that AgentSoft no longer fit in the Company's long-range 
strategic plans and, furthermore, that AgentSoft required a significant 
investment if it were to realize its market potential. The Company's 
liquidity constraints precluded it from making the necessary investment in 
AgentSoft.

MARKETING EXPENSES. Sales and marketing expenses were reduced approximately 
36% to $1,404 in 1998 from $2,177 in 1997. Pressure to reduce operating 
expenses and to conserve working capital led to staffing reductions in the 
sales and marketing functions, including the elimination of the 
Jerusalem-based sales office, and greater reliance on sales representatives 
to augment the Company's sales efforts. Related costs such as advertising, 
printing, travel and participation in trade shows were also reduced during 
the most recent year.

GENERAL AND ADMINISTRATIVE EXPENSES. Efforts to streamline the management of 
the Company began in 1997, continued throughout 1998 and led to a 22% 
reduction in total general and administrative expenses in 1998 compared to 
the year earlier.

     By the end of 1998, the Company had eliminated or out-sourced its human 
resources and payroll activity, its in-house legal counsel, and significant 
portions of its accounting and office management functions. The trend of 
reduced general and administrative spending is expected to continue into 1999 
as that will be the first year to experience a full year's impact of the 
Company's cost reduction efforts. 1998 was also impacted by several large 
charges for consulting services related to the Company's efforts to raise new 
capital and to sell its subsidiary, AgentSoft. These charges are not expected 
to recur in 1999 or beyond.

RESTRUCTURING CHARGE. Beginning with the arrival of a new management team in 
early 1997 and continuing into the fourth quarter of 1998, the Company 
completed a significant restructuring effort. The restructuring effort 
included a complete reorientation of the Company's products away from the 
retail market and towards software developers, software content providers and 
software localizers/translators, increased emphasis on translation services 
as an important source of revenue, corresponding shifts in the composition 
and direction of the Company's sales and marketing activities, and movement 
of the Company's executive offices from Israel to the United States.

     The restructuring activities led to closing sales offices in Israel, 
England and Canada; the disposition of the net assets of the Company's 
Jerusalem-based subsidiary; AgentSoft, the closing of the Israeli-based 
product development function and elimination of almost 90% of the Company's 
total staffing. The staffing reductions resulted in large cash outlays for 
severance and other employee benefits and left the Company with a substantial 
amount of excess equipment. Further, the greatly reduced size of the Company 
following the personnel reductions made it unlikely that the Company would 
realize significant benefit from certain long-term assets.

                                       16

<PAGE>

     The restructuring activities also led to a one-time restructuring charge 
during 1998 of $1,257 related primarily to the disposal of excess capital 
equipment and the write-off of other long-term assets.

OPERATING LOSS. Despite the roughly 37% reduction in revenue and the $1257 
restructuring charge, the Company's cost reduction efforts allowed it to 
reduce its operating loss by approximately one-third to $6,714 in 1998 from 
$10,096 in the year earlier. Without the one-time restructuring charge, the 
Company's operating loss would have been $5,457, almost one-half of the year 
earlier figure.

OTHER EXPENSES. Other expenses, which totaled $105 during 1998 compared to 
$3,378 in 1997, consisted primarily of interest expenses on the Company's 
debt and costs related to currency conversions and exchange rate fluctuations 
between the U.S. dollar and the Israeli shekel. Other expenses during 1997 
included substantial charges related to two offerings by the Company of 
convertible securities. These financing costs included a "guaranteed return" 
of $2,104 granted to the purchasers and the cost of warrants issued to the 
investors in the amount of $1.080.

NET LOSS. The Company experienced a net loss of $6,819 during 1998 compared 
to a net loss of $13,474 during the prior year.

YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996

NET SALES. Net sales decreased approximately 37% to $3,125 during 1997 from 
$4,953 during 1996. New management, which joined the Company during the first 
quarter of 1997, shifted the product mix and sales and marketing emphasis 
away from the retail market and towards the original equipment manufacturers 
(OEM) and business-to-business markets.

     Consistent with its focus on the OEM and business-to-business markets, 
the Company reduced its advertising, marketing and sales efforts in the 
retail market and experienced a corresponding reduction in revenue from this 
market. 1997 sales to the OEM and business-to-business market developed at a 
slower pace than expected for several reasons including the need to rebuild 
and refocus the Company's sales and marketing capability after the 
significant restructuring which began in 1996. Also, various products 
intended for the OEM and business-to-business market were not available until 
the latter part of 1997.

     As the Company shifted its sales and marketing focus away from the 
retail market, it was left with excess "boxed software" which it had 
previously manufactured and assembled for sale. The Company completed a 
transaction during 1997, in which it exchanged its excess retail inventory 
with a book value of $666 for $1,600 worth of "trade credits." The trade 
credits have a useful life of three years and can be used in conjunction with 
cash to purchase such items as raw materials, office supplies, travel 
services, media and advertising. The Company recognized revenue of $666 as a 
result of the trade credit transaction, established a reserve of $934 and 
recorded $666 in trade credits as a long term asset. No gain or loss was 
recognized as a result of the transaction. The Company subsequently 
determined that it was unlikely to realize more than a small amount of value 
from the trade credits and, during 1998, took a charge of $512 to reduce the 
carrying cost of this asset.

COST OF SALES. Although revenue declined 37% from 1996 to 1997, the Company 
was able to achieve a 55% reduction in the cost of sales to $3,062 in 1997 
from $6,767 in 1996.

     Part of the reduction in the Company's cost of sales is directly related 
to the lower level of sales and the Company's focus on the OEM and 
business-to-business markets. Cost of sales consists of manufacturing and 
production costs, storage and shipping costs, royalties and the amortization 
of previously capitalized software development costs. In the retail market, 
where sales tend to consist of large quantities of individually "boxed" 
software, all of these costs can be significant. In the OEM and 
business-to-business markets, however, sales typically consist of a single 
master, replicable compact disc (CD), which often includes collateral 
material such as help files and instructional material.

                                       17

<PAGE>

    Cost of Sales included $555 of amortized capitalized software 
development costs in 1997 compared to $719 in 1996. The Company no longer 
capitalizes such costs and by the end of 1997 had amortized all of its 
previously capitalized costs. Costs of sales during 1997 also included $693 
in royalty costs compared to $2,286 during the prior year.

    Cost of sales also includes technical support which the Company provides 
to its customers and the cost of administering its translation services 
business. The shift away from the retail market, coupled with the expansion 
of the translation services business led to a net reduction in the staffing 
levels in the cost of sales departments from 10 in 1996 to 5 at December 31, 
1997.

PRODUCT DEVELOPMENT COSTS. The Company has continued to place significant 
emphasis on the development and enhancement of new products and introduced, 
and continues to introduce, a number of new products aimed primarily at the 
business-to-business market. Product development costs, which are 
predominantly salaries and other personnel-related costs, increased 
approximately 42% from $3,386 in 1996 to $4,813 in 1997. The increase in 
product development costs is primarily attributable to AgentSoft. The 
subsidiary was formed in early 1996 and its total cost that year was $522 
compared to $1,385 in 1997. Staffing in product development at Accent 
remained relatively constant at approximately 54 people during most of 1997, 
but personnel reductions implemented during the fourth quarter led to a 1997 
year-end staffing level of 44. Staffing at AgentSoft increased to 21 at 
December 31, 1997, from 12 at the end of 1996.

MARKETING EXPENSES. The shift away from the retail market led to a reduction 
in sales and marketing expenses of over 75% from $9,242 in 1996 to $2,177 in 
1997. Accent closed its U.S. sales office in Newport Beach, California, 
during January, 1997, and in December, 1997, closed its European sales office 
in London. Staffing in the sales and marketing area, which had been reduced 
from a peak of 37 employees in mid-1996, to 20 at the end of 1996, was 
further reduced to 9 at the end of 1997.

    In addition to the reduction in sales and marketing personnel, the 
Company also experienced a significant reduction is sales and marketing 
related expenses such as advertising and marketing material, media costs, 
travel and participation in trade shows. The costs related to participation 
in exhibitions and trade shows was $329 during 1997 compared to $1,797 during 
1996, and the cost of advertising and public relations was $395 in 1997, less 
than 10% of its 1996 level of $4,386.

    As new products are developed for the OEM and business-to-business 
market, the Company believes it will be necessary to rebuild its sales and 
marketing work force and increase spending in this area; however, spending is 
expected to remain significantly below the 1996 level.

GENERAL AND ADMINISTRATIVE EXPENSES. As the Company restructured its 
operations, it reduced its general and administrative staffing level from 26 
at the beginning of the year to 12 at December 31, 1997. Total general and 
administrative cost declined 51% to $3,169 in 1997 from $6,437 in 1996. 
General and administrative expenses include costs related to the executive 
management of the Company, and the legal, financial, human resources, MIS and 
office management functions that support day-to-day operations of the 
business.

    Accent retained the services of a marketing and public/investor relations 
firm during 1997, and the cost of these services is included in general and 
administrative expense. Under the terms of the twelve month agreement, the 
firm is compensated entirely in shares of Accent stock and was initially 
granted 612,000 Ordinary Shares. The shares have been valued at $995 and are 
being expensed over the term of the agreement. During the first quarter of 
1998, the firm was granted 550,000 additional shares of stock that will be 
valued and expensed over the remaining term.

    General and administrative expenses also include a write-off of bad and 
doubtful accounts receivable of $209 in 1997.

                                       18

<PAGE>

OPERATING LOSS. The operating loss declined by 52% in 1997 to $10,096 from 
$20,879 in 1996. The significant cost reductions which the Company achieved 
in production, sales and marketing, and general and administrative expenses 
were partially offset by the continued decline in revenue and the increased 
level of spending on product development and AgentSoft.

OTHER INCOME (EXPENSE), NET. The Company completed two sales of convertible 
securities during 1997, realizing proceeds of $7,750, before expenses. The 
Company's other expense of $3,378 during 1997 (as compared to $155 during the 
previous year) consists almost entirely of costs related to these financing 
transactions, offset by interest income and gains from currency fluctuations. 
Costs of the financing transactions included the cost of a "guaranteed 
return" to the purchasers of the securities in the amount of $2,104, the cost 
of warrants issued to the investors in the amount of $1,080 and interest 
costs on the debentures and preferred shares which totaled $69.

NET LOSS. The Company's net loss declined 36% to $13,474 in 1997 from $21,034 
in 1996.

LIQUIDITY AND CAPITAL RESOURCES

    Although the Company has been successful on several occasions during the 
past two years in raising additional working capital through the sale of 
convertible secutities, those funds were essentially exhausted by December 
31, 1998. The Company secured $600 in additional working capital during the 
first quarter of 1999 in the form of short term debt and the Company believes 
that these funds, coupled with cost reduction efforts which have 
substantially reduced its working capital requirements, will be sufficient to 
meet its requirements for approximately six months. When these funds are 
exhausted or if the Company's current working capital falls short of its 
requirements due to revenue shortfalls or other unanticipated contingencies, 
the Company may need to seek additional financing. There is no assurance that 
the Company will be successful in securing additional working capital and any 
failure on the part of the Company to do so will have a material adverse 
impact on the Company and may cause the Company to cease operations.

