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                          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, 1997
                                          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.
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               (Except Name of Registrant as Specified in its Charter)
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<S><C>
                   ISRAEL                                              N/A
-------------------------------------------------       -----------------------------------
(State or Other Jurisdiction of Incorporation or       (I.R.S. Employer Identification No.)
                 Organization)

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                               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 [  ].

Aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant on March 27, 1998 (computed by reference to the
last reported closing sale price of the Common Stock on the Nasdaq SmallCap
Market on such date):  $15,259,000.

On March 27, 1998, the registrant had outstanding 27,323,911 Ordinary Shares
(including 1,800,000 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 1998 Annual Meeting of Shareholders of the
Registrant are incorporated by reference into Part III of this Report.

<PAGE>

                                     FORM 10-K
                                  TABLE OF CONTENTS
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                                                                                 PAGE
                                       PART I                                    ----
<S>       <C>                                                                    <C>
Item 1.   Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Item 2.   Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3.   Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 4.   Submission of Matters to a Vote of Security Holders. . . . . . . . . . . 12

                                       PART II

Item 5.   Market for Registrant's Common Equity and Related Shareholder Matters. . 13
Item 6.   Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . 16
Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 8.   Consolidated Financial Statements and Supplementary Data . . . . . . . . 28
Item 9.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 50

                                       PART III

Item 10.  Directors and Executive Officers of the Registrant . . . . . . . . . . . 52
Item 11.  Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 52
Item 12.  Security Ownership of Certain Beneficial Owners and Management . . . . . 52
Item 13.  Certain Relationships and Related Transactions . . . . . . . . . . . . . 52

                                       PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . 53

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NOTE: FINANCIAL AND SHARE INFORMATION IS PRESENTED IN THOUSANDS EXCEPT PER SHARE
DATA OR WHERE OTHERWISE NOTED.

                                        PART I

ITEM 1.   BUSINESS.

OVERVIEW

     Accent is a language solutions company, founded in Jerusalem, Israel in
1988.  The Company designs, develops, markets and supports software products and
services for the rapidly emerging Language Information Technology ("LIT")
industry.  Accent's products address the growing need for software publishers,
corporations and content providers to produce software applications, associated
documentation, and application specific content in any natural language. Through
its majority-owned subsidiary, AgentSoft, Ltd. ("AgentSoft"), the Company also
develops intelligent agent-based software tools and products for process
automation over the Internet.

     Since its inception, Accent has invested substantial funds on research
and development, established a sales and marketing force, introduced new
products and established the customer support services and administrative
infrastructure necessary to conduct its operations.  As a result of the
start-up nature of its business and its efforts to expand into new markets,
Accent has incurred net losses each year since 1992, including losses of $13
million and $21 million for the years ended December 31, 1997 and 1996,
respectively.

     In response to the large loss incurred in 1996, Accent initiated a
restructuring and refocusing effort which included a substantial reduction in
the number of employees, large reductions in sales and marketing expenses and
the elimination or reduction of various other costs. A new Chief Executive
Officer and a new Chief Financial Officer joined the Company during the first
quarter of 1997.  In addition to furthering the restructuring efforts already
underway, the new management team shifted the Company's product mix and
customer orientation away from the retail market and in the direction of
original equipment manufacturers (OEMs) and business-to-business
transactions.  Also during the first quarter, 1997, the Company established a
new office in Colorado Springs, Colorado.  This U.S. location has become the
focal point of the Company's sales, marketing and customer support efforts as
well as certain general and administrative functions.

     Accent has used its LIT technology as a platform to launch several
multilingual development products addressing the needs of its target users.
By offering an expanded line of development tools, Accent seeks to secure a
position as the LIT solution of choice.  Accent released the first version of
the ACCENT GLOBAL DEVELOPMENT KIT ("GDK") in June of 1997.  The GDK is a
complete development and programming environment that enables the
globalization of any Windows software application. Capitalizing on the
experience gained from developing and marketing GDK, Accent released LOC@LE
during the first quarter of 1998. LOC@LE answers the immediate need of
software publishers to localize their software into virtually any natural
language. Later in 1998, Accent will release L@PORT, another LIT product
which answers the need of software users who need to translate and localize
the multimedia content they produce.

     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

                                          1
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the 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, in some cases have affected and in the future could
affect the Company's financial and operating results and, in turn, the return
that may be achieved on investments in the Company.  The risk factors listed
below are also discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" which appears later in this
10-K.

     GOING CONCERN.  From its inception through December 31, 1997, Accent has
accumulated deficits in excess of $46 million, including net losses exceeding
$13 million in 1997 and $21 million in 1996. Although further restructuring
and cost reduction initiatives will be implemented in April of 1998, the
Company's 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 a substantial 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.

     REVENUE.  The Company's products, particularly GDK, WORDPOINT, and
Accent's newest product, Loc@le, are receiving a favorable reception in the
marketplace. Revenue during the latter half of 1997 and continuing into the
first quarter of 1998, however, has fallen 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. The Company is continuing to work on significant new sales
opportunities which it had expected to conclude during the fourth quarter of
1997, and is also continuing to place significant emphasis on the development
of new and enhanced products which can be introduced in the near term. There
can be no assurance that the concerns of potential customers can be
alleviated and that future revenue will meet management's expectations.  If
future revenue does not increase from its 1997 level, this will have a
material adverse impact on the Company and may cause the Company to cease
operations.

     LIQUIDITY/WORKING CAPITAL.  The Company's liquidity was essentially
exhausted during both the third and fourth quarters of 1997 and the Company
was required to raise funds through the issuance of $7,750 in convertible
securities.  Those funds are also now essentially exhausted and the Company
is dependent on new sources of revenue, further cost reduction initiatives,
an infusion of additional external capital, or some combination of these
actions, if it is to continue to have adequate working capital to meet its
operating requirements.  There can be no assurance that the Company will be
successful in either sufficiently reducing its working capital requirements
or generating 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.

     LONG-TERM DEBT AND OTHER LIABILITIES.  As of December 31, 1997, the
Company had $2,730 in long-term bank loans outstanding, including current
maturities thereon, and $2,685 in other liabilities and accrued expenses. The
Company has entered into negotiations with its major lender and other
creditors to restructure its long term debt and other liabilities, possibly
by issuing equity in exchange for

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all or a portion of the liabilities, obtaining discounts, deferring or
stretching payment terms, or some combination of these alternatives. There
can be no assurance that the Company will be successful in its efforts to
restructure its outstanding debts and any failure on the part of the Company
to do so will have a material adverse impact on the Company.

     RESTRUCTURING.  As a result of its difficulties in meeting its revenue
projections and the need to reduce its working capital requirements, the
Company has developed a restructuring plan which will be implemented during
April, 1998. The initiatives include significant personnel reductions, the
consolidation of facilities and a freeze on capital spending. The
restructuring is expected to reduce the Company's monthly cash expenses by
more than 50%.  The restructuring will also trigger a requirement to pay
various employee obligations, which the Company may be unable to pay when
due. There can be no assurance that former employees will defer potential
legal remedies while the Company completes its restructuring efforts,
collects amounts due from customers and pursues new sales opportunities. If
former employees seek and are granted legal remedies against the Company,
this will have a material adverse impact on the Company and may cause the
Company to cease operations.

     CONTINUED LISTING ON THE NASDAQ SMALLCAP MARKET.  The Company's Ordinary
Shares and Units are listed on the Nasdaq SmallCap Market. The Company must
meet certain requirements in order to maintain its listing on the SmallCap
Market and as of December 31, 1997, the Company was not in compliance with
all of the listing requirements in that its share price was below the Nasdaq
minimum requirement of $1.00 per share. To date, the Company has not been
notified by The Nasdaq Stock Market that it is non-compliant and the Company
is not aware of any action currently underway that may lead to its delisting
from the SmallCap market.  The Company's total capital and surplus as of
December 31, 1997, was $1,023, which was above the minimum Nasdaq requirement
of $1,000.  The listing requirements changed effective February 23, 1998,
however, and management believes, based upon the recent trading prices of its
Ordinary Shares and anticipated first quarter losses, that the Company will
not be in compliance with the new requirements unless either new equity is
obtained in the near term or the Company's market value increases
substantially above its current level. There can be no assurance that the
Company will be successful in obtaining new equity or that its market value
will rise sufficiently to meet the Nasdaq listing requirement and, therefore,
the Company's shares may be delisted from the Nasdaq SmallCap Market.

     STRATEGIC ALTERNATIVES, INCLUDING DIVESTITURES AND POSSIBLE SALE OR
JOINT VENTURE.  The Company's Board of Directors has been pursuing a variety
of alternatives to stabilize and, if possible, enhance the Company's
financial position and continuing viability. In February 1998, the Company
retained a mergers, acquisitions and strategic planning firm specializing in
the software industry to seek a potential buyer for the Company's
majority-owned subsidiary, AgentSoft.  Divestiture of AgentSoft could provide
working capital for Accent's continuing operations.  The firm will also be
utilized by Accent to pursue other strategic alternatives. In addition,
management has had various discussions with potential strategic partners and
investors as well as other groups who are possible sources of financing or
who may offer business development opportunities.  There can be no assurance
that the Company will be successful in its efforts to stabilize and enhance
the Company's financial position through divestitures, sale, joint venture or
other strategic alternatives 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.