    Accent executed a Preferred Share Purchase Agreement ("Agreement") with 
Lernout & Hauspie during May, 1998, pursuant to which the Company issued 
4,000 Series C Preferred shares in exchange for $4,000. Fees and expenses 
related to the transaction totaled approximately $230 resulting in net 
proceeds to the Company of $3,770. Also pursuant to the Agreement, Accent 
issued warrants which allow the investor to purchase 4,444,444 Ordinary 
Shares of the Company at an exercise price of $0.55 per share. The warrants 
are exercisable for five years.

    The Series C Preferred Shares issued to Lernout & Hauspie are convertible 
at any time into Ordinary Shares of Accent. The conversion price is $0.45 per 
share, representing a 10% premium over the average closing price of the 
Company's Ordinary Shares during the ten trading days preceding execution of 
the agreement. Conversion of all 4,000 Series C Preferred Shares would result 
in the issuance of 8,888,889 Ordinary Shares and would dilute existing 
shareholders by approximately 32%.

    At the time of the Preferred Share Purchase Agreement with Lernout & 
Hauspie, the Company had Israeli government-guaranteed loans outstanding of 
approximately $1,710. The agreement stipulated that these loans were to be 
retired by September 4, 1998. During the third quarter, the Company used 
proceeds from the Preferred Share Purchase Agreement to pay down a portion of 
the outstanding balance. The Company also entered into an agreement with the 
government of Israel and appropriate Israeli banking officials to permit the 
Company to retire the remainder of the loans through the issuance of 
additional equity. Subsequent to the agreement with the government, however, 
there was a significant decline in both the Company's share price and in the 
average daily trading volume in the Company's stock. The combination of the 
lower share price and low trading volume made it essentially impossible to 
sell sufficient equity to retire the loan by the stipulated date and as of 
December 31, 1998, the Company had $1,180 in government-guaranteed loans 
still outstanding.

                                       19

<PAGE>

    Subsequent to December 31, 1998, the Company entered into a further 
agreement with the government of Israel and various Israeli banking officials 
whereby the Company issued warrants to the bank to purchase 2,448,000 
ordinary shares in full satisfaction of the balance of the loan. The warrants 
vest on the second anniversary of the grant (that is, January 25, 2001) and 
expire on January 25, 2006.

    During the second and third quarters of 1998, Accent reached agreement 
with certain of its major creditors pursuant to which these creditors agreed 
to accept Ordinary Shares in the Company in payment for all or a portion of 
amounts due them. A total of approximately 1,000,000 shares were issued at 
market value to these creditors in satisfaction of approximately $450 in 
accounts payable.

    The Company believes it has established sufficient reserves to accurately 
reflect the likelihood of uncollectable receivables. There can be no 
assurance, however, that uncollected accounts receivable beyond the reserves 
established would not have a material adverse effect on the Company's 
business, results of operations and financial condition.

    Accent's working capital was $(1,456) at December 31, 1998 compared to 
$109 at December 31, 1997. The change in working capital primarily reflects 
the Company's continuing operating losses.

    The Company's operating activities used cash of $4,823, $15,579 and 
$15,422 for the years ended December 31, 1998, 1997 and 1996, respectively. 
The major factors contributing to the lower 1998 figure are the Company's 
improved operating results and the fact that a number of large creditors had 
been brought into balance during 1997 reducing the amount of further payments 
required in 1998. The Company's accounts payable and accruals balance was 
reduced by $4,066 during 1997 as the Company attempted to bring its creditors 
current in the amounts owed them. During 1997, the Company retained the 
services of a marketing specialist and a marketing and public/investor 
relations firm, both of which were compensated through the issuance of 
warrants or shares rather than in cash.

    The Company's investing activities used cash of $12, $834 and $1,067 
during the years ended December 31, 1998, 1997 and 1996, respectively. Cash 
generated during the most recent year came primarily from the sale of capital 
equipment excess to the Company's current needs. The reduction in the 1997 
figure as compared to 1996 reflects a reduction in spending on capital 
equipment such as computers.

    Financing activities provided cash of $2,477, $10,189 and $15,579 during 
the years ended December 31, 1998, 1997 and 1996, respectively. The cash 
provided in 1998 includes the net proceeds from the sale of preferred shares 
to Lernout and Hauspie which was discussed earlier in this section. During 
1998, the Company retired long term debt in the amount of $1,550, of which 
$1,320 was retired through cash payments and $230 was retired through the 
issuance of Ordinary Shares. During 1997, $1,332 of the Company's long term 
debt was retired. During 1996, the Company received proceeds from bank loans 
of $1,758.

    During 1997, Accent completed two private placements, realizing total 
proceeds of $7,750 before expenses ($6,955 net of expenses) through the sale 
of convertible securities.

    During August 1997, the Company completed a financing transaction 
pursuant to Rule 505 of Regulation D under the Securities Act of 1933. Rule 
505 was applicable because the issuance involved fewer than 35 unaccredited 
investors. The Company received $1,850 in cash net of expenses and, in 
return, issued the investor an unsecured convertible debenture carrying six 
percent (6%) annual interest. The total investment of $2,000, plus accrued 
interest of $30, was converted into 1,959 Ordinary Shares of the Company 
prior to December 31, 1997. Based on the number of Ordinary Shares 
outstanding at the time of the financing, conversion of the debentures 
resulted in a 16% dilution to existing shareholders.

    The investor was also granted warrants to purchase 250 Ordinary Shares of 
the Company at an exercise price of $2.80 and additional warrants to purchase 
50 Ordinary Shares at an exercise price of $3.20. The placement agents for 
the transaction were granted warrants to purchase 300 Ordinary Shares 

                                       20

<PAGE>

at an exercise price of $1.73 per share. The warrants are exercisable for 
five years. Exercise of all 600 warrants granted to the investor and to the 
placement agents would result in a percentage dilution to existing 
shareholders of approximately 2%. The investor warrants were valued at $290 
and recorded as a reduction in the face value of the debt, with a resulting 
increase in shareholders' equity. The reduction in debt was fully accreted 
between the time the warrants were issued and the time the debentures were 
fully converted into Preferred or Ordinary Shares of the Company. The 
placement agents warrants were valued at $326 and have been capitalized as 
debt issuance cost, with a resulting increase in shareholders' equity. The 
debt issuance costs were fully amortized when the debentures were converted 
into Preferred or Ordinary Shares.

    During November and December, 1997, the Company completed a financing 
transaction with a group of investors in which the Company received a total 
of $5,750 in cash before expenses (approximately $5,255 net of expenses). In 
return, the Company issued the investors convertible securities in the amount 
of $5,750, carrying six percent (6%) annual interest. As of December 31 1997, 
$2,140 of the securities, plus $14 of accrued interest had been converted 
into 3,504 Ordinary Shares of the Company. The balance of the securities, 
plus an additional $56 in accrued interest, was converted into an additional 
8,992 Ordinary Shares during the first quarter, 1998. Conversion of all of 
the securities resulted in an 88% dilution to existing shareholders.

    The investors in the November transaction were also granted warrants to 
purchase 1,150 Ordinary Shares of the Company at an exercise price of $2.45. 
For facilitating completion of this investment, the placement agent was 
granted warrants to purchase 788 Ordinary Shares at the same exercise price 
as the investors. The warrants expire on November 6, 2002, if not exercised 
earlier. Exercise of all of the investor and placement agent warrants will 
result in a percentage dilution to existing shareholders of approximately 7%.

    In November 1996, the Company received net proceeds of $12,800 from a 
secondary offering of Ordinary Shares and warrants to purchase Ordinary 
Shares.

IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS

    The dollar cost of the Company's operations in Israel is influenced by 
the extent to which any increase in the rate of inflation in Israel over the 
rate of inflation in the United States is offset by the devaluation of the 
NIS in relation to the dollar. Inflation in Israel will have a negative 
effect on the profitability of contracts under which the Company is to 
receive payment in dollars or other foreign currencies while incurring 
expenses in NIS linked to the Israeli CPI, unless such inflation is offset by 
a devaluation of the NIS. Inflation in Israel and currency fluctuations will 
also have a negative effect on the profitability to the Company of fixed 
price contracts under which the Company is to receive payment in NIS.

    A devaluation of the NIS in relation to the dollar will have the effect 
of decreasing the dollar value of any asset of the Company that consists of 
NIS or receivables payable in NIS (unless such receivables are linked to the 
dollar). Such a devaluation would also have the effect of reducing the dollar 
amount of liabilities of the Company that are payable in NIS (unless such 
payables are linked to the dollar). Conversely, any increase in the value of 
the NIS in relation to the dollar will have the effect of increasing the 
dollar value of any unlinked NIS assets of the Company and the dollar amounts 
of any unlinked NIS liabilities of the Company.

    Because exchange rates between the NIS and the other currencies in which 
the Company conducts its business, including the dollar, fluctuate 
continuously (albeit with a historically declining trend in the value of the 
NIS), exchange rate fluctuation, and especially larger periodic devaluations, 
have an impact on the Company's profitability and period-to-period 
comparisons of the Company's results. Such impact is recorded in the 
Company's financial statements as Other Expense. Favorable exchange rates 
will tend to increase reported financial income and unfavorable exchange 
rates will tend to reduce reported income. To date, the Company has not 
engaged in currency-hedging transactions intended to reduce the effect of 

                                       21

<PAGE>

fluctuations in foreign currency exchange rates on the Company's results of 
operations.

EFFECTIVE CORPORATE TAX RATE

    The Company maintained operations during 1998 in both Israel and the 
United States and in 1997 also maintained operations in England and must 
comply with the tax regulations of each country. To date, none of the 
Company's operations in any of the countries in which it operations has been 
profitable and, therefore, the Company has not paid income taxes nor does it 
have any income tax liability.

    Virtually all of the Company's facilities and investment programs have 
been granted "Approved Enterprise" status under Israel's Law for 
Encouragement of Capital Investments, 1959. Under the Approved Enterprise 
program, the Company is entitled to reductions in the tax rate normally 
applicable to Israeli companies with respect to income generated from 
Approved Enterprise investments. The Company has derived, and expects to 
continue to derive, a substantial portion of its income from Approved 
Enterprise investments. The Company is entitled to a ten-year tax exemption 
commencing in the first year in which taxable income is earned, subject to 
certain time restrictions, the benefit period for which has not yet 
commenced. In addition, the Company has net operating loss carryforwards that 
it intends to utilize to reduce its future income tax liability.

YEAR 2000

    The Company has reviewed its operations in relation to the Year 2000 
issue and has concluded that the likelihood of this issue having a material 
adverse impact on the Company is remote. Any costs incurred in relation to 
the Year 2000 issue are expected to be immaterial.

    Accent develops all of its software products in compliance with Year 2000 
industry guidelines. The Company's software products are not date sensitive 
and, therefore, are not likely to be adversely impacted by Year 2000. The 
Company, therefore, believes that it has minimal, if any, exposure to 
contingencies related to the Year 2000 issue for the products it manufactures 
and sells. The Company has reviewed the third-party custom-written software 
it uses in its operations and has determined that this software is also not 
date sensitive and poses minimal, if any, Year 2000 risk.

    Accent has a policy of purchasing only information technology ("IT") 
hardware that is warranted to be Year 2000 compliant and, therefore, believes 
its only Year 2000 exposure in this regard is if the hardware fails to 
perform as warranted, which is unlikely. The Company also utilizes 
"off-the-shelf" software products in its operations. Such software is issued 
with frequent updates which have or which are expected to address the Year 
2000 issue.

    The potential impact of the Year 2000 issue on the Company's non-IT 
systems that may include embedded technology, such as microprocessors, is 
more difficult to assess. The Company believes, however, that its operations 
are small enough that any Year 2000 issue that may arise in its non-IT 
systems will amount to inconveniences, which it can work around, rather than 
significant business problems.

    Because the Company believes the possibility that a Year 2000 issue 
significantly disrupting its operations is remote, it has not developed a 
contingency plan in this regard. The Company will continue to monitor and 
assess the Year 2000 issue, particularly the extent to which its operations 
are vulnerable from interactions with its vendors, customers and financial 
institutions.

"EURO" CURRENCY

    As the Company does not trade in European currencies, management believes 
that the introduction of the Euro will have no significant influence on the 
results of the Company.

                                       22

<PAGE>

ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

<TABLE>
<S>                                                                       <C>
CONSOLIDATED FINANCIAL STATEMENTS
  Independent Auditors' Report..........................................   24
  Consolidated Financial Statements
    Consolidated Balance Sheets as of December 31, 1998 and 1997........   25
    Consolidated Statements of operations for the years ended
      December 31, 1998, 1997 and 1996..................................   26
    Consolidated Statements of Changes in Shareholders' Equity
      (Deficit) for the years ended December 31, 1998, 1997 and 1996....   27
    Consolidated Statements of Cash Flows for the years ended
      December 31, 1998, 1997 and 1996..................................   28
    Notes to the Consolidated Financial Statements......................   29

CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
  Schedule II: Valuation and Qualifying Accounts........................   44
    All other schedules are omitted as the required information is
    inapplicable or the information is presented in the financial
    statements or related notes.

</TABLE>

                                       23

<PAGE>

                         INDEPENDENT AUDITORS' REPORT


TO THE SHAREHOLDERS OF ACCENT SOFTWARE INTERNATIONAL LTD.:

    We have audited the consolidated balance sheets of Accent Software 
International Ltd. as of December 31, 1998 and 1997, and the related 
statements of operations, shareholders' equity (deficit) and cash flows for 
each of the three years ended December 31, 1998. These financial statements 
are the responsibility of the Company's management. Our responsibility is to 
express an opinion on these financial statements based on our audits.

    We conducted our audits in accordance with generally accepted auditing 
standards in Israel and in the United States, including those prescribed 
under the Auditors' Regulations (Auditor's Mode of Performance), 1973. Those 
standards require that we plan and perform the audit to obtain reasonable 
assurance about whether the financial statements are free of material 
misstatement. An audit includes examining, on a test basis, evidence 
supporting the amounts and disclosures in the financial statements. An audit 
also includes assessing the accounting principles used and significant 
estimates made by management, as well as evaluating the overall financial 
statement presentation. We believe that our audits provide a reasonable basis 
for our opinion.

    In our opinion, the financial statements referred to above present 
fairly, in all material respects, the financial position of the Company as of 
December 31, 1998 and 1997 and, and the results of its operations and its 
cash flows for each of the three years ended December 31, 1998, in conformity 
with accounting principles generally accepted in Israel and in the United 
States (as applicable to the financial statements of the Company such 
principles are practically identical).

    As discussed further in Note 1, the Company incurred losses of 
approximately $6.8 million during the year ended December 31, 1998. As of 
that date, the Company has an accumulated deficit of approximately $53.5 
million. These factors, among others, as described in Note 1, create a 
substantial doubt about the Company's ability to continue as a going concern 
and uncertainty as to the recoverability and classification of recorded asset 
amounts, and the amounts and classification of liabilities. The acCompanying 
financial statements do not include any adjustments relating to the 
recoverability and classification of assets carrying amounts or the amount 
and classification of liabilities that might result should the Company be 
unable to continue as a going concern.


                                       LUBOSHITZ KASIERER
                                   Member Firm of Arthur Andersen


Tel Aviv, Israel
March 26, 1999

                                       24
<PAGE>

                      ACCENT SOFTWARE INTERNATIONAL LTD.
                               AND SUBSIDIARIES

                         CONSOLIDATED BALANCE SHEET
                    U. S. dollars and shares in thousands

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                 ------------------------------
                                                                    1998                 1997
                                                                 ---------           ----------
                                   ASSETS
<S>                                                              <C>                  <C>
CURRENT ASSETS

       Cash and cash equivalents                                 $    141            $  2,499
       Trade receivables, net of allowance of
           $219 in 1998 and $63 in 1997                               265                 755
       Other receivables                                               91                 117
       Prepaid expenses                                                 5                 906
       Inventories                                                      7                  85
                                                                 ---------           ---------
            Total current assets                                      509               4,362
EQUIPMENT
       Cost                                                           238               2,630
       Less - Accumulated depreciation                                198               1,220
                                                                 ---------           ---------
            Equipment, net                                             40               1,410
OTHER LONG TERM ASSETS                                                 50                 666
                                                                 ---------           ---------
            Total assets                                         $    599            $  6,438
                                                                 ---------           ---------
                                                                 ---------           ---------

                    LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

       Current maturities of long-term debt                      $  1,180            $  1,886
       Accounts payable and accrued expenses                          785               2,367
                                                                 ---------           ---------
            Total current liabilities                               1,965               4,253
LONG-TERM BANK LOANS                                                    -                 844
ACCRUED SEVERANCE LIABILITY                                            15                 318
                                                                 ---------           ---------
            Total liabilities                                       1,980               5,415
                                                                 ---------           ---------

SHAREHOLDERS' EQUITY (DEFICIT)

       Preferred Shares, par value NIS 0.01, authorized 
           10,000 shares, issued and outstanding 4 and 3 at
           December 31, 1998 and 1997, respectively                     -                   -
       Ordinary Shares, par value NIS 0.01, authorized 65,000
           shares, issued and outstanding 29,223 and 17,140
           at December 31, 1998 and 1997, respectively                 77                  43
       Share premium                                               52,082              47,701
       Accumulated deficit                                        (53,540)            (46,721)
                                                                 ---------           ---------
            Total shareholders' equity (deficit)                   (1,381)              1,023
                                                                 ---------           ---------
            Total liabilities and shareholders' equity           $    599            $  6,438
                                                                 ---------           ---------
                                                                 ---------           ---------
</TABLE>

             The accompanying notes form an integral part of these consolidated
                                  financial statements.

                                       25
<PAGE>

                ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES

                    CONSOLIDATED STATEMENT OF OPERATIONS
       U. S. dollars and shares in thousands (except per share information)

<TABLE>
<CAPTION>
                                                                    FOR THE YEAR ENDED DECEMBER 31,
                                                         ---------------------------------------------------
                                                              1998               1997              1996
                                                         --------------    ---------------   ---------------
<S>                                                      <C>               <C>               <C>
NET SALES                                                     $  1,949          $   3,125         $   4,953
COST OF SALES                                                      997              3,062             6,767
                                                         --------------    ---------------   ---------------
GROSS PROFIT (LOSS)                                                952                 63            (1,814)
                                                         --------------    ---------------   ---------------

OPERATING COSTS AND EXPENSES

       Product development costs                                 2,540              4,813             3,386
       Marketing expenses                                        1,404              2,177             9,242
       General and administrative expenses                       2,465              3,169             6,437
       Restructuring charge                                      1,257                  -                 -
                                                         --------------    ---------------   ---------------
       Total operating costs and expenses                        7,666             10,159            19,065
                                                         --------------    ---------------   ---------------

OPERATING LOSS                                                  (6,714)           (10,096)          (20,879)
       Other expenses, net                                         105              3,378               155
                                                         --------------    ---------------   ---------------

NET LOSS                                                      $ (6,819)         $ (13,474)        $ (21,034)
                                                         --------------    ---------------   ---------------
                                                         --------------    ---------------   ---------------
NET LOSS PER SHARE                                            $  (0.25)         $   (1.08)        $   (2.12)
                                                         --------------    ---------------   ---------------
                                                         --------------    ---------------   ---------------

Weighted average
       number of shares outstanding                             27,242             12,495             9,926
                                                         --------------    ---------------   ---------------
                                                         --------------    ---------------   ---------------
</TABLE>

             The accompanying notes form an integral part of these consolidated
                                  financial statements.

                                       26
<PAGE>

                  ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES

            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
                      U. S. dollars and shares in thousands

<TABLE>
<CAPTION>
                                               NUMBER OF:
                                         --------------------------
                                          PREFERRED      ORDINARY        SHARE          SHARE        ACCUMULATED
                                           SHARES         SHARES        CAPITAL        PREMIUM         DEFICIT          TOTAL
                                         -----------   ------------  ------------  --------------  --------------  --------------
<S>                                      <C>           <C>           <C>           <C>             <C>             <C>
BALANCE AS OF DECEMBER 31, 1995                   -          9,481          $ 21         $22,325        $(12,213)       $ 10,133

Issuance of shares and warrants                   -          1,800             6          12,785               -          12,791
Warrants and options exercised                    -            389             1           1,083               -           1,084
Net Loss                                          -              -             -               -         (21,034)        (21,034)
                                         -----------   ------------  ------------  --------------  --------------  --------------
BALANCE AS OF DECEMBER 31, 1996                   -         11,670          $ 28         $36,193        $(33,247)       $  2,974
                                         -----------   ------------  ------------  --------------  --------------  --------------

Issuance of Preferred Shares                      3              -             -           1,750               -           1,750
Issuance of Ordinary Shares                       -            612             2             993               -             995
Issuance of Preferred Shares upon
  conversion of debentures                        3              -             -           6,527               -           6,527
Issuance of Ordinary Shares upon
  conversion of debentures                        -            846             2           2,176               -           2,178
Issuance of Ordinary Shares upon
  conversion of Preferred Shares                 (3)         3,985            11               -               -              11
Warrants exercised                                -             27             -              62               -              62
Net loss                                          -              -             -               -         (13,474)        (13,474)
                                         -----------   ------------  ------------  --------------  --------------  --------------
BALANCE AS OF DECEMBER 31, 1997                   3         17,140            43          47,701         (46,721)          1,023
                                         -----------   ------------  ------------  --------------  --------------  --------------

Issuance of Ordinary Shares upon
  conversion of Preferred Shares                 (3)         9,623            27               -               -              27
Issuance of Preferred Shares                      4                                        3,768                           3,768
Issuance of Ordinary Shares in
  satisfaction of long-term debt                  -            732             2             227               -             229
Issuance of Ordinary Shares in                                                                                                 -
  satisfaction of accounts payable                -          1,620             4             356               -             360
Options exercised                                 -            108             1              30               -              31
Net loss                                          -              -             -               -          (6,819)         (6,819)
                                         -----------   ------------  ------------  --------------  --------------  --------------
BALANCE AS OF DECEMBER 31, 1998                   4         29,223            77          52,082         (53,540)         (1,381)
                                         -----------   ------------  ------------  --------------  --------------  --------------
                                         -----------   ------------  ------------  --------------  --------------  --------------
</TABLE>


             The accompanying notes form an integral part of these consolidated
                                  financial statements.