INDUSTRY BACKGROUND

     The Language Information Technology (LIT) 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,

                                          3
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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 ACCENT STRATEGY

     Accent's business objective is to be the premier LIT solutions company.
The Company has developed a business strategy to achieve this objective that
(i) leverages its experience in multilingual software development; (ii) adds
new products to its technology solutions; and (iii)  develops strategic
relationships with leading industry participants. There can be no assurance
that the Company's strategy will be successful in helping it achieve its
business objective.

     -    LEVERAGE ITS EXPERIENCE IN MULTILINGUAL SOFTWARE DEVELOPMENT.
Accent believes it is positioned to capitalize on the opportunities in
Language Information Technologies and specifically in software application
development tools due to its experience in multilingual software development.
Since it first began developing multilingual software in 1988, the Company
has acquired significant experience in designing software to meet the
requirements of multilingual users. The Company has leveraged its experience
to develop the GLOBAL DEVELOPMENT KIT, a set of standards and tools that
enable the globalization of any Windows software application.

     -    ADD NEW PRODUCTS TO ITS TECHNOLOGY SOLUTIONS. Capitalizing on the
knowledge it gained through the development and marketing of its various
multilingual products, particularly GDK, Accent has recently extended its
product line with LOC@LE, a set of tools for localizing software
applications, and later this year will introduce L@PORT, which will assist in
the translation of multimedia content

     -    DEVELOP STRATEGIC RELATIONSHIPS WITH LEADING INDUSTRY PARTICIPANTS.
Accent has entered and may continue to enter into strategic alliances with
leading industry participants. Accent believes such alliances, which include
joint marketing and sales and joint product and technology development
efforts, will become increasingly important as the LIT market  continues to
grow.

THE ACCENT LANGUAGE INFORMATION TECHNOLOGY (LIT) SOLUTION

     DEVELOPMENT TOOLS FOR GLOBALIZATION AND LOCALIZATION. GDK, introduced in
mid-1997, allows software companies to rapidly globalize software products
for different languages.  As companies start to sell products around the
world, they need to adapt their products for the local language of each
specific market.The GDK is 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 API included with the GDK 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 next generation of 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).

     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

                                          4
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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 on Earth.

     MULTILINGUAL TEXT PRODUCTS.  The Company's most comprehensive
multilingual word processing product, ACCENT PROFESSIONAL, provides word
processing functionality and language utilities for a broad range of
languages, including the five major European languages (English, French,
German, Italian and Spanish) and Russian.  ACCENT SPECIAL EDITION is targeted
to users who need advanced word processing functionality and language
utilities primarily for the five major European languages plus Portuguese.
ACCENT EXPRESS provides basic multilingual word processing functionality, and
is positioned as a relatively low priced, mass market software product.
Integrating the Accent multilingual word processor with machine translation
licensed from Globalink, Inc., the ACCENT DUO product line (English-French,
English-German, English-Italian and English-Spanish) enables users to produce
draft quality translations and to edit the resulting translations quickly,
inexpensively and easily.  DAGESH, the Company's first multilingual word
processing product and the predecessor of the Accent product line, is
bi-directional and allows users to enter text in Hebrew, Arabic, English,
Russian and selected European languages.

     WORDPOINT, an interactive, word-for-word translation program which
utilizes Accent's patent pending Screen-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
currently available in French, German, Spanish, Italian, Dutch and Hebrew
versions, and additional languages, including Japanese and Portuguese, will
be available later in 1998.

SALES AND MARKETING

          The Company's principal target market segments are software
publishers, software content providers and software localizers/translators.
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 which require little or no marketing,
manufacturing, shipping or handling costs.

     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

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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 1997, 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 and
attend appropriate trade shows.  These highly focused efforts are designed to
rapidly get products into the hands of potential customers.

 PRODUCT DEVELOPMENT - ACCENT

     Accent's Product Development organization includes engineering, quality
assurance, documentation and project management. Development of the Company's
first LIT product, the GDK, generated a vast amount of market knowledge and
has led to the development of two new products, LOC@LE and L@PART.

     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, including, during the past
twelve months, Macmillan Digital Publishing and Corel Corporation.

     The Company maintained relatively constant staffing and spending levels
within the Product Development organization throughout 1997 and largely
omitted this organization from the major restructuring activities occurring
elsewhere in Accent so that the development of new products such as GDK,
WORDPOINT, LOC@LE and L@PART. could proceed on schedule. With these
development efforts largely complete, staffing in the Product Development
organization was reduced  in late March, 1998, from 37 people to 10.

PRODUCT DEVELOPMENT - AGENTSOFT

     The Company's majority-owned subsidiary, AgentSoft, was established
during the first quarter of 1996 to develop intelligent agent-based software
tools and products for process automation over the Internet.

     Staffing levels within AgentSoft grew gradually through 1996 and reached
a peak of 22 employees, predominately software engineers, during the first
quarter of 1997.  AgentSoft staffing at December 31, 1997, consisted of 20
employees, including 19 engineers.  The subsidiary relies on the parent
company for most of its general and administrative support.

     AgentSoft introduced its first product, LiveAgentPro, and recorded its
initial sales during the third quarter of 1997.

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     The intelligent agent industry consists of a very large number of small,
often "start-up" type businesses.  AgentSoft's primary competitors include
webMethods, with its agent-building tools, agent applications and agent
consulting work, OnDisplay, with its CenterStage agent building tools and
consulting work, AlphaConnect, with its StockVUE and BusinessVUE agent
applications, Autonomy and the Jango subsidiary of Excite.

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 to provide robust development tools for single-source,
single-binary globalization of software products with the GDK. Because this
is a market still in its infancy, there are few competitors to the GDK. Alis'
Bantam and Reword's Studio are the only globalization competitors of which
the Company is aware.

     With the release of LOC@LE, the Company is entering 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 standalone products, Accent believes it will establish 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.

     In the single language word processing market in Israel, the Company's
DAGESH product line competes directly with the Hebrew version of Word for
Windows and with Q-Text for Windows. Additionally, 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 the multilingual aspects of its products give it
significant differentiation and expects its existing technological base to
give it an advantage over competitors who intend to enter this market. There
can be no assurance, however, that Accent's products will retain either their
differentiation or their competitive lead for any specific period of time.

                                          7
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PRODUCT SUPPORT AND MAINTENANCE

     Accent's Product Support group provides the non-technical services
needed to deliver and support the Company's products in the marketplace.
These services include translation, technical support and fulfillment
(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 1997, the Accent product line was manufactured (printing, CD-ROM
duplication and packaging) primarily by Sonopress, Ltd. in Dublin, Ireland.
Accent products sold in Israel, including WORDPOINT, DAGESH and ACCENT
EXPRESS, continue to be manufactured by various manufacturers in Israel to
high quality standards set by the Company.  The Company also maintains
inventory at Sonopress as well as in leased facilities in Jerusalem and
Colorado Springs.  During 1997, all three locations fulfilled product orders.

   As Accent shifted the focus of its product marketing and sales efforts
from the retail market, which involves the production of shrink-wrapped
software boxes, to the corporate and OEM markets, where products generally
consist of a single master CD-ROM for replication and use by the licensee,
the Company substantially reduced the amount of manufacturing and fulfillment
done through SonoPress. Retail orders received in 1997 were generally
fulfilled from the Company's existing inventory, obviating the need for
additional manufacturing. This trend is expected to continue into 1998.

   Products for the corporate and OEM markets are produced either directly by
the Company or by competent CD duplicators in Israel and the United States.
It is anticipated that internal and contract resources will continue to be
sufficient to meet the Company's manufacturing and fulfillment needs. To the
extent that additional manufacturing capacity is needed for new orders during
1998, the Company believes that it has located suitable manufacturing
partners.

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 resulted in the filing of one patent application in
1997 and which it believes will result in the filing of one or more
applications for patent protection during 1998. AgentSoft currently has one
patent application pending and anticipates filing additional applications as
appropriate. There can be no assurance that any patent application filed by
the Company for technology or products derived therefrom will be granted.

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   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, with the
exception of its HebCorel product sold in Israel which contains a mechanism
to prohibit unauthorized use.

   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 Kingdom,  France,           United States, Italy,
                                 Germany, Mexico                    Spain, Switzerland

 Dagesh                          Israel

 AgentSoft                       France, Israel                     United States, United
                                                                    Kingdom, Germany

 LiveAgent                       Israel                             United States

 Global Development Kit                                             United States

 Global Foundation Class                                            United States

 WordPoint                                                          United States

 Loc@le                                                             United States

 WebTamer                        United Kingdom, France             United States, Canada,
                                                                    Germany, Italy
-----------------------------------------------------------------------------------------


</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

                                          9
<PAGE>

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

   The Company had 88 full time employees at December 31, 1997, including 60
at Accent Software in Jerusalem, 8 at Accent Worldwide in the United States
and 20 at AgentSoft. The restructuring which will be implemented in April
1998 is expected to reduce these figures substantially.

   Certain provisions of the collective bargaining agreement between the
Histadrut (the Israeli Federation of Labor) and the Coordination Bureau of
Economic Organizations (including the Industrialists Association) are
applicable to the Company's employees who are based in Israel.  These
provisions concern principally the length of the work day, minimum daily
wages for professional workers, contributions to a pension fund, insurance
for work-related accidents, procedures for dismissing employees,
determination of severance pay and other conditions of employment.  The
Company generally provides its employees with benefits and working conditions
beyond the required minimums. Cost of living adjustments of Israeli
employees' wages are determined on a nationwide basis and are legally
binding.  Under the current inflation rates, these adjustments compensate
employees for approximately 40% of the change in the cost of living, with
certain lag factors in implementation.