                                       27
<PAGE>

                ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENT OF CASH FLOWS
                     U. S. dollars and shares in thousands

<TABLE>
<CAPTION>
                                                                          FOR THE YEAR ENDED DECEMBER 31,
                                                                 ------------------------------------------------
                                                                     1998             1997             1996
                                                                 --------------   --------------   --------------
<S>                                                              <C>              <C>              <C>
OPERATING ACTIVITIES

Net loss                                                              $ (6,819)       $ (13,474)       $ (21,034)
Adjustments to reconcile net loss to net cash
   used in operating activities
       Depreciation and amortization                                     1,382            1,052            1,118
       Change in allowance for doubtful accounts                           156           (2,182)           1,248
       Change in realizable value of other long term assets                616                -                -
       Changes in assets and liabilities
          (Increase) decrease in trade receivables                         334            2,466              953
          (Increase) decrease in other receivables                          26                -                -
          (Increase) decrease in prepaid expenses                          901             (311)              61
          (Increase) decrease in inventories                                78              936              638
          Increase (decrease) in accounts payable & accruals            (1,194)          (4,066)           1,594
          Increase (decrease) in severance liability                      (303)               -                -
                                                                 --------------   --------------   --------------
       Net cash (used in) operating activities                          (4,823)         (15,579)         (15,422)
                                                                 --------------   --------------   --------------

INVESTING ACTIVITIES

Disposition (acquisition) of fixed assets                                  (12)            (168)          (1,021)
Increase in other long-term assets                                           -             (666)               -
Capitalization of software development costs                                 -                -              (46)
                                                                 --------------   --------------   --------------
       Net cash provided by (used in) investing activities                 (12)            (834)          (1,067)
                                                                 --------------   --------------   --------------

FINANCING ACTIVITIES

Increase in government-guaranteed loans                                      -                -            1,758
Repayment of government-guaranteed loans                                (1,321)          (1,332)             (54)
Net proceeds received on issuance of debentures and warrants                 -            5,525                -
Net proceeds received on issuance of preferred shares                    3,768            1,580                -
Net proceeds received on issuance of ordinary shares                         -                -           12,791
Net proceeds received on exercise of warrants and options                   30            4,416            1,084
                                                                 --------------   --------------   --------------
       Net cash provided by financing activities                         2,477           10,189           15,579
                                                                 --------------   --------------   --------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                        (2,358)          (6,224)            (910)
Cash and cash equivalents, beginning of period                           2,499            8,723            9,633
                                                                 --------------   --------------   --------------
Cash and cash equivalents, end of period                              $    141        $   2,499        $   8,723
                                                                 --------------   --------------   --------------
                                                                 --------------   --------------   --------------

SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES

Ordinary shares issued in satisfaction of accounts payable            $    388        $       -        $       -
                                                                 --------------   --------------   --------------
                                                                 --------------   --------------   --------------
Cancellation of ordinary shares issued in payment for services        $    229        $       -        $       -
                                                                 --------------   --------------   --------------
                                                                 --------------   --------------   --------------
Trade credits received as payment for revenue                         $      -        $     666        $       -
                                                                 --------------   --------------   --------------
                                                                 --------------   --------------   --------------
Debt issuance costs paid by issuance of warrants                      $      -        $   4,416        $       -
                                                                 --------------   --------------   --------------
                                                                 --------------   --------------   --------------
Prepaid assets received in exchange for shares                        $       -       $   1,089        $       -
                                                                 --------------   --------------   --------------
                                                                 --------------   --------------   --------------
</TABLE>

             The accompanying notes form an integral part of these consolidated
                                  financial statements.

                                       28
<PAGE>

                        ACCENT SOFTWARE INTERNATIONAL LTD.
                                 AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                            U.S. dollars in thousands

Note 1   -    GENERAL

     Accent Software International and its subsidiaries (the "Company") is a 
provider of language solutions for software developers, corporations and 
consumers. The Company was founded in 1988 in Jerusalem, Israel. Accent 
Worldwide, Inc., incorporated in 1991, is located in Colorado Springs, 
Colorado, and includes sales, marketing, software development, and executive 
management.

     The financial statements of the Company have been prepared in U.S. 
dollars as the currency of the primary economic environment in which the 
operations of the Company are conducted is the U.S. dollar. A majority of the 
Company's sales are made outside Israel in foreign currencies (mainly the 
U.S. dollar), as are a majority of the purchases of materials. Thus, the 
functional currency of the Company is the U.S. dollar.

     Transactions and balances originally denominated in U.S. dollars are 
presented at their original amounts. Transactions and balances in other 
currencies are remeasured into U.S. dollars in accordance with the principles 
set forth in Statement No. 52 of the Financial Accounting Standards Board of 
the United States (FASB). Exchange gains and losses from the aforementioned 
remeasurements are reflected in the statements of operations. The 
representative rate of exchange prevailing on December 31, 1998 was U.S. $1 = 
New Israeli Shekel ("NIS") 4.160; on December 31, 1997 it was U.S. $1 = NIS 
3.536, and on December 31, 1996 it was U.S. $1 = NIS 3.251.

     The Company incurred net losses of $6,819 and $13,474 in the years ended 
December 31, 1998 and 1997, respectively. Net cash used in operating 
activities for 1998 and 1997 was $4,823 and $15,579, respectively. As of 
December 31, 1998, the Company had an accumulated deficit of $53,540. The 
Company also incurred substantial losses prior to 1997 primarily attributed 
to aggressive product development and marketing efforts based upon strong 
retail market expectations for the Company's products. Anticipated revenue 
did not materialize, however, resulting in substantial operating and cash 
losses. Revenue declined in 1998 and 1997 from its 1996 level for several 
reasons. First, the Company, under new management, shifted its product 
development, sales and marketing focus away from the retail market, toward 
the OEM and business-to-business market. Second, due to liquidity and working 
capital constraints, the Company reduced the size of its direct sales force 
and its expenditures for sales and marketing activities such as advertising 
and trade show participation. Concerns from potential customers about the 
Company's ability to remain a going concern also contributed to the revenue 
shortfall.

     GOING CONCERN

     The consolidated financial statements have been prepared assuming the 
Company will continue as a going concern. Note, however, that the report of 
the Company's Independent Auditors raises doubt about the Company's ability 
to continue as a going concern. Management believes Accent will remain a 
going concern but acknowledges that the Company's history of operating losses 
and operating cash flow deficits raises legitimate concern about the 
Company's longer term prospects.

     To enhance the Company's longer term prospects, management has focused on
increasing revenue, reducing expenses and obtaining additional external
financing.

     To increase revenue, the Company has developed new products to serve the
language information industry, has entered into alliances with other companies
in the industry aimed at broadening the Company's market reach, has expanded its
translation services business and has explored new market niches as potential
sources of customers for its products and translation services.

                                       29
<PAGE>

                        ACCENT SOFTWARE INTERNATIONAL LTD.
                                 AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                            U.S. dollars in thousands

     To reduce expenses, the Company has reduced its staffing level from 
approximately 170 employees at its peak in 1996 to 15 employees at December 
31, 1998. Related expenses such as rent, telephone, travel and training costs 
have been reduced proportionately. The shift away from the retail market has 
led to a reduction in production and inventory carrying costs. Upon 
completion of several product development activities during the fourth 
quarter, 1998, the Israel-based product development function was disbanded. 
The Company intends to reestablish a product development capability in the 
United States. The Company has reduced discretionary spending on advertising 
and marketing as well as the amount it spends on exhibitions and trade shows 
and, over the past two years, has closed its sales offices in England, 
California, Canada and Israel. General and administrative expenses have been 
reduced through out-sourcing and the elimination of non-essential activities.

     During both the third and fourth quarters of 1997, the second quarter of 
1998 and the first quarter of 1999, the Company successfully obtained 
external financing through the sale of convertible securities. The Company 
continues to explore sources of additional financing to satisfy its 
operational requirements.

     The acCompanying consolidated financial statements do not include any 
adjustments relating to the recoverability or classification of asset 
carrying amounts or the amounts and classification of liabilities that may 
result should the Company be unable to continue as a going concern.

     RESTRUCTURING

     In response to the fact that actual revenue was short of management's 
expectations and that the Company was unable to generate sufficient cash flow 
from its operations to sustain the business, management instituted 
restructuring initiatives designed to reduce operating expenses and working 
capital requirements. The restructuring activities, which are also discussed 
in the Going Concern paragraphs, above, were completed during the fourth 
quarter of 1998.

     USE OF ESTIMATES

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

Note 2   -        SIGNIFICANT ACCOUNTING POLICIES

     The financial statements have been prepared in conformity with 
accounting principles generally accepted in the United States. The 
significant accounting policies followed in the preparation of the financial 
statements, applied on a consistent basis, are:

                                       30
<PAGE>


                        ACCENT SOFTWARE INTERNATIONAL LTD.
                                 AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                            U.S. dollars in thousands


A.   PRINCIPLES OF CONSOLIDATION

     The Consolidated Financial Statements include the accounts of the 
Company and its subsidiaries. All significant interCompany accounts and 
transactions have been eliminated in consolidation.

B.   CASH AND CASH EQUIVALENTS

     All highly liquid investments (including commercial paper) with an 
original maturity of three months or less are considered cash equivalents.

C.   ALLOWANCE FOR DOUBTFUL ACCOUNTS AND SALES RETURNS

     The allowance for doubtful accounts is calculated principally for 
specific accounts the collectibility of which is doubtful and, in part, 
includes a general provision based on the aging of the accounts. A provision 
for estimated returns is recorded at the time of sale, based on past 
experience in determining returns for similar types of products.

D.   INVENTORIES

     Over the past two years, the Company has almost totally exited the 
retail market and, as a result, the amount of inventory the Company maintains 
has decreased substantially. The Company no longer maintains any inventory or 
its manufacturers now does the Company engage its manufacturers to bill and 
ship product as it did in the past. To the extent the Company maintains any 
inventory, inventory is stated at the lower of cost or market and consists 
primarily of computer software on compact discs and assembled box products. 
Cost is determined mainly by the "first-in, first-out" method.

E.   EQUIPMENT

     Equipment is stated at cost. Depreciation is calculated to show the net 
realizable value of the assets at the end of the financial year.

F.   CAPITALIZED SOFTWARE DEVELOPMENT COSTS

     The Company has accelerated its product development cycle and is 
currently expensing its software development costs as part of its product 
development costs. All previously capitalized software development costs were 
fully amortized by December 31, 1997.

G.   REVENUES

     SOP 97-2, regarding software revenue recognition, became effective for 
all transactions entered into in fiscal years commencing on or after December 
15, 1997. The Company recognizes revenue in accordance with this Standard.

     OEM sales are typically made to another hardware or software 
manufacturer who wishes to "bundle" Accent's product with its product for 
sale to an end-user. Accent recognizes OEM sales when all of the following 
conditions have been met: (1) the order has been received (or agreement 
signed); (2) the software has been shipped; (3) collection of the receivable 
is determined to be probable; and, (4) no significant obligations on Accent's 
part remain outstanding.

                                       31
<PAGE>

                        ACCENT SOFTWARE INTERNATIONAL LTD.
                                 AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                            U.S. dollars in thousands


     Accent understands that acceptance of the software by the licensee is a 
prerequisite of revenue recognition. The Company generally addresses this 
concern by including in its OEM license agreements a statement by the 
licensee that it has had a chance to evaluate the software being licensed and 
has deemed it suitable for its needs. In those cases where the licensee 
negotiates a period of time to evaluate the software prior to formal 
acceptance, revenue recognition is deferred until acceptance has been 
obtained. End-user acceptance of the software is irrelevant to Accent's 
revenue recognition because the OEMs do not have an option to return or 
receive credit for product once it has been accepted by the OEM even though 
it may subsequently be returned to the OEM by the end-user.

     Accent recognizes revenue under the "try before you buy" arrangement 
only upon acceptance of the product by the customer. Under the "try before 
you buy" arrangement, a potential customer can either download the software 
from the Company's Web site or request a CD from the Company. In either case, 
the software is "time bombed," meaning that it will operate for only a 
limited trial period. If the user wishes to continue using the software after 
the trial period, the user must "unlock" the software with instructions 
provided by the Company. To receive the instructions, the customer must 
accept and agree to pay for the product. Revenue recognition occurs only at 
that point.

     OEM arrangements may include non-refundable payments in the form of 
guaranteed sublicense fees. Guaranteed sublicense fees from OEMs are 
recognized as revenue upon shipment of the master copy of all software to 
which the sublicense fees relate if there are not significant post-delivery 
obligations and the obligation is not subject to price adjustment, is 
non-recoverable and non-refundable and due within twelve months.

     License fees are earned under software license agreements to end-users 
and resellers (including original equipment manufacturers (OEMs) and 
distributors). Such fees are generally recognized when a customer purchase 
order has been received, the software has been shipped, the Company has a 
right to invoice the customer, collection of the receivable is determined to 
be probable, and there are no significant obligations remaining.

H.  LOSS PER SHARE

    Effective December 31, 1997, the Company adopted, as required, SFAS No 
128, "Earnings per Share." In accordance with SFAS 128, net earnings (loss) 
per Ordinary Share amounts ("Basic EPS") are computed by dividing net 
earnings (loss), adjusted for preferred stock as required, by the weighted 
average number of common shares outstanding and excluded any dilution. Net 
earnings (loss) per Ordinary Share amounts assuming dilution ("Diluted EPS") 
are computed by reflecting potential dilution of the Company's securities. 
Basic and diluted EPS are the same for the years ended December 31, 1998, 
1997 and 1996, respectively since all securities are considered antidilutive. 
Options of 1,506,258 and Warrants totaling 12,762,357 that were outstanding 
during the year were not included in the computation of diluted EPS since 
they were considered anti-dilutive. In addition, the convertible preferred 
shares outstanding were not included in the computation of diluted EPS since 
their conversion would have had an antidilutive effect.

I.   FINANCIAL INSTRUMENTS

     The carrying amounts of cash, receivables, accounts payable and bank loans
approximate fair value, unless otherwise noted.

                                       32
<PAGE>

                        ACCENT SOFTWARE INTERNATIONAL LTD.
                                 AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                            U.S. dollars in thousands


J.   STOCK BASED COMPENSATION

     As allowed by Statement of Financial Accounting Standard No. 123 ("SFAS 
123"), the Company measures compensation cost of stock issued to employees 
under Accounting Principles Board Opinion No. 25 ("APB 25").

Note 3   -    TRADE RECEIVABLES

     Total trade receivables declined approximately 59% from December 31, 
1997 to December 31, 1998 and the Company increased its allowance for 
doubtful accounts by $156.

<TABLE>
<CAPTION>
                                             DECEMBER 31,
                                    --------------------------------
                                        1998              1997
                                    -------------     --------------
<S>                                 <C>               <C>

Domestic (Israel)                          $ 239              $ 356
Foreign                                      245                462
                                    -------------     --------------
                                             484                818
Less: Allowance for Doubtful
    accounts and sales returns               219                 63
                                    -------------     --------------
Total                                      $ 265              $ 755
                                    -------------     --------------
</TABLE>



Note 4   -    INVENTORIES

       Inventory at December 31, 1998 and 1997 consisted entirely of finished 
goods.

     During 1997 as the Company shifted away from the retail market, it 
recognized that it had a large amount of inventory that was surplus to its 
foreseeable requirements and during the second quarter of 1997, the Company 
completed an exchange of its "excess" inventory in which it sold inventory 
with a book value of $666 and received $1,600 in "trade credits." The Company 
recorded the trade credits as a long-term asset with a value equal to the 
inventory surrendered, that is, $666. No gain or loss was recorded on the 
transaction. The trade credits were available to use over a period of three 
years and could be exchanged, with cash, for a variety of products and 
services. From its receipt of the credits in 1997 through the end of 1998, 
the Company realized approximately $100 from use of the trade credits. 
Following the restructuring which the Company completed during 1998, it 
recognized that it was unlikely to realize more than a relatively small 
additional amount of value from the trade credits and took a charge of $512 
to bring the carrying cost of the credits in line with their estimated value.

                                       33
<PAGE>

                        ACCENT SOFTWARE INTERNATIONAL LTD.
                                 AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                            U.S. dollars in thousands

Note 5   -    EQUIPMENT

     Following the personnel reductions that were part of the 1998 restructuring
effort, the Company was left with a significant amount of equipment which was
excess to its current requirements. The excess equipment was 
liquidated during the fourth quarter, 1998.

<TABLE>
<CAPTION>
                                              COMPUTERS            OFFICE
                                               SOFTWARE          FURNITURE
                                             AND RELATED            AND
                            VEHICLES          EQUIPMENT          EQUIPMENT            TOTAL
                         ---------------    ---------------    ---------------    ---------------
<S>                      <C>                <C>                <C>                <C>
COST

January 1, 1998                   $ 101            $ 1,859              $ 670            $ 2,630
Additions                             -                 38                  2                 40
Disposals                          (101)            (1,718)              (613)            (2,432)
                         ---------------    ---------------    ---------------    ---------------
December 31, 1998                 $   -            $   179              $  59            $   238
                         ---------------    ---------------    ---------------    ---------------

ACCUMULATED DEPRECIATION

January 1, 1998                   $  39            $   941              $ 240            $ 1,220
Provision                            58                854                400              1,312
Disposals                           (97)            (1,643)              (594)            (2,334)
                         ---------------    ---------------    ---------------    ---------------
December 31, 1998                 $   -            $   152              $  46            $   198
                         ---------------    ---------------    ---------------    ---------------

NET BOOK VALUE

December 31, 1998                 $   -            $    27              $  13            $    40
                         ---------------    ---------------    ---------------    ---------------
                         ---------------    ---------------    ---------------    ---------------
December 31, 1997                 $  62            $   918              $ 430            $ 1,410
                         ---------------    ---------------    ---------------    ---------------
</TABLE>


Note 6 - CAPITALIZED SOFTWARE DEVELOPMENT COSTS

     The Company has accelerated its product development cycle and is 
currently expensing its software -- development costs as part of its product 
development costs. All previously capitalized software development costs were 
fully amortized by December 31, 1997.

                                       34
<PAGE>

                        ACCENT SOFTWARE INTERNATIONAL LTD.
                                 AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                            U.S. dollars in thousands


Note 7   -    ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     Several large vendor account balances were converted into equity during 
1998 and the Company continued to make progress in bringing all of its 
vendors current. The Company was also able to meet its obligations to its 
employees, including those that were discharged as part of the restructuring 
activity.

<TABLE>
<CAPTION>
                                              DECEMBER 31,
                                    --------------------------------
                                        1998              1997
                                    -------------     --------------
<S>                                 <C>               <C>
Suppliers                                  $ 467            $ 1,497
Employee-related payables                     89                507
Accruals and other payables                  229                363
                                    -------------     --------------
                                           $ 785            $ 2,367
                                    -------------     --------------
                                    -------------     --------------
</TABLE>


Note 8  -     LONG-TERM BANK LOANS

     During 1998, the Company entered into an agreement with the government 
of Israel and various Israeli banking officials which allowed the Company to 
convert its government-guaranteed long-term debt into ordinary shares of the 
Company. $1,550 of the Company's long-term debt was retired during the year 
including approximately $230 which was converted into 732,000 Ordinary Shares 
by December 31, 1998. The balance of the long-term debt was reclassified as 
current maturities of long-term debt and this balance was converted into 
equity during the first quarter of 1999 through the issuance of warrants to 
purchase 2,448,000 Ordinary Shares of the Company.

Note 9 - SHARE CAPITAL

     ISSUANCE OF SHARES IN SATISFACTION OF LONG AND SHORT TERM DEBT

     During the months of June, July and August 1998, the Company reached 
agreement with several of its largest creditors pursuant to which the 
creditors agreed to accept shares of the Company in payment of all or a 
portion of the amounts due them. First, the Company agreed to issue to the 
Bank for Industrial Development (the "Bank"), at the Bank's request, a number 
of Ordinary Shares sufficient to repay approximately $1,600 of a 
Government-guaranteed loan which the Company received pursuant to the 
Government's Approved Enterprise Program. The shares so issued were to be 
sold by the Bank so that the proceeds from such sales could suffice to repay 
the Bank Debt and any other associated commissions and costs. To date, 
732,000 ordinary shares were issued to the Bank. Subsequent to this agreement 
with the Bank, the Company and the Bank reached a second agreement, in 
January 1999, to issue to the Bank warrants to purchase 2,448,000 ordinary 
shares of the Company in exchange the total forgiveness of the outstanding 
balance of the Government-guaranteed loan at that date equal to $1,224. These 
warrants vest on the second anniversary of their grant and expire on January 
25, 2006. Second, the Company issued 1,070,218 Ordinary Shares to four of its 
trade creditors in 1998, and another 68,000 Ordinary Shares in February 1999 
in payment of trade debts in the amount of approximately $420.