   Employers and employees in Israel are required to pay predetermined
amounts to the National Insurance Institute, which is similar to the United
States Social Security Administration.  The payments to the National
Insurance Institute amount to approximately 13% of wages, of which
approximately two-thirds is contributed by the employer with the balance
contributed by the employee.

   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 finances this
obligation through contributions to a fund known as "Managers' Insurance."
The fund provides a combination of savings plans, insurance and severance pay
benefits to the employee, giving the employee a lump sum payment upon
retirement and a severance payment, if legally entitled, upon termination of
employment. Pursuant to the terms of the collective bargaining agreement
referred to above, each employee is required to participate in the plan, and
to contribute an amount equal to 5% of his or her salary. The employer
contributes between 13.3% and 15.8% of the employee's salary.

                                          10
<PAGE>

ITEM 2.     PROPERTIES.

    Accent occupies approximately 14,000 square feet of leased office and
warehouse space in an industrial area of Jerusalem.  The Company took
possession of part of its current office space on July 1, 1993 pursuant to
short-term lease agreements.  The Company believes the size of this facility
exceeds its current needs and has given notice that it intends to vacate all
or a portion of this space as its current lease agreements expire later in
1998. If the Company elects to vacate all of its currently leased space, it
believes it will be able to lease other, more suitable space at reasonable
rates.

     Accent Worldwide, Inc., 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 1,000 square feet of leased warehouse and storage space, also
in Colorado Springs, pursuant to a one year lease agreement. The Company
believes this space will be sufficient for its intended utilization at least
through the end of the lease period.

     AgentSoft, Ltd. currently occupies approximately 2,150 square feet of
leased office space in a building several hundred yards from Accent in
Jerusalem. Accent Software's and AgentSoft's computer systems are connected
by an infrared connection. AgentSoft's lease expires in June 1998, and the
Company has provided notice that it does not intend to renew the lease. The
Company is confident that it will be able to lease other, more suitable space
at reasonable rates.

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 has 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 as
compensation for Mainframe's breach of contract. This action continues to be
prosecuted.

     On September 9, 1997, AgentSoft, Inc., was served with a complaint filed
by its former president and vice president, both of whom are also AgentSoft
shareholders and option holders. The complaint named as defendants AgentSoft,
Accent and certain officers and directors of AgentSoft  as defendants in
Israeli Labor Court. The complaint alleges wrongful termination of the
plaintiffs' employment

                                          11
<PAGE>

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). 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 of which may mature into litigation. Although the Company is
aware of claims asserted against it, the Company is not aware, except as
discussed in the preceding paragraph, of any claims which have a reasonable
possibility of adverse outcome in a material amount. However, unforeseen
circumstances may 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.

(SHARES STATED IN ACTUAL NUMBER, NOT IN THOUSANDS)

   On October 17, 1997, the Company held an 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 5,719,660 shares in favor, 153,246 against and 140,792
abstaining to authorize the amendment of the Articles of Association to
increase the capitalization of the Company by 10,000,000 new Preferred Shares
on terms set forth in the proxy statement. The shareholders further voted
5,799,628 shares in favor, 185,142 against and 146,064 abstaining to
authorize the amendment of the Articles of Association to increase the
capitalization of the Company by 15,000,000 new Ordinary Shares on terms set
forth in the proxy statement.

                                          12
<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 Nasdaq
SmallCap Market under the symbols "ACNTF" and "ACNUF," respectively.  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
Nasdaq SmallCap Market.

<TABLE>
<CAPTION>

                                   ORDINARY SHARES             UNITS
                                --------------------    --------------------
                                  LOW         HIGH        LOW         HIGH
                                --------    --------    --------    --------
<S>                             <C>         <C>         <C>         <C>
            1996
First Quarter                   $  10.50    $  28.67
Second Quarter                  $  24.67    $  34.50
Third Quarter                   $  11.13    $  32.25
Fourth Quarter                  $   7.25    $  14.50    $   6.75    $   9.50

            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

            1998
First Quarter (to March 27)     $   0.41    $   1.16    $   0.38    $   1.25

</TABLE>

     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 27, 1998, the last
reported sales price of the Ordinary Shares and Units on The Nasdaq SmallCap
Market was $0.66 per Ordinary Share and $0.69 per Unit, respectively.

   The Company must meet certain requirements in order to maintain its
listing on the SmallCap Market and as of December 31, 1997, the Company was
not in compliance with all of the listing requirements in that its share
price was below the Nasdaq minimum requirement of $1.00 per share. To date,
the Company has not been notified by The Nasdaq Stock Market that it is
non-compliant and the Company is not aware of any action currently underway
that may lead to its delisting from the SmallCap market.  The Company's total
capital and surplus as of December 31, 1997, was $1,023 which was above the
minimum Nasdaq requirement of $1,000.  The listing requirements changed
effective February 23, 1998, however, and management believes, based upon the
recent trading prices of its Ordinary Shares and anticipated first quarter
losses, that the Company will not be in compliance with the new requirements
unless either new equity is obtained in the near term or the Company's market
value increases substantially above its current level.  There can be no
assurance that the Company will be successful in obtaining new equity or that
its market value will rise sufficiently to meet the Nasdaq listing
requirement and, therefore, the Company's

                                          13
<PAGE>

shares may be delisted from the Nasdaq SmallCap Market.

     (b)  HOLDERS

     As of March 27, 1998 there were approximately 120 record holders of the
Ordinary Shares (including 3 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.

     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

                                          14
<PAGE>

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 Nasdaq or 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.

          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.

                                          15
<PAGE>

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."

<TABLE>
<CAPTION>

                                                           FOR THE YEAR ENDED DECEMBER 31,
                                            -------------------------------------------------------------
                                             1997         1996         1995         1994         1993
                                           ---------    ---------    ---------    ---------    ---------
<S>                                        <C>          <C>          <C>          <C>          <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net Sales                                  $   3,125    $   4,953    $   5,135    $   1,851    $   1,220
                                           ---------    ---------    ---------    ---------    ---------
Cost of Sales                              $   3,062    $   6,767    $   2,972    $   1,155    $     566
Product Development Costs                      4,813        3,386        1,097          507          363
Marketing Expenses                             2,177        9,242        5,955        2,115          673
General & Administrative Costs                 3,169        6,437        2,796        1,071          360
                                           ---------    ---------    ---------    ---------    ---------
  Total Operating Expenses                 $  13,221    $  25,832    $  12,820    $   4,848    $   1,962
                                           ---------    ---------    ---------    ---------    ---------
Operating Loss                             $ (10,096)   $ (20,879)   $  (7,685)   $  (2,997)   $    (742)
Other Income (Expense), net                   (3,378)        (155)        (163)        (137)           7
                                           ---------    ---------    ---------    ---------    ---------
Net Loss                                   $ (13,474)   $ (21,034)   $  (7,848)   $  (3,134)   $    (735)
                                           ---------    ---------    ---------    ---------    ---------
                                           ---------    ---------    ---------    ---------    ---------
Net Loss per Share                         $   (1.08)   $   (2.12)   $   (1.22)   $   (0.68)   $   (0.39)
                                           ---------    ---------    ---------    ---------    ---------
                                           ---------    ---------    ---------    ---------    ---------

Weighted Average Number of
  Shares Outstanding                          12,495        9,926        6,421        4,619        1,893
                                           ---------    ---------    ---------    ---------    ---------
                                           ---------    ---------    ---------    ---------    ---------

</TABLE>



<TABLE>
<CAPTION>

                                                                 AS OF DECEMBER 31,
                                            -------------------------------------------------------------
                                             1997         1996         1995         1994         1993
                                           ---------    ---------    ---------    ---------    ---------
<S>                                        <C>          <C>          <C>          <C>          <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and Cash Equivalents                  $   2,499        8,723        9,633           78            -
Working Capital (Deficit)                  $     109        3,628       10,329       (1,009)      (1,433)
Total Assets                               $   6,438       13,789       17,650        2,503        1,050
Total Debt                                 $   5,415        4,062        2,358        1,680        1,034
Accumulated Deficit                        $ (46,721)     (33,247)     (12,213)      (4,365)      (1,231)
Shareholders' Equity                       $   1,023        2,974       10,133       (1,064)        (932)

</TABLE>

                                          16
<PAGE>

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

OVERVIEW

  Accent Software International Ltd., is a language solutions company which
designs, develops, markets and supports software products and services for the
rapidly emerging Language Information Technology (LIT) industry. Through its
majority-owned subsidiary, AgentSoft, the Company also develops Internet
automation products. 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.  During 1997, Accent released its Global Development Kit (GDK), a
complete development and programming environment that enables the
globalization of any Windows software application, and WordPoint, which
allows users to obtain instantaneous translations of words appearing in
virtually any Windows application by simply pointing the mouse at the word in
question.

   From its inception through December 31, 1997, Accent has accumulated
deficits in excess of $46 million, including net losses exceeding $13 million
in 1997 and $21 million in 1996. Although further restructuring and cost
reduction initiatives will be implemented in April of 1998, the Company's
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 a substantial 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.