     PRIVATE PLACEMENTS PURSUANT TO REGULATION D

                                       35
<PAGE>

                        ACCENT SOFTWARE INTERNATIONAL LTD.
                                 AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                            U.S. dollars in thousands

     Accent executed a Preferred Share Purchase Agreement with Lernout & 
Hauspie Speech Products, N.V. ("L&H") on June 4, 1998 pursuant to which the 
Company issued 4,000 Series C Preferred shares in exchange for $4,000. Fees 
and expenses related to the transaction totaled approximately $230 resulting 
in net proceeds to the Company of $3,770. The Series C Preferred Shares do 
not pay interest but do provide the investor with a preference over Ordinary 
Shareholders in the event of liquidation.

     The investor also has the right to vote the shares as if they had all 
been converted into Ordinary Shares and has been granted one seat on Accent's 
Board of Directors.

     The Series C Preferred Shares issued to Lernout & Hauspie are 
convertible at any time into Ordinary Shares of Accent. The conversion price 
of $0.45 per share represents a 10% premium over the average closing price of 
the Company's Ordinary Shares during the ten trading days preceding execution 
of the agreement. Conversion of all 4,000 Series C Preferred Shares would 
result in the issuance of 8,888,889 Ordinary Shares and would dilute existing 
shareholders by approximately 32%. The investor also received warrants to 
purchase 4,444,444 Ordinary Shares of the Company at an exercise price of 
$0.55 per share. The warrants are exercisable for five years. Conversion of 
the warrants would dilute existing shareholders by an additional 12%.

     In November and December, 1997, the Company completed a private 
placement with four private investors pursuant to Regulation D of the 
Securities Act of 1933. The Company received $5,750 in cash before expenses, 
approximately $5,255 net of expenses. In return for the aggregate purchase 
price of $5,750, the Company issued the investors debentures in the amount of 
$4,000 and Series B Preferred Shares in the amount of $1,750. Both the 
debentures and Preferred Shares carry six percent (6%) annual interest 
(payable in cash or Ordinary Shares, at the Company's option). The investors 
also received warrants to purchase a total of 1,150,000 Ordinary Shares of 
the Company at an exercise price of $2.45. As of March 27, 1998, the 
investors had converted all the holdings into 12,496,160 Ordinary Shares.

     In August 1997, the Company completed a private placement with one 
private investor pursuant to Regulation D of the Act. The Company received 
$2,000 in cash before expenses, approximately $1,850 net of expenses. In 
return for the aggregate purchase price of $2,000, the Company issued the 
investor debentures in the amount of $2,000, carrying six percent (6%) annual 
interest (payable in cash or Ordinary Shares, at the Company's option). The 
investor also received warrants to purchase a total of 250,000 Ordinary 
Shares of the Company at an exercise price of $2.80 and 50,000 Ordinary 
Shares of the Company at an exercise price of $3.20. As of March 27, 1998, 
the investor had converted all its holdings into 1,959,309 Ordinary Shares.

     WARRANTS

     During the August 1997 private placement, the Company issued the August 
Investor warrants to purchase 250,000 Ordinary Shares at a price of $2.80 per 
share and 50,000 Ordinary Shares at a price of $3.20 per share. In addition, 
it issued to the placement agents warrants to purchase 300,000 Ordinary 
Shares at an exercise price of $1.73 per share. The August Investor's 
warrants and those of the placement agents all expire on August 5, 2002.

     During the November/December 1997 private placement, the Company issued 
the November Investors warrants to purchase 1,150,000 Ordinary Shares at a 
price of $2.45 per share. In addition, it issued to the placement agent 
warrants to purchase 787,500 Ordinary Shares at an exercise price of $2.44 
per share. The November Investors' warrants and those of the placement agent 
all expire on November 30, 2002.

                                       36
<PAGE>

                        ACCENT SOFTWARE INTERNATIONAL LTD.
                                 AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                            U.S. dollars in thousands

     OPTIONS

     The Company, pursuant to formal share option plans adopted in 1995 and 1997
under which 1,875,000 shares were initially reserved, has granted options to
shareholders and to employees, non-employee directors and consultants of the
Company. The options are exercisable under certain conditions and for certain
periods and expire between January 1996 and August 2004. The exercise price of
options granted was not less than the fair market value of the shares on the
date of the grants.

<TABLE>
<CAPTION>                                                                  WEIGHTED
                                         NUMBER           PRICE         AVERAGE PRICE
                                       OF SHARES        PER SHARE         PER SHARE
                                       ----------     -------------     --------------
<S>                                    <C>            <C>               <C>
OUTSTANDING DECEMBER 31, 1996            991,000
                                       ---------
Granted                                  829,250       1.63 - 4.50
Exercised                                 16,667       3.03 - 4.37           3.77
Forfeited                                369,916
                                       ---------
OUTSTANDING DECEMBER 31, 1997          1,433,667
                                       ---------
Granted                                2,525,250       0.34 - 0.72
Exercised                                107,168       0.24 - 0.34           0.27
Forfeited                              2,345,491
                                       ---------
OUTSTANDING DECEMBER 31, 1998          1,506,258
                                       ---------

</TABLE>

     The weighted average fair value of options granted in 1998 was $0.15 per
share. The following table summarizes information about options outstanding at
December 31, 1998:

<TABLE>
<CAPTION>
                             OPTIONS OUTSTANDING                   OPTIONS EXERCISABLE
                  -----------------------------------------    --------------------------
                                    WEIGHTED
                    NUMBER           AVERAGE       WEIGHTED       NUMBER         WEIGHTED
   RANGE OF       OUTSTANDING       REMAINING      AVERAGE      OUTSTANDING      AVERAGE
   EXERCISE           AT           CONTRACTUAL     EXERCISE         AT           EXERCISE
    PRICES        DEC. 31,1998        LIFE          PRICE       DEC. 31,1998      PRICE
-------------     ------------     -----------     --------     ------------     --------
<S>               <C>              <C>             <C>          <C>              <C>
$0.24 - $1.00        973,717            6            $0.39          775,636        $0.39
$1.01 - $3.00        355,000            5            $1.87          105,000        $1.86
$3.01 - $4.33        177,541            4            $3.84          177,551        $3.84
                   ---------                                      ---------
                   1,506,258                                      1,058,187
                   ---------                                      ---------
                   ---------                                      ---------

</TABLE>

     As the fair market value of options granted did not exceed the exercise
price on the date of the grant, no compensation was recorded for these options
in accordance with APB No. 25.

     Had compensation cost been determined under the alternative fair value
accounting method provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation," the Company's net loss and net loss per share would
have increased to the pro forma amounts shown in the next table.

                                       37

<PAGE>

                        ACCENT SOFTWARE INTERNATIONAL LTD.
                                 AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                            U.S. dollars in thousands

<TABLE>
<CAPTION>
                            1998            1997            1996
                          ---------       ---------       ---------
<S>                       <C>             <C>             <C>
NET LOSS
  As Reported             $ (6,819)       $ (13,474)      $ (21,034)
  Pro Forma               $ (7,146)       $ (14,822)      $ (21,994)

NET LOSS PER SHARE
  As Reported             $  (0.25)       $   (1.08)      $   (2.12)
  Pro Forma               $  (0.26)       $   (1.13)      $   (2.22)

</TABLE>

     Under Statement 123, the fair value of each option grant is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1998 and 1997: (1)
expected life of the option for 2 years; (2) dividend yield of 0%; (3) expected
volatility of 156% and 141% respectively; and (4) risk-free interest rate of 6%.

     Because the Statement 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.

     As of December 31, 1998, 1,058,187 options were fully vested but have not
been exercised, and the remaining 448,081 will vest as follows:

<TABLE>
<CAPTION>
YEAR                VESTING
----                -------
<S>                 <C>
1999                222,082
2000                152,999
2001                 23,000

</TABLE>

     Of the total number of options outstanding at the end of 1998, 50,000 
had no set vesting date.

     In addition, the Company amended the CEO Share Option Plan on July 20, 
1998 to grant the chief executive officer a total of 1,086,000 options at 
exercise prices between $0.375 and $1.032 per share. These options shall vest 
at various times and upon various conditions set forth in the new CEO Share 
Option Plan. The granting of these options was conditioned upon the 
forfeiture of the 350,000 options granted to the chief executive officer 
pursuant to the prior CEO Share Option Plan. Because the new CEO Share Option 
Plan and the grants made thereunder are subject to the approval of the 
Company's shareholders, which approval has not been granted as of this date, 
neither the grant of 1,086,000 options nor the forfeiture of the 350,000 
options have been included in the numbers set forth in this note.

     The Company also granted 50,000 options to a newly appointed 
non-employee director on July 22, 1998, at an exercise price of $0.4375 per 
share, subject to approval of the Company's shareholders at the next regular 
annual meeting. It is the Company's intention that these options vest one 
year after their grant, but because they are subject to the approval of the 
Company's shareholders and which approval has not been granted as of this 
date, these 50,000 options have not been included in the numbers set forth 
above.

                                       38

<PAGE>

                        ACCENT SOFTWARE INTERNATIONAL LTD.
                                 AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                            U.S. dollars in thousands

RESERVED FOR FUTURE ISSUANCES

     The Company has reserved authorized but unissued ordinary shares for 
future issuance as follows:

<TABLE>
<CAPTION>
                                    NUMBER OF SHARES AT DECEMBER 31,
                                        1998               1997
                                    -------------      -------------
<S>                                    <C>             <C>
Warrants                               12,616,194      5,819,913
Founder's Share Option Plan                    --        225,125
Employee and Non-Employee               1,357,708      1,357,708
  Share Option Plans (1995)
CEO Share Option Plan (1997)              450,000        450,000
CEO Share Option Plan (1998)              636,000 *           -
Non-Plan Option Grants to
  Non-Employee Directors                       --         80,000
                                       ----------      ---------
                                       15,059,902      7,932,746
                                       ----------      ---------
                                       ----------      ---------

</TABLE>

*  Plus the 450,000 Options from the 1997 Plan. These 636,000 additional shares
   have been reserved by the Company conditional on the approval of the CEO
   Share Option Plan (1998) by the shareholders at the next annual meeting.
   Provided the Plan is approved, these shares and the shares previously
   reserved in connection with the CEO Share Option Plan (1997) will be
   reserved.