  In response to its significant losses, Accent initiated a restructuring and
refocusing effort during the latter part of 1996 that included a substantial
reduction in the number of employees, large reductions in sales and marketing
expenses and the elimination or reduction of various other costs. New
management, which joined the Company early in 1997, expanded the restructuring
efforts into 1998 and also shifted the Company's product mix and customer
orientation away from the retail market and in the direction of original
equipment manufacturers (OEMs) and business-to-business transactions. The
Company established a new office in Colorado Springs, Colorado, during the
first quarter of 1997, which has become the focal point of the Company's
sales, marketing and customer support efforts as well as certain general and
administrative functions.

  The restructuring efforts have reduced the Company's overall staffing level
from approximately 170 employees at its peak in 1996, to 88 at December 31,
1997.  Additional restructuring actions to be taken in April of 1998 are
expected to further reduce the Company's staffing by a significant number. The
restructuring will also trigger a requirement to pay various employee
obligations, which the Company may be unable to pay when due. There can be no
assurance that former employees will defer potential legal remedies while the
Company completes its restructuring efforts, collects amounts due from
customers and pursues new sales opportunities. If former employees seek and
are granted legal remedies against the Company, this will have a material
adverse impact on the Company and may cause the Company to cease operations.

  The Company's products, particularly GDK, WORDPOINT, and Accent's newest
product, Loc@le, are receiving a favorable reception in the marketplace.
Revenue during the latter half of 1997 and continuing into the first quarter
of 1998, however, has fallen 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. The Company is continuing to work on significant new sales
opportunities which it had expected to conclude during the fourth quarter of
1997, and is also

                                          17
<PAGE>

continuing to place significant emphasis on the development of new and
enhanced products which can be introduced in the near term. There can be no
assurance that the concerns of potential customers can be alleviated and that
future revenue will meet management's expectations.  If future revenue does
not increase from its 1997 level, this will have a material adverse impact on
the Company and may cause the Company to cease operations.

  Accent's operating results fluctuate significantly from period to period as
a result of a variety of factors, including the timing of new product
introductions and product enhancements by the Company and its competitors,
the length of the Company's sales cycle to key customers, purchasing patterns
of consumers, technological factors, variations in sales by distribution
channel and competitive pricing. In addition, like other software companies,
the Company's sales may be subject to seasonality, with a larger portion of
sales and sales growth generally occurring in the spring and the last three
months of each calendar year.

  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. In addition, because of the rapidly evolving
market for software products, it is difficult to assess or predict with any
assurance the growth rate, if any, and the size of the market for the
Company's products. Accordingly, there can be no assurance that a market for
the Company's products will develop or that the Company will generate
increased revenues from such products.

  The Company's liquidity was essentially exhausted during both the third and
fourth quarters of 1997 and the Company was required to raise funds through
the issuance of $7,750 in convertible securities. Those funds are also now
essentially exhausted and the Company is dependent on new sources of revenue,
further cost reduction initiatives, an infusion of additional external
capital, or some combination of these actions, if it is to continue to have
adequate working capital to meet its operating requirements.  There can be no
assurance that the Company will be successful in either sufficiently reducing
its working capital requirements or generating 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.

  As of December 31, 1997, the Company had $2,730 in long-term bank loans
outstanding, including current maturities thereon, and $2,685 in other
liabilities and accrued expenses. The Company has entered into negotiations
with its major lender and other creditors to restructure its long term debt
and other liabilities, possibly by issuing equity in exchange for all or a
portion of the liabilities, obtaining discounts, deferring or stretching
payment terms, or some combination of these alternatives. There can be no
assurance that the Company will be successful in its efforts to restructure
its outstanding debts and any failure on the part of the Company to do so
will have a material adverse impact on the Company.

  The Company's Board of Directors has been pursuing a variety of
alternatives to stabilize and, if possible, enhance the Company's financial
position and continuing viability. In February 1998, the Company retained a
mergers, acquisitions and strategic planning firm specializing in the
software industry to seek a potential buyer for the Company's majority-owned
subsidiary, AgentSoft.  Divestiture of AgentSoft could provide working
capital for Accent's continuing operations.  The firm will also be utilized
by Accent to pursue other strategic alternatives. In addition, management has
had various

                                          18
<PAGE>

discussions with potential strategic partners and investors as well as other
groups who are possible sources of financing or who may offer business
development opportunities.  There can be no assurance that the Company will
be successful in its efforts to stabilize and enhance the Company's financial
position through divestitures, sale, joint venture or other strategic
alternative 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.

  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 five months.

  Consistent with industry practices, the Company may accept product returns
or provide other credits in the event that a distributor or retailer holds
excess inventory of the Company's products. The Company's sales are made on
credit terms which vary significantly depending on the nature of the sale and
size of the customer. The Company believes it has established sufficient
reserves to accurately reflect the amount or likelihood of product returns or
credits and uncollectable receivables. However, there can be no assurance
that actual returns or 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.

  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 are made outside
of Israel in, or linked to, the dollar, as are a significant portion of the
Company's expenses. Transactions and balances originally denominated in
dollars are presented at their original amounts. Transactions and balances in
other currencies (including 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.

                                          19
<PAGE>

RESULTS OF OPERATIONS

  The following table sets forth for the periods indicated the percentage of
sales represented by certain items reflected in the Company's Consolidated
Statements of Operations:

<TABLE>
<CAPTION>

                                                      FOR THE YEAR ENDED DECEMBER 31,
                                                 ----------------------------------------
                                                     1997            1996         1995
                                                 ----------        -------      ---------
<S>                                              <C>               <C>          <C>
  Net Sales                                         100.0%           100.0%        100.0%
                                                 ----------        -------      ---------
  Cost of Sales                                      97.9%           136.6%         57.9%
  Product Development Costs                         154.0%            68.4%         21.4%
  Marketing Expenses                                 69.6%           186.6%        116.0%
  General & Administrative Costs                    101.4%           130.0%         54.4%
                                                 ----------        -------      ---------
  Total Operating Costs and Expenses                422.9%           521.6%        249.7%
                                                 ----------        -------      ---------

  Operating Loss                                   (322.9)%         (421.6)%      (149.7)%
                                                 ----------        -------      ---------
                                                 ----------        -------      ---------

</TABLE>

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

NET SALES.   Net sales decreased approximately 37% to $3,125 in 1997 from
$4,953 in 1996.  As discussed earlier in the "Business Overview" section of
this 10-K, the Company shifted its sales and marketing emphasis away from the
retail market and towards the OEM and business-to-business market during
1997. The OEM and business-to-business market is typically characterized by
fewer but larger individual sales and, based on the Company's experience
during the past year, the sales cycle is considerably longer. 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.

  Consistent with its new focus on the OEM and business-to-business market
during the latter part of 1996 and throughout 1997, the Company greatly
curtailed 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.  As discussed in Note 2 to the Consolidated Financial
Statements, 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.

                                          20
<PAGE>

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.

  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 20 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, 1996, 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

                                          21
<PAGE>

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.  A provision for bad and
doubtful accounts of $1,736 was established in 1997.

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.

YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995

NET SALES.  Net sales decreased to $4,953 in 1996 from $5,135 in 1995.  The
decrease was primarily due to significant returns experienced by the Company
in the second half of 1996.  The Company's allowance for sales returns
increased to $1,136 at December 31, 1996 from $401 at December 31, 1995.

COST OF SALES.  Cost of sales increased to $6,767 in 1996 from $2,972 in
1995. This increase resulted primarily from two factors.  First, royalty
expenses increased to $2,286 in 1996 from $694 in 1995, attributable
primarily to fixed royalty agreements which were entered into due to an
expected significant increase in sales. Second, due to lower than expected
sales, the Company increased its inventory obsolescence reserve by $1,725 in
1996.

PRODUCT DEVELOPMENT COSTS.  Product development costs, net increased to
$3,386 in 1996 from $1,097 in 1995.  This increase was primarily due to an
increase in the number of product development employees to 70 at December 31,
1996 from 42 at December 31, 1995.  In addition, only $46 of salary costs
were capitalized in 1996 related to software development as compared to $700
in 1995.

MARKETING EXPENSES.  Marketing expenses increased to $9,242 in 1996 from
$5,955 in 1995.  This

                                          22
<PAGE>

increase was attributable to significant increases in exhibition, advertising
and public relations expenditures.  In addition, in 1996 the Company
increased its sales and marketing staff both in Israel and in the United
States.   The sales and marketing staff peaked at 37 employees during 1996 as
compared to 24 employees at December 31, 1995. As a result of certain recent
expense reduction efforts, as of March 1997, there were 7 employees in this
area.

GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses
increased to $6,437 in 1996 from $2,796 in 1995.  This increase was primarily
due to increases in the number of general and administrative employees for
the full year, including senior executives, finance, legal, human resources
and office administration employees and an increase in bad debt expense. The
general and administrative staff peaked at 49 employees during 1996 as
compared to 29 at December 31, 1995. General and administrative expenses also
increased as a result of a higher provision for doubtful accounts, which was
$1,728 in 1996 compared to $722 in 1995. As a result of certain recent
expense reduction efforts, as of March 1997, there were 21 employees in this
area.

OPERATING LOSS.  Increases in every category of expense coupled with a small
decline in revenue contributed to an operating loss of $20,879 during 1996
compared to $7,685 during 1995.