INCREASE IN AUTHORIZED SHARES

     At the annual and extraordinary shareholders' meeting held on May 28, 
1998, the shareholders approved amendments to the Articles of Association to 
increase the number of authorized Ordinary Shares from 45,000,000 to 
65,000,000 and to increase the number of shares reserved for issuance 
pursuant to the ESOP and NESOP from 1,125,000 to 1,875,000 and from 200,000 
to 300,000, respectively.

                                       39

<PAGE>

                        ACCENT SOFTWARE INTERNATIONAL LTD.
                                 AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                            U.S. dollars in thousands

NOTE 10  -  NET SALES

     Sales have declined due to concerns on the part of certain potential 
customers as to the Company's ability to remain a going concern. The Company 
has also reduced its spending on sales and marketing activities and this, in 
turn, has also contributed to lower sales. The Company is not reliant on any 
single customer for a significant portion of its revenue.

<TABLE>
<CAPTION>
                               FOR THE YEAR ENDED DECEMBER 31,
                               -------------------------------
                                 1998        1997        1996
                               -------     -------     -------
<S>                            <C>         <C>         <C>
SALES BY GEOGRAPHIC AREA
Domestic (Israel)              $   526     $   650     $ 1,098
North America                    1,326       1,197       2,167
Other                               97       1,278       1,688
                               -------     -------     -------
                               $ 1,949     $ 3,125     $ 4,953
                               -------     -------     -------
                               -------     -------     -------
SALES TO A SINGLE CUSTOMER
Customer "A"                       --          666 *       --
Customer "B"                       --          --        1,000
Customer "C"                       --          --          713

</TABLE>

*   Excess inventory liquidation

NOTE 11  -  COST OF SALES

     Cost of sales has declined both in step with the reductions in revenue 
and also as the Company has completed its move away from retail sales where 
production and inventory handling costs are higher. The Company also paid 
large fixed royalty expenses in 1997 and 1996 which did not recur in 1998.

<TABLE>
<CAPTION>
                               FOR THE YEAR ENDED DECEMBER 31,
                               -------------------------------
                                 1998        1997        1996
                               -------     -------     -------
<S>                            <C>         <C>         <C>
Direct Product Costs            $ 863      $ 1,631     $ 3,548
Amortization of
  Capitalized Software             --          555         719
Royalties                          68          693       2,286
Other                              66          183         214
                                ------     -------     -------
                                $ 997      $ 3,062     $ 6,767
                                ------     -------     -------

</TABLE>

                                       40

<PAGE>

                        ACCENT SOFTWARE INTERNATIONAL LTD.
                                 AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                            U.S. dollars in thousands

NOTE 12  -  PRODUCT DEVELOPMENT COSTS

     Following an intensive product development effort during 1997 and the 
first portion of 1998 to develop new products for the emerging markets, the 
Company gradually reduced its product development-related costs during the 
latter half of 1998. During the fourth quarter of 1998 the Company closed its 
Israeli-based product development department.

<TABLE>
<CAPTION>
                               FOR THE YEAR ENDED DECEMBER 31,
                               -------------------------------
                                 1998        1997        1996
                               -------     -------     -------
<S>                            <C>         <C>         <C>
Personnel-Related Costs        $ 1,920     $ 3,705     $ 2,740
Other Costs                        620       1,108         692
Software Development
  Costs Capitalized                --          --          (46)
                               -------     -------     -------
                               $ 2,540     $ 4,813     $ 3,386
                               -------     -------     -------

</TABLE>

NOTE 13  -  MARKETING EXPENSES

     Marketing expenses have declined by 85% since 1996 as the Company has 
moved away from the retail market. Working capital constraints have also led 
to reduce spending on sales and marketing activities. During the past two 
years, the Company has closed sales offices in England, California, Canada 
and Israel.

<TABLE>
<CAPTION>
                               FOR THE YEAR ENDED DECEMBER 31,
                               -------------------------------
                                 1998        1997        1996
                               -------     -------     -------
<S>                            <C>         <C>         <C>
Personnel-Related Costs        $   687     $   999     $ 1,681
Exhibition-Related Costs           182         329       1,797
Advertising and Public
  Relations                        275         395       4,386
Other                              260         454       1,378
                               -------     -------     -------
                               $ 1,404     $ 2,177     $ 9,242
                               -------     -------     -------

</TABLE>

                                       41

<PAGE>

                        ACCENT SOFTWARE INTERNATIONAL LTD.
                                 AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                            U.S. dollars in thousands

NOTE 14  -   GENERAL AND ADMINISTRATIVE EXPENSES

     As part of the Company's restructuring activity, various general and 
administrative sources have been out-sourced, consolidated with other 
activities or eliminated. Expenses for professional fees and expenses are 
expected to decline significantly in the future.

<TABLE>
<CAPTION>
                               FOR THE YEAR ENDED DECEMBER 31,
                               -------------------------------
                                 1998        1997        1996
                               -------     -------     -------
<S>                            <C>         <C>         <C>
Personnel-Related Costs        $   696     $   962     $ 2,153
Bad and Doubtful Accts.            218         209       1,736
Professional Fees and
  Expenses                         790         922         687
Public/Investor Relations          --          332         --
Other                              761         744       1,861
                               -------     -------     -------
                               $ 2,465     $ 3,169     $ 6,437
                               -------     -------     -------

</TABLE>

NOTE 15  -  TAXES ON INCOME

     TAX BENEFITS UNDER THE LAW FOR THE ENCOURAGEMENT OF CAPITAL 
     INVESTMENTS, 1959

     The Company has been granted "approved enterprise" status under the Law 
for the Encouragement of Capital Investments, 1959. The Company opted for 
benefits under the "alternative path" which entitles it to a ten year tax 
exemption commencing in the first year in which taxable income will be 
earned, subject to certain time restrictions. Entitlement to the benefits is 
dependent upon compliance with the conditions of the letter of approval. Due 
to reported losses, the benefit period has not yet commenced.

     CARRYFORWARD LOSSES

     The Company has carryforward losses for tax purposes and deductible 
temporary differences of approximately $50,000. There are no deferred tax 
balances as of December 31, 1998. As the Company is exempt from tax, the 
statutory tax rate for the purposes of the reconciliation of tax expense is 
zero.

     TAX ASSESSMENTS

     The Company has received final tax assessments through December 31, 
1991. According to Israeli Tax Law, tax assessments up to and including 
December 31, 1993 are considered final.

                                       42

<PAGE>

                        ACCENT SOFTWARE INTERNATIONAL LTD.
                                 AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                            U.S. dollars in thousands

NOTE 16  -  TRANSACTIONS WITH RELATED PARTIES

     The Company recorded revenue of $100 from the sale of a software license 
to a shareholder during 1998. There were no material sales to shareholders or 
other related parties during 1997 or 1996.

     The Company borrowed and issued a promissory note in 1997 to a 
shareholder in the amount of $44 as part of a short-term financing. The note 
was repaid in full with the proceeds from the November, 1997 financing 
transaction.

NOTE 17  -  IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     In June, 1998, the Financial Accounting Standards Board issued SFAS 133, 
Accounting for Derivative Instruments and Hedging Activities. The Statement 
establishes accounting and reporting standards requiring that every 
derivative instrument (including certain derivative instruments embedded in 
other contracts) be recorded in the balance sheet as either an asset or 
liability measured at its fair value. The Statement requires that changes in 
the derivative's fair value be recognized currently in earnings unless 
specific hedge accounting criteria are met. Special accounting for qualifying 
hedges allow a derivative's gains and losses to offset related results on the 
hedged item in the income statement and requires that a Company must formally 
documents, designate and assess the effectiveness of the transactions that 
receive hedge accounting.

     Statement 133 is effective for fiscal years commencing after June 15, 
1999. Statement 133 cannot be applied retroactively. Statement 133 must be 
applied to (a) derivative instruments and (b) certain derivative instruments 
embedded in hybrid contracts that were issued, acquired, or subsequently 
modified after December 31, 1997.

     The Company believes that the adoption of Statement 133 will not have a 
material effect on its financial statements.

                                       43

<PAGE>

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                       BALANCE AT                   DEDUCTIONS     BALANCE AT
                                       BEGINNING      CHARGE TO        AND            END
                                       OF PERIOD       EXPENSE      WRITE-OFFS     OF PERIOD
                                       ----------     ---------     ----------     ----------
<S>                                    <C>            <C>           <C>            <C>
YEAR-ENDED DECEMBER 31, 1998
Allowance for Doubtful Accounts         $   63          $  218       $   (89)        $  192
Allowance for Sales Returns                 --              27            --             27

YEAR-ENDED DECEMBER 31, 1997
Allowance for Doubtful Accounts          1,109             209        (1,255)            63
Allowance for Sales Returns              1,136              --        (1,136)            --

YEAR-ENDED DECEMBER 31, 1996
Allowance for Doubtful Accounts            596           1,728        (1,215)         1,109
Allowance for Sales Returns                401             735            --          1,136

</TABLE>

ITEM 9.  DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

         None.

                                       44

<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The information to be included under the caption "ELECTION OF DIRECTORS" 
in the Proxy Statement is incorporated herein by reference.

     The information to be included under the caption "SECTION 16(a) 
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in the Proxy Statement is 
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION.

     The information to be included under the caption "EXECUTIVE 
COMPENSATION" in the Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The information to be included under the caption "PRESENT BENEFICIAL 
OWNERSHIP OF ORDINARY SHARES" in the Proxy Statement is incorporated herein 
by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information to be included under the caption "EXECUTIVE 
COMPENSATION--Certain Relationships and Related Transactions" in the Proxy 
Statement is incorporated herein by reference.

                                       45

<PAGE>

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) (1)  Financial Statements.

           See Index to Financial Statements and Financial Statements which 
             appear under Item 8 herein.

    (2)  Financial Statement Schedules.

           See Index to Financial Statements and Financial Statement Schedule 
             which appear under Item 8 herein.