OTHER INCOME (EXPENSE), NET.  Other Income (Expense), consisting of interest
income net of interest expense, decreased to ($155) in 1996 from ($163) in
1995. Short-term and long-term bank borrowing increased to $4,062 at December
31, 1996, from $2,358 at December 31, 1995.  Interest expense, however, was
partially offset by interest income earned on short-term investments funded
by the $8,160 of proceeds from the Company's exercise in the fourth quarter
of 1995 of the redeemable warrants issued in the IPO and the $12,791 of
proceeds from the Company's secondary offering in November 1996.

NET LOSS.  As a result of the foregoing, the Company's net loss during the
year increased to $21,034 in 1996 from $7,848 in 1995.

LIQUIDITY AND CAPITAL RESOURCES

   As mentioned earlier, the Company's liquidity was essentially exhausted
during both the third and fourth quarters of 1997 and the Company was
required to raise funds through the issuance of $7,750 in convertible
securities in two separate transactions.  Those funds are also now
essentially exhausted and the Company is dependent on new sources of revenue,
further cost reduction initiatives, an infusion of additional external
capital, or some combination of these actions, if it is to continue to have
adequate working capital to meet its operating requirements.  There can be no
assurance that the Company will be successful in either sufficiently reducing
its working capital requirements or generating 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.

   Further impacting the Company's working capital requirement, as of
December 31, 1997, the Company had outstanding $2,730 in long-term bank
loans, including current maturities thereon, and $2,685 in other liabilities
and accrued expenses. The Company has entered into negotiations with its
major lender and other creditors to restructure its long term debt and other
liabilities, possibly by issuing equity in exchange for all or a portion of
the liabilities, obtaining discounts, deferring or stretching payment terms,
or some combination of these alternatives. There can be no assurance that the
Company will be successful in its efforts to restructure its outstanding
debts and any failure on the part of the Company to do so will have a
material adverse impact on the Company.

                                          23
<PAGE>

  The restructuring and refocusing efforts which the Company initiated during
the fourth quarter of 1996 and which have continued into 1998 have included
and will include substantial reductions in the number of employees, and a
decrease in manufacturing, product fulfillment, sales, marketing, general and
administrative expenses.  The Company has also severely constrained its
capital spending and has sought opportunities to conserve its liquid
resources though the issuance of stock in payment of certain expenses. These
efforts have reduced operating expenses and the level of working capital
required to operate the Company.

  Accent's working capital was $109 at December 31, 1997 compared to $3,628
at December 31, 1996.  The change in working capital primarily reflects the
Company's continuing operating losses and efforts to bring its creditors
current with respect to amounts owed them.  The development of the Company's
software language solutions products and services and the expansion of the
United States sales and marketing group will continue to require working
capital. Failure to obtain adequate capital will have a material adverse
impact on the Company, including possibly requiring the Company to curtail or
cease operations.

  The Company's operating activities used cash of $16,245, $15,422 and $8,733
for the years ended December 31, 1997, 1996 and 1995, respectively.  The 1997
figure includes a net loss of $13,474, offset somewhat by $1,052 of non-cash
amortization and depreciation charges.  The Company's accounts payable and
accruals balance was reduced by $4,057 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 $168, $1,067 and $1,435
during the years ended December 31, 1997, 1996 and 1995, respectively. The
reduction in the 1997 figure reflects the reduction in spending on capital
equipment such as computers.  Also included in prior year figures was
capitalized software costs which totaled $46 in 1996 and $700 in 1995.

  Financing activities provided $10,189, $15,579 and $19,723 during the years
ended December 31, 1997, 1996 and 1995, respectively.  The 1997 figure
includes proceeds from two sales of convertible securities which are
discussed in greater detail below.  Certain costs totaling $1,266 related to
these financing transactions were paid for through the issuance of warrants
rather than in cash. The 1996 and 1995 amounts included the proceeds from the
Company's secondary and initial public offerings, respectively.  During 1997,
$1,332 was paid on the Company's long term bank loans.  In 1996 and 1995
proceeds from the bank loans of $1,758 and $1,013, respectively, were
received.

  Since its inception, the Company has financed its operations primarily
through net proceeds from sales of equity securities, various government
guaranteed long-term loans under the Approved Enterprise Program which is
administered by the Israel Investment Center and revenues from sales of its
word processing and Internet software.

  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

                                          24
<PAGE>

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 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%.

  Long term bank loans received as part of the Approved Enterprise Program
totaled $2,730 at December 31, 1997, a decrease from the $4,062 which was
outstanding as of December 31, 1996. During 1997, the Company paid down the
loan at the rate of approximately $140 per month, plus accrued interest.  The
Company is in discussions with the government of Israel, which is the
guarantor of the loans, regarding the possible restructuring of the remaining
loan balance through deferring or stretching future payments or converting
all or part of the loan into equity.  There can be no assurance that the
Company will be successful in its efforts to restructure the loan and any
failure on the part of the Company to do so will have a material adverse
impact on the Company.  The Company has been granted several loan payment
deferrals while these discussions have been underway. The Company is not
eligible to receive any additional loans under the program and must continue
to comply with various conditions of each respective approved program,
including compliance with minimum investment levels and the achievement of
certain levels of sales.

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

                                          25
<PAGE>

  In July 1995, Accent received net proceeds of $9,785 from the initial
public offering of its Ordinary Shares and warrants to purchase Ordinary
Shares. The Company called the IPO Warrants for redemption in November 1995,
as a result of which substantially all of the IPO Warrants were exercised,
providing proceeds to the Company of $8,160.

  In May 1995, the Company received net proceeds of $2,600 from a private
placement of units consisting of Ordinary Shares, warrants to purchase
Ordinary Shares and an unsecured promissory note.

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

EFFECTIVE CORPORATE TAX RATE

  The Company maintained operations during 1997 in Israel, the United States
and 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

                                          26
<PAGE>

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.

                                          27
<PAGE>

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                <C>
          Independent Auditors' Report.  . . . . . . . . . . . . . . . . . . . . . 29

          Consolidated Financial Statements
            Consolidated Balance Sheets as of December 31, 1997 and 1996 . . . . . 30
            Consolidated Statements of Operations for the years ended
               December 31, 1997, 1996 and 1995. . . . . . . . . . . . . . . . . . 31
            Consolidated Statements of Changes in Shareholders' Equity
               (Deficit) for the years ended December 31, 1997, 1996 and 1995. . . 32
            Consolidated Statements of Cash Flows for the years ended
               December 31, 1997, 1996 and 1995. . . . . . . . . . . . . . . . . . 33
            Notes to the Consolidated Financial Statements . . . . . . . . . . . . 34


CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

          Schedule II: Valuation and Qualifying Accounts . . . . . . . . . . . . . 50
</TABLE>

               All other schedules are omitted as the required information is
               inapplicable or the information is presented in the financial
               statements or related notes.

                                          28
<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, 1997 and 1996, and the related
statements of operations, shareholders' equity (deficit) and cash flows for
each of the three years ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years ended December 31, 1997, 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 $13 million during the year ended December 31, 1997.  As of
that date, the Company has an accumulated deficit of approximately $47
million.  The Company anticipates that it will continue to incur losses for
some time.  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 & CO.
                                   MEMBER FIRM OF ARTHUR ANDERSEN
Jerusalem, Israel
March 15, 1998

                                          29
<PAGE>

                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

                             CONSOLIDATED BALANCE SHEETS
                         U.S. DOLLARS AND SHARES IN THOUSANDS

<TABLE>
<CAPTION>

                                                             DECEMBER 31,
                                                       -----------------------
                                                        1997            1996
                                                      --------        --------
<S>                                                   <C>             <C>
ASSETS
Current assets
  Cash and cash equivalents                           $  2,499        $  8,723
  Trade receivables, net of allowance of $63
    and $2,245 in 1997 and 1996, respectively              755             984
  Other Receivables                                        117             172
  Prepaid expenses                                         906             595
  Inventories                                               85           1,021
                                                      --------        --------
    Total current assets                              $  4,362        $ 11,495
                                                      --------        --------
Equipment
  Cost                                                $  2,630        $  2,462
  Less accumulated depreciation                          1,220             723
                                                      --------        --------
    Equipment net                                     $ 1,410,        $  1,739
                                                      --------        --------
Capitalized software development costs, net of
  accumulated amortization of $1,098 in 1996          $      -        $    555
OTHER LONG term assets                                     666               -
                                                      --------        --------
Total assets                                          $  6,438        $ 13,789
                                                      --------        --------
                                                      --------        --------

LIABILITIES AND SHAREHOLDERS' Equity
Current liabilities
  Current maturities of long-term debt                $  1,886        $  1,443
  Accounts payable and accrued expenses                  2,367           6,424
                                                      --------        --------
  Total current liabilities                           $  4,253        $  7,867
                                                      --------        --------
Long-term bank loans                                  $    844        $  2,619
Accrued severance liability                                318             329
                                                      --------        --------
  Total liabilities                                   $  5,415        $ 10,815
                                                      --------        --------
                                                      --------        --------

Shareholders' equity
  Preferred shares, par value NIS 0. 01, authorized
    10,000 shares, issued and outstanding 4
    at December 311997                                $      -        $      -
  Ordinary shares, par value NIS 0. 01, authorized
    45,000 shares, issued and outstanding 17,140
    shares and 11,670 shares as of December 31,
    1997 and 1996, respectively                             43              28
  Share premium                                         47,701          36,193
  Accumulated deficit                                  (46,721)        (33,247)
                                                      --------        --------
    Total shareholders' equity                        $  1,023        $  2,974
                                                      --------        --------
Total liabilities and shareholders' equity            $  6,438        $ 13,789
                                                      --------        --------
                                                      --------        --------

</TABLE>



THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

                                          30
<PAGE>


                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF OPERATIONS
         U.S. DOLLARS AND SHARES IN THOUSANDS (EXCEPT PER SHARE INFORMATION)

<TABLE>
<CAPTION>




                                                FOR THE YEAR ENDED DECEMBER 31,
                                                1997        1996        1995
                                              ---------   ---------   ---------
<S>                                           <C>         <C>         <C>
Net Sales                                     $   3,125   $   4,953   $   5,135
Operating Costs and Expenses
  Cost of Sales                               $   3,062   $   6,767   $   2,972
  Product Development Costs                       4,813       3,386       1,097
  Marketing Expenses                              2,177       9,242       5,955
  General and Administrative Expenses             3,169       6,437       2,796
                                              ---------   ---------   ---------
Total Operating Costs and Expenses            $  13,221   $  25,832   $  12,820
                                              ---------   ---------   ---------
Operating Loss                                $ (10,096)  $ (20,879)  $  (7,685)
Financing and Other Expenses                      3,378         155         163
                                              ---------   ---------   ---------
Net Loss                                      $ (13,474)  $ (21,034)  $  (7,848)
                                              ---------   ---------   ---------
                                              ---------   ---------   ---------
Net Loss per Share                            $   (1.08)  $   (2.12)  $   (1.22)
                                              ---------   ---------   ---------
                                              ---------   ---------   ---------
Weighted Average Number of Shares                12,495      -9,926       6,421
                                              ---------   ---------   ---------
                                              ---------   ---------   ---------

</TABLE>



THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

                                          31
<PAGE>

                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF CHANGES IN
                            SHAREHOLDERS' EQUITY (DEFICIT)
                         U.S. DOLLARS AND SHARES IN THOUSANDS

<TABLE>
<CAPTION>

                                    NUMBER OF      NUMBER OF
                                    PREFERRED       ORDINARY        SHARE          SHARE
                                     SHARES          SHARES        CAPITAL        PREMIUM        DEFICIT          TOTAL
                                    ---------      ---------       --------       --------      ---------       --------
<S>                                 <C>            <C>             <C>            <C>           <C>             <C>
Balance as of December 31, 1994             -          4,576       $     11       $  3,290      $  (4,365)      $ (1,064)
                                    ---------      ---------       --------       --------      ---------       --------

Issuance of Shares
  in Private Placement                      -            495              1          1,099              -          1,100
Issuance of Shares and Warrants
  in Initial Public Offering                -          2,812              6          9,779              -          9,785
Warrants Exercised                          -          1,598              3          8,157              -          8,160
Net Loss                                    -              -              -              -         (7,848)        (7,848)
                                    ---------      ---------       --------       --------      ---------       --------
Balance as of December 31, 1995             -          9,481       $     21       $ 22,325     $  (12,213)      $ 10,133
                                    ---------      ---------       --------       --------      ---------       --------
Issuance of Shares and Warrants
  in Public Offering                        -          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 Ordinary Shares                 -            612              2            993              -            995
Issuance of Preferred Shares                3              -              -          1,750              -              -
Issuance of Preferred Shares upon
  Conversion of Debentures                  3              -              -          6,527              -          7,840
Issuance of Ordinary Shares upon
  Conversion of Debentures                  -            846              2          2,176              -          2,615
Issuance of Ordinary Shares upon            -
  Conversion of Preferred Shares           (3)         3,985             11              -              -             11
Warrant 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
                                    ---------      ---------       --------       --------      ---------       --------
                                    ---------      ---------       --------       --------      ---------       --------

</TABLE>

THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

                                          32
<PAGE>

                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                         U.S. DOLLARS AND SHARES IN THOUSANDS

<TABLE>
<CAPTION>

                                                                      FOR THE YEAR ENDED DECEMBER 31,
                                                                  ----------------------------------------
                                                                    1997           1996           1995
                                                                  ---------      ---------      ---------
<S>                                                               <C>            <C>            <C>
Operating Activities

Net Loss                                                          $ (13,474)     $ (21,034)      $ (7,848)
Adjustments to reconcile net loss
  to net cash used in operating activities
  Depreciation and amortization                                       1,052          1,118            430
  Change in allowance for doubtful accounts                          (2,182)         1,248            881
  Receipt of trade credits in satisfaction of receivable               (666)             -              -
Changes in assets and liabilities
  (Increase) decrease in trade and other receivables                  2,466            953         (3,588)
  (Increase) decrease in prepaid expenses                              (311)            61           (531)
  (Increase) decrease in inventories                                    936            638         (1,349)
  Increase (decrease) in payables and other liabilities              (4,066)         1,594          3,272
                                                                  ---------      ---------      ---------
Net cash (used in) operating activities                           $ (16,245)     $ (15,422)      $ (8,733)
                                                                  ---------      ---------      ---------
                                                                  ---------      ---------      ---------
Investing Activities

Acquisition of equipment, net of proceeds from sales
  of equipment of $17 in 1997                                     $    (168)     $  (1,021)      $   (735)
Capitalization of software development costs                              -            (46)          (700)
                                                                  ---------      ---------      ---------
  Net cash (used in) investing activities                         $    (168)     $  (1,067)      $ (1,435)
                                                                  ---------      ---------      ---------
                                                                  ---------      ---------      ---------

Financing Activities

Repayment of short- and long-term bank loans                      $  (1,332)     $     (54)      $   (335)
Increase in long-term bank loans                                          -          1,758          1,013
Net proceeds received on issuance of debentures                       5,525              -              -
Net proceeds received on issuance of preferred shares                 1,580              -              -
Net proceeds received on issuance of ordinary shares                      -         12,791          9,294
Net proceeds received on exercise of warrants and options             4,416          1,084          9,751
                                                                  ---------      ---------      ---------
  Net cash provided by financing activities                       $  10,189      $  15,579       $ 19,723
                                                                  ---------      ---------      ---------

Increase (decrease) in cash and cash equivalents                  $  (6,224)     $    (910)      $  9,555
Cash and cash equivalents, beginning of year                          8,723          9,633             78
                                                                  ---------      ---------      ---------
Cash and cash equivalents, end of year                            $   2,499      $   8,723       $  9,633
                                                                  ---------      ---------      ---------
                                                                  ---------      ---------      ---------

Supplemental schedule of non-cash. investing and financing
  activities

Financing 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.

                                          33
<PAGE>

                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                              U.S. DOLLARS IN THOUSANDS

 NOTE 1   -   GENERAL

     Accent Software International Ltd. and Subsidiaries (the "Company") is a
provider of language solutions for software developers, corporations and
consumers. The Company was founded in 1988 in Jerusalem, Israel. The
Company's majority-owned subsidiary, AgentSoft Ltd. ("AgentSoft"), founded in
1996, develops intelligent agent-based tools and products for automation over
the Internet. Accent Worldwide, Inc., incorporated in 1991, is located in
Colorado Springs, Colorado, and includes sales, marketing and executive
management. Accent Software International (Europe) Ltd., located in London,
England, was comprised of the Company's European sales force until it was
closed during December 1997.

     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, 1997 was U.S. $1 =
New Israeli Shekel ("NIS") 3.536, December 31, 1996:U.S. $1 = NIS 3.251, and
December 31, 1995: U.S. $1 = NIS 3.135.

     The Company incurred net losses of $13,474 and $21,034 in the years
ended December 31, 1997 and 1996, respectively.  Net cash used in operating
activities for 1997 and 1996 was $16,245 and $15,422 respectively.  As of
December 31, 1997, the Company had an accumulated deficit of  $46,721.  The
substantial losses incurred prior to 1997 are primarily attributed to the
aggressive product development and marketing efforts based upon strong retail
market expectations for the Company's products.  Anticipated revenue did not
materialize resulting in substantial operating and cash losses. Revenue
declined in 1997 from its 1996 level as 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.

     During 1997, the Company completed two financing transactions in which
it raised a total of $7,105 net of expenses through the private placement of
convertible securities.  During 1996, the Company completed a secondary
offering of equity and realized approximately $12,800 net of expenses.

                                          34
<PAGE>

                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                              U.S. DOLLARS IN THOUSANDS


NOTE 1  - GENERAL  (CONT.)

     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.  While management believes Accent will remain
in operation as a going concern, the Company continues to generate
significant operating losses and operating cash flow deficits and the
Company's ability to continue is not assured.  The accompanying consolidated
financial statements do not include any adjustments relating to the
recoverability and 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.

     The Company believes that to remain in operation it must generate
increased revenue and/or further reduce its expenses and cash outflows and
has developed plans that it believes will accomplish these objectives. There
is no assurance, however, that the Company will be able to operate in
accordance with its plans.

     LONG-TERM DEBT AND OTHER LIABILITIES

     As of December 31, 1997, the Company had $2,730 in long-term bank loans
outstanding and $2,685 in other liabilities and accrued expenses. The Company
has entered into negotiations with its major lender and other creditors to
restructure these liabilities, possibly by issuing equity in exchange for all
or a portion of the liabilities, obtaining discounts, deferring or stretching
payment terms, or some combination of these alternatives. There can be no
assurance that the Company will be successful in its efforts to restructure
its outstanding debts and any failure on the part of the Company to do so
will have a material adverse impact on the Company.