    (3)  Exhibits

<TABLE>
<S>                     <C>
         3.1(a)     -   Memorandum of Association of Registrant (filed as
                        Exhibit 3.1(a) to the Company's Registration Statement
                        No. 33-92754).*

         3.1(b)     -   Certificate of Name Change dated October 23, 1994 (filed
                        as Exhibit 3.1(b) to the Company's Registration
                        Statement No. 33-92754).*

         3.1(c)     -   Certificate of Name Change dated April 23, 1995 (filed
                        as Exhibit 3.1(c) to the Company's Registration
                        Statement No. 33-92754).*

         3.2        -   Articles of Association of Registrant (filed as Exhibit
                        3.2 to the Company's Registration Statement No.
                        33-92754).*

         4.1        -   Form of Ordinary Share Certificate (filed as Exhibit 4.1
                        to the Company's Registration Statement No. 33-92754).*

         4.2        -   Form of Underwriter's Warrant Agreement (filed as
                        Exhibit 4.4 to the Company's Registration Statement No.
                        33-92754).*

         4.3        -   Form of Bridge Financing Warrant dated as of May 22,
                        1995 between the Company and each of the Holders (filed
                        as Exhibit 4.5 to the Company's Registration Statement
                        No. 33-92754).*

         4.4        -   Form of Representative's Warrant Agreement, between the
                        Company and Sands Brothers & Co, Ltd., as representative
                        of the several underwriters (filed as Exhibit 4.4 to the
                        Company's Registration Statement No. 333-7637). *

         4.5        -   Form of IMR Warrant dated as of November 22, 1996
                        between the Company and IMR Fund, L.P. (filed as Exhibit
                        4.5 to the Company's Registration Statement No.
                        333-7637).*

         4.6        -   Form of Redeemable Warrant Agreement dated as of
                        November 22, 1996 between the Company, Sands Brothers &
                        Co., Ltd., as representative of the several
                        underwriters, and American Stock Transfer & Trust
                        Company (filed as Exhibit 4.6 to the Company's
                        Registration Statement No. 333-7637).*

</TABLE>

                                       46

<PAGE>

<TABLE>
<S>                     <C>
         4.7        -   Form of Redeemable Warrant Certificate (filed as Exhibit
                        4.6 to the Company's Registration Statement No.
                        333-7637).*

         4.8        -   Form of Unit Certificate (filed as Exhibit 4.6 to the
                        Company's Registration Statement No. 333-7637).*

         4.9        -   Securities Purchase Agreement dated August 5, 1997,
                        between CC Investments LDC and Accent Software
                        International Ltd., which includes the Convertible
                        Debenture, two Warrant Agreements and the Registration
                        Rights Agreement as exhibits thereto. (filed as Exhibit
                        4.1 to the Company's Registration Statement filed on
                        August 27, 1997, Reg. No. 333-34455).*

         4.10       -   Warrant Agreement with The Shemano Group, Inc. (filed as
                        Exhibit 4.6 to the Company's Registration Statement
                        filed on October 16, 1997, Reg. No. 333-380043).*

         4.11       -   Warrant Agreement with Equity Management Partners LLP
                        (filed as Exhibit 4.7 to the Company's Registration
                        Statement filed on October 16, 1997, Reg. No.
                        333-38043).*

         4.12       -   Warrant Agreement with Brad Gillingham (filed as Exhibit
                        4.8 to the Company's Registration Statement filed on
                        October 16, 1997, Reg. No. 333-38043).*

         4.13       -   Form of Warrant Agreement covering warrant agreements
                        with Robert J. Laikin, Michael Mosher and Manufacturers
                        Indemnity and Insurance Company of America (filed as
                        Exhibit 4.9 to the Company's Registration Statement
                        filed on October 16, 1997, Reg. No. 333-38043).*

         4.14      -    Form of Securities Purchase Agreement dated November 6,
                        1997, between Accent Software International Ltd., and CC
                        Investments LDC, Nelson Partners, Olympus Securities,
                        Ltd., Marshall Companies, Profinsa Investments, which
                        includes the Convertible Debenture, the Warrant
                        Agreement, Registration Rights Agreement and Certificate
                        of Designation as exhibits thereto. (filed as Exhibit
                        4.1 to the Company's Registration Statement filed on
                        November 6, 1997, Reg. No. 333-39697).*

         4.15           Warrant Agreement with The Shemano Group, Inc. (filed as
                        Exhibit 4.1 to the Company's Form S-3 filed on November
                        6, 1997, Reg. No. 333-39697).*

         10.1       -   Stock Purchase Agreement between IMR Investments V.O.F.
                        and Kivun Computers Company (1988), Ltd., Robert
                        Rosenschein, Jeffrey Rosenschein, Accent Software
                        Partners, Pal-Ron Marketing, Ltd., and KZ Overseas
                        Holding Corp., dated as of May 11, 1994, as amended July
                        20, 1995 (filed as Exhibit 10.1 to the Company's Form
                        10-K on April 1, 1996).*

         10.2       -   Shareholders' Agreement by and among Kivun Computers
                        Company (1988) Ltd., Robert Rosenschein, Dr. Jeffrey
                        Rosenschein, Pal-Ron Marketing, Ltd., Accent Software
                        Partners, KZ Overseas Holding Corp. and IMR Investments
                        V.O.F., dated May 11, 1994, as amended July 20, 1995
                        (filed as Exhibit 10.2 to the Company's Form 10-K on
                        April 1, 1996).*

</TABLE>

-------------------
* Incorporated by reference.

                                       47

<PAGE>

<TABLE>
<S>                     <C>
         10.3(a)    -   Option Agreement dated March 23, 1993 between the
                        Company and Robert S. Rosenschein (filed as Exhibit
                        10.3(a) to the Company's Registration Statement No.
                        33-92754).*

         10.3(b)    -   Schedule of other option agreements substantially
                        identical in all material respects to the option
                        agreement filed as Exhibit 10.3(a) (filed as Exhibit
                        10.3(b) to the Company's Registration Statement No.
                        33-92754).*

         10.4(a)    -   Warrant Acquisition Agreement dated January 1, 1995
                        between the Registrant and Robert S. Rosenschein (filed
                        as Exhibit 10.4(a) to the Company's Registration
                        Statement No. 33-92754).*

         10.4(b)    -   Schedule of other warrant acquisition agreements
                        substantially identical in all material respects to the
                        warrant agreement (filed as Exhibit 10.4(b) to the
                        Company's Registration Statement No. 33-92754).*

         10.5       -   Form of Registration Rights Agreements dated as of May
                        22, 1995 between the Company and each of the Holders
                        (filed as Exhibit 10.5 to the Company's Registration
                        Statement No. 33-92754).*

         10.6(a)    -   Employee Share Option Plan (1995) (filed as Exhibit
                        10.7(a) to the Company's Registration Statement No.
                        33-92754).*

         10.6(b)    -   Amended and Restated Employee Share Option Plan (1995)
                        (filed as Exhibit 4.2 to the Company's Registration
                        Statement No. 333-04285).*

         10.6(c)    -   Non-Employee Director Share Option Plan (1995) (filed as
                        Exhibit 10.7(b) to the Company's Registration Statement
                        No. 33-92754).*

         10.6(d)    -   Amended and Restated Non-Employee Share Option Plan
                        (1995) (filed as Exhibit 4.2 to the Company's
                        Registration Statement No. 333-07965).*

         10.6(e)    -   Amended and Restated Non-Employee Share Option Plan
                        (1995) (filed as Exhibit 10-6(e) to the Company's Form
                        10-K on March 31, 1998).*

         10.6(f)    -   CEO Share Option Plan (1997) (filed as Exhibit 10.6(f)
                        to the Company's Form 10-K on March 31, 1998).*

         10.6(g)    -   Non-Employee Share Option Plan (1998) (filed as Exhibit
                        B to the Company's Form 14-A on April 29, 1998)*

         10.7(a)    -   Employment Agreement between the Company and Robert S.
                        Rosenschein, dated July 26, 1995 (filed as Exhibit
                        10-7(a) to the Company's Form 10-K on April 1, 1996).*

         10.7(b)    -   Employment Agreement between the Company and Todd A.
                        Oseth, dated February 3, 1997 (filed as exhibit 10.7(b)
                        to the Company's Form 10-K on March 31, 1998).*

</TABLE>

-------------------
* Incorporated by reference.

                                       48

<PAGE>

<TABLE>
<S>                     <C>
         10.7(c)    -   Employment Agreement between the Company and Herbert
                        Zlotogorski, dated July 26, 1995 (filed as Exhibit
                        10-7(c) to the Company's Form 10-K on April 1, 1996).*

         10.7(d)    -   Employment Agreement between the Company and Jeffrey
                        Rosenschein, dated July 26, 1995 (filed as Exhibit
                        10-7(d) to the Company's Form 10-K on April 1, 1996).*

         10.8       -   Consulting Agreement, dated August 4, 1997, between the
                        Company and Investor Resource Services, Inc. (filed as
                        Exhibit 4.1 to the Company's Registration Statement
                        filed on October 16,1 997, Reg. No. 333-38043).*

         10.9       -   Amendment to the Consulting Agreement, dated January 30,
                        1998, between Company and Investor Resource Services,
                        Inc. (filed as Exhibit 10-9 to the Company's Form 10-K
                        on March 31, 1998).*

         10.10      -   Shareholders Agreement by and between Accent Software
                        International Limited and Gilad Zlotkin, dated February
                        21, 1996 (filed as Exhibit 10.10 to the Company's Form
                        10-K on April 1, 1996).*

         10.11      -   Debenture between the Company and Bank Leumi (filed as
                        Exhibit 10.11 to the Company's Registration Statement
                        No. 333-7637).*

         10.12      -   Agreement between the Company and The Bank for
                        Industrial Development (filed as Exhibit 4-1 to the
                        Company's Form S-3 on August 4, 1998)*

         21         -   Subsidiaries of Registrant (filed as Exhibit 21 to the
                        Company's Form 10-K filed on April 2, 1996).*

         27         -   Financial Data Schedule

</TABLE>

(4)      Executive Compensation Plans and Arrangements.

         Employee Share Option Plan (1995) (filed as Exhibit 10.7(a) to the
         Company's Registration Statement No. 33-92754).*

         Amended and Restated Employee Share Option Plan (1995) (filed as
         Exhibit 4.2 to the Company's Registration Statement No. 333-04285).*

         Non-Employee Director Share Option Plan (1995) (filed as Exhibit
         10.7(b) to the Company's Registration Statement No. 33-92754).*

         Amended and Restated Non-Employee Share Option Plan (1995) (filed as
         Exhibit 4.2 to the Company's Registration Statement No. 333-07965).*

         Amended and Restated Non-Employee Share Option Plan (1995). CEO Share
         Option Plan (1997)

         Employment Agreement between the Company and Todd A. Oseth, dated
         February 3, 1997.

-------------------
* Incorporated by reference.

                                       49

<PAGE>

(b)      Reports on Form 8-K.

             None.




-------------------
* Incorporated by reference.

                                       50

<PAGE>

                                   SIGNATURES

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


                                      ACCENT SOFTWARE INTERNATIONAL LTD.

March 26, 1999                        By: /s/ TODD A. OSETH           
                                         -------------------------------
                                         Todd A. Oseth

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

SIGNATURE                              TITLE                           DATE
---------                              ----                            ----
/s/ TODD A. OSETH                 President, Chief Executive      March 26, 1999
--------------------------        Officer (principal Executive 
Todd A. Oseth                     Officer), Director and acting 
                                  principal Financial Officer

/s/ ESTHER DYSON                  Director                        March 26, 1999
--------------------------
Esther Dyson


/s/ BOB KUTNICK                   Director                        March 26, 1999
--------------------------
Bob Kutnick


/s/ FRANCIS VANDERHOYDONCK        Interim Director                March 26, 1999
--------------------------
Francis Vanderhoydonck


/s/ CHANTAL MESTDAGH              Interim Director                March 26, 1999
--------------------------
Chantal Mestdagh

                                       51