     RESTRUCTURING

     Restructuring efforts which began in the fourth quarter of 1996 have now
been extended into 1998.  These restructuring efforts have included and will
continue to include significant personnel reductions, the consolidation of
facilities and a freeze on capital spending. There can be no assurance that
these efforts will be sufficient to allow the Company to continue to operate
within its available cash resources and any failure by the Company to do so
will have a material adverse impact on the Company.

     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.

                                          35
<PAGE>


                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                              U.S. DOLLARS IN THOUSANDS


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:

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

     Inventories are stated at the lower of cost or market and consist
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 provided using the
straight-line method over the estimated useful lives of the assets, ranging
from two to fifteen years.

F.   CAPITALIZED SOFTWARE DEVELOPMENT COSTS

     All previously capitalized software development costs were fully
amortized by December 31, 1997. Costs incurred during 1997 were not material
and therefore the Company did not capitalize any of its 1997 product
development costs.

G.   REVENUES

     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

                                          36
<PAGE>


                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                              U.S. DOLLARS IN THOUSANDS


NOTE 2   -     SIGNIFICANT ACCOUNTING POLICIES (CONT.)

G.   REVENUES (Cont.)

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.

     During 1995 and 1996 (and to a much lesser extent during 1997), a
portion of the Company's revenues were made to distributors under agreements
which allow certain rights of return for unsold merchandise.  If the Company
has adequate history to estimate returns for a specific distributor, revenue
is recorded upon shipment of the product to the customer and a provision for
the estimated returns is recorded at the time the revenue is recorded.  If
the Company does not have adequate history to estimate such returns, the
Company defers recognition of such revenue until the software is sold by the
distributors.

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, 1997,
1996 and 1995, respectively since all securities are considered antidilutive.
Options of 1,433,667 and Warrants totaling 5,834,913 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.

                                          37
<PAGE>

                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                              U.S. DOLLARS IN THOUSANDS


NOTE 2   -     SIGNIFICANT ACCOUNTING POLICIES (CONT.)

I.   FINANCIAL INSTRUMENTS

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

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

<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                      ----------------------
                                                       1997            1996
                                                      ------          ------
               <S>                                    <C>             <C>
               Domestic (Israel)                      $  356          $  482
               Foreign                                   462           2,247
                                                      ------          ------
                                                      $  818          $3,229
                                                      ------          ------
                                                      ------          ------
               Less: Allowance for doubtful
                 accounts and sales returns               63           2,245
                                                      ------          ------
               Total                                  $  755          $  984
                                                      ------          ------
                                                      ------          ------
</TABLE>

NOTE 4   -     INVENTORIES

<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                      ----------------------
                                                       1997            1996
                                                      ------          ------
               <S>                                    <C>             <C>
               Materials                              $  -            $  230
               Finished Goods                             85             791
                                                      ------          ------
               Total                                  $   85          $1,021
                                                      ------          ------
                                                      ------          ------
</TABLE>

     The Company completed a transaction during the second quarter, 1997, in
which it sold excess inventory with a book value of $666 to another entity in
exchange for $1,600 in "trade credits" in a so-called "barter" transaction.
The trade credits have a life of three years and may be exchanged, with cash,
for a wide variety of products, services and raw materials that the Company
may require in the conduct of its business.  The Company may also sell the
trade credits, under certain circumstances, or use the credits to retire
accounts payable or other debts with the concurrence of all parties.  The
Company has recorded trade credits equal to the book value of the inventory
sold in the transaction as it believes it will be successful in using trade
credits of at least this amount.  A reserve with a balance of $934 has been
established for the balance of trade credits.  No gain or loss was recorded
on the transaction.

                                          38
<PAGE>


                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                              U.S. DOLLARS IN THOUSANDS

NOTE 5 - EQUIPMENT
<TABLE>
<CAPTION>

                                             COMPUTERS,       OFFICE
                                             SOFTWARE        FURNITURE
                                            AND RELATED         AND
                                VEHICLES     EQUIPMENT       EQUIPMENT         TOTAL
                               ---------    -----------      ---------      ---------
<S>                            <C>          <C>              <C>            <C>
COST
  January 1, 1997              $     101      $   1,728      $     633      $   2,462
  Additions                            -            137             48            185
  Disposals                            -             (6)           (11)           (17)
                               ---------    -----------      ---------      ---------
  December 31, 1997            $     101      $   1,859      $     670      $   2,630
                               ---------    -----------      ---------      ---------
ACCUMULATED DEPRECIATION
  January 1, 1997              $      21      $     569      $     133      $     723
  Provision                           18            372            107            497
                               ---------    -----------      ---------      ---------
  December 31, 1997            $      39      $     941      $     240      $   1,220
                               ---------    -----------      ---------      ---------

NET BOOK VALUE
  December 31, 1997            $      62      $     918      $     430      $   1,410
                               ---------    -----------      ---------      ---------
                               ---------    -----------      ---------      ---------
  December 31, 1996            $      80      $   1,159      $     500      $   1,739
                               ---------    -----------      ---------      ---------
                               ---------    -----------      ---------      ---------

ANNUAL RATES OF DEPRECIATION       15%          20%-33%       7% - 15%
                               ---------    -----------      ---------
                               ---------    -----------      ---------

</TABLE>


NOTE 6 - CAPITALIZED SOFTWARE DEVELOPMENT COSTS


<TABLE>
<CAPTION>

                                                   1997         1996
                                                 --------     --------
                  <S>                            <C>          <C>

                  COST
                    January 1,                   $  1,653     $  1,607
                    Additions                           -           46
                                                 --------     --------
                    December 31,                 $  1,653     $  1,653
                                                 --------     --------

                  ACCUMULATED AMORTIZATION
                    January 1,                   $  1,098     $    379
                    Provision                         555          719
                                                 --------     --------
                    December 31,                 $  1,653     $  1,098
                                                 --------     --------

                  NET BOOK VALUE                 $    -       $    555
                                                 --------     --------
                                                 --------     --------

</TABLE>
                                          39
<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

<TABLE>
<CAPTION>

                                                            DECEMBER 31,
                                                       -----------------------
                                                         1997           1996
                                                       -------         -------
<S>                                                    <C>             <C>
               Suppliers                               $ 1,497         $ 4,212
               Employers and related expenses              507             826
               Accrued expenses and other payables         363           1,386
                                                        -------         -------
               Total                                   $ 2,367         $ 6,424
                                                        -------         -------
                                                        -------         -------

</TABLE>

NOTE 8  - LONG-TERM BANK LOANS

     TERMS AND RATES OF INTEREST

     The loans are linked to the U.S. dollar and bear interest at variable
rates based on a certain margin above the LIBOR rate. The interest rates as
of December 31, 1997 are between 6.95% and 7.63%.

     The loans were received in connection with the Company's approved
investment program and are guaranteed by the State of Israel. The Company
believes it is in compliance with the terms of the investment program.

<TABLE>
<CAPTION>

     MATURITIES
                              <S>           <C>

                              1998         $  1,886
                              1999              446
                              2000              148
                              2001              118
                              2002               81
                              2003               51
                                            --------
                              Total         $  2,730
                                            --------
                                            --------

</TABLE>

     COLLATERALIZATION

     The loans are collateralized by fixed and floating charges (liens) on
the Company's assets and a specific charge on unissued share capital and
goodwill.

                                          40
<PAGE>


                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                              U.S. DOLLARS IN THOUSANDS

NOTE 9  - SEVERANCE PAY

     The Company's severance pay obligation to its employees is partially
covered by payments to insurance companies. The amounts so funded are not
reflected in the balance sheet as they are not under the control and
management of the Company. The accrual for severance pay in the balance sheet
reflects that portion of the liability which had not been funded by the
Company as of the balance sheet date.

NOTE 10 - SHARE CAPITAL

     PRIVATE PLACEMENTS PURSUANT TO REGULATION D

     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.

     The November private placement of $4,000 in debentures and the August
private placement of $2,000 in debentures included "guaranteed returns" to the
investors of $1,000 and $667, respectively.  The cost of warrants issued to
the investors has been valued at $1,328 and $290 for the November and August
transactions, respectively. Both the costs of the guaranteed returns and the
investor warrants have been accounted for as financing costs on the Company's
Consolidated Statements of Operations.

     SECONDARY PUBLIC OFFERING

     In November 1996, the Company completed a secondary offering in the
United States. Pursuant to this offering, the Company issued 1,800,000 Units,
consisting of one Ordinary Share and one warrant to purchase an Ordinary
Share at an exercise price of $11.50 per share. The proceeds received by the
Company from the secondary amounted to approximately $12,800 (net of
underwriting commissions and expenses of approximately $2,500).

                                          41
<PAGE>


                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                              U.S. DOLLARS IN THOUSANDS

NOTE 10 - SHARE CAPITAL (CONT.)

     INITIAL PUBLIC OFFERING ("IPO")

     In July 1995, the Company completed an IPO in the United States.
Pursuant to the IPO, the Company issued 2,811,750 Ordinary Shares and
warrants to purchase 1,405,875 Ordinary Shares at an exercise price of $5.67
per share.  The proceeds received by the Company from the IPO amounted to
approximately $9,800 (net of underwriting commissions and expenses of
approximately $3,000).  As of December 31, 1995, substantially all of the
above mentioned warrants were exercised for net proceeds of approximately
$7,800.

     WARRANTS

     In 1995, prior to the IPO, the Company issued warrants to purchase
Ordinary Shares in connection with various short-term financing obtained by
the Company. During 1995, warrants to purchase 87,750 Ordinary Shares were
exercised and proceeds received amounted to $293.  As of December 31, 1995,
warrants to purchase 498,875 Ordinary Shares and 407,250 Ordinary Shares at
an exercise price of $1.83 and $3.33 per share, respectively, were
outstanding.  In 1996, warrants to purchase 281,246 Ordinary Shares were
exercised and proceeds received amounted to $869.  As of December 31, 1996,
warrants to purchase 474,500 Ordinary Shares and 146,163 Ordinary Shares at
an exercise price of $1.83 per share and $3.33 per share, respectively, were
outstanding. In 1997, warrants to purchase 15,000 Ordinary Shares exercised
in a cashless transaction. As of December 31, 1997, warrants to purchase
459,500 Ordinary Shares and 146,163 Ordinary Shares at an exercise price of
$1.83 per share and $3.33 per share respectively, were outstanding. The
warrants to purchase 146,163 shares expire on May 22, 1998, and the warrants
to purchase 459,500 shares expire on December 30, 1999.

     In connection with the IPO, the Company issued to the underwriter
warrants to purchase (i) 244,500 Ordinary Shares at an exercise price of
$7.15 per share and (ii) 122,250 warrants (each to purchase one Ordinary
Share at a price of $8.50 per share).  The underwriter's warrants to purchase
Ordinary Shares are exercisable until July 19, 2000, and the underwriter's
warrants to purchase warrants are exercisable until July 19, 1998.

     During the secondary public offering, the Company issued 1,800,000
units, which included 1,800,000 Ordinary Shares and 1,800,000 warrants to
purchase 1,800,000 Ordinary Shares at an exercise price of $11.50 per share.
In addition, the Company issued warrants to purchase 180,000 Ordinary Shares
at an exercise price of $11.50 per share to a shareholder in connection with
the shareholder's 1996 loan of $1.5 million to the Company.

     In connection with the secondary public offering, the Company issued to
the underwriter 180,000 units, which included 180,000 Ordinary Shares and
warrants to purchase 180,000 Ordinary Shares at an exercise price of $12.75
per share.

                                          42
<PAGE>


                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                              U.S. DOLLARS IN THOUSANDS

NOTE 10 - SHARE CAPITAL (CONT.)

     WARRANTS (Cont.)

     In August 1997, the Company issued a marketing specialist warrants to
purchase 100,000 Ordinary Shares at an exercise price of $2.00 per share.
These warrants expire on August 1, 2002.

     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.

     The Company has granted options to shareholders and, pursuant to formal
share option plans adopted in 1995 and 1997 under which 1,875,000 shares were
reserved, 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.

     Option transactions are summarized as follows:


<TABLE>
<CAPTION>

                                                                                 WEIGHTED
                                                NUMBER          PRICE          AVERAGE PRICE
                                              OF SHARES       PER SHARE          PER SHARE
                                             ----------      -----------       -------------
<S>                                          <C>             <C>               <C>
           Outstanding December 31, 1994       390,000
                                              ---------
             Granted                           625,500       $3.03-17.83         $  4.47
             Exercised                        (105,000)          $0.24
                                              ---------
           Outstanding December 31, 1995       910,500
                                              ---------
             Granted                           385,250       $7.25-32.65         $ 14.38
             Exercised                        (110,500)      $ 0.24-3.03
             Forfeited                        (194,250)
                                              ---------
           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
                                              ---------
                                              ---------


</TABLE>
                                          43
<PAGE>

                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                              U.S. DOLLARS IN THOUSANDS

NOTE 10 - SHARE CAPITAL  (CONT.)

     The weighted average fair value of options granted in 1997 was $1.16 per
share. The following table summarizes information about options outstanding at
December 31, 1997:

<TABLE>
<CAPTION>

                                 OPTIONS OUTSTANDING                     OPTIONS EXERCISABLE
                     --------------------------------------------     -------------------------
                                         WEIGHTED
                         NUMBER           AVERAGE        WEIGHTED        NUMBER        WEIGHTED
      RANGE OF       OUTSTANDING AT      REMAINING       AVERAGE     OUTSTANDING AT     AVERAGE
      EXERCISE         DECEMBER 31,     CONTRACTUAL      EXERCISE     DECEMBER 31,     EXERCISE
       PRICES             1997             LIFE            PRICE          1997          PRICE
   --------------    --------------     -----------      --------    --------------    --------
<S>                  <C>                <C>              <C>         <C>               <C>
     $0.24-1.00             225,125          4            $0.44             225,125     $  0.44
     $1.01-3.00             776,917          6            $1.80             159,335     $  1.81
   $ 3.01 - 10.00           340,458          5            $4.60             232,125     $  3.80
   $10.01 - 20.00            56,667          5           $16.92              48,750     $ 18.50
   $20.01 - 33.00            34,500          5           $27.00              32,500     $ 28.21
                          ---------                                       ---------
                          1,433,667                                         697,835
                          ---------                                       ---------
                          ---------                                       ---------

</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 following pro forma amounts:

<TABLE>
<CAPTION>


                                 1997           1996           1995
                              ----------     ----------     ----------
         <S>                  <C>            <C>            <C>
         Net Loss
            As Reported       $  (13,474)    $  (21,034)     $  (7,848)
            Pro Forma         $  (14,822)    $  (21,994)     $  (8,023)
         Net Loss per Share
            As Reported       $    (1.08)    $    (2.12)     $   (1.22)
            Pro Forma         $    (1.13)    $    (2.22)     $   (1.25)



</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 1997 and 1996:  (1)
expected life of the option for 2 years; (2) dividend yield of 0%; (3) expected
volatility of 141%; and (4) risk-free interest rate of 6%.

                                          44
<PAGE>


                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                              U.S. DOLLARS IN THOUSANDS

NOTE 10 - SHARE CAPITAL (CONT.)

     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, 1997, 597,835 options were fully vested but have not
been exercised, and the remaining 835,832 will vest as follows: 1998 - 338,398;
1999 - 240,885; 2000 - 206,549. Of the total number of options outstanding at
the end of 1997, 50,000 had no set vesting date.

     In addition, the Company granted 20,000 options to each of four
non-employee directors on October 28, 1997, at an exercise price of $1.87 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 vested upon
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
80,000 options have not been included in the numbers set forth in this note.

     In connection with the formation of AgentSoft, the Company entered into a
shareholders' agreement whereby it agreed to cause AgentSoft to grant options to
purchase 1,400 shares to certain persons involved in the formation and ongoing
business of AgentSoft (14% of the authorized shares on a fully diluted basis) at
a nominal exercise price equal to NIS 1 per share for 6% and NIS 30 per share
for 8%. Of the 600 options granted at an exercise price of NIS 1, 60 had vested
and were exercised in 1996, 220 had vested and were exercisable at December 31,
1997, and 320 were forfeited.  As of December 31, 1997, 160 of the 800 NIS 30
options had vested and 640 will vest during 1998 and 1999. In addition, the
Board of Directors of AgentSoft, pursuant to a formal Employee Share Option
Plan, granted options to employees to purchase 180 shares of AgentSoft at a
nominal exercise price equal to NIS 1 per share. These options will vest over a
three year period commencing one year from the date of grant, and will be
subject to the employee's continued service with AgentSoft. Of the 180 options
granted to these employees, 24 were vested and exercisable at December 31 1997,
142 will vest during 1998, 1999 and 2000, and 14 were forfeited. Compensation
expense related to these options is not significant.

                                          45
<PAGE>


                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                              U.S. DOLLARS IN THOUSANDS

     NOTE 10 - SHARE CAPITAL (CONT.)

     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,
                                                1997           1996
                                              ---------      ---------
         <S>                                  <C>            <C>

         Warrants                             5,819,913      3,247,413
         Founders' Share Option Plan            225,125        225,125
         Employee and Non-Employee
            Share Option Plans (1995)         1,357,708      1,374,375
         CEO Share Option Plan (1997)           450,000              -
         Non-Plan Options Granted to
            Non-Employee Directors               80,000              -
                                              ---------      ---------
                                              7,932,746      4,846,913
                                              ---------      ---------
                                              ---------      ---------

</TABLE>


     INCREASE IN AUTHORIZED SHARES

          At an extraordinary shareholders' meeting held on October 17, 1997,
the shareholders approved amendments to the Articles of Association to increase
in the number of authorized ordinary shares from 30,000,000 to 45,000,000 and to
authorize 10,000,000 new preferred shares to be issued as appropriate by the
Board of Directors.

NOTE 11  -     NET SALES


<TABLE>
<CAPTION>



                                                  FOR THE YEAR ENDED DECEMBER 31,
                                              1997           1996           1995
                                            --------       --------       --------
     <S>                                    <C>            <C>            <C>
     SALES BY GEOGRAPHIC AREA
       Domestic (Israel)                    $    650       $  1,098       $    932
       North America                           1,197          2,167          1,173
       Other                                   1,278          1,688          3,030
                                            --------       --------       --------
                                            $  3,125       $  4,953       $  5,135
                                            --------       --------       --------
                                            --------       --------       --------
     SALES TO A SINGLE CUSTOMER
       Customer "A"                         $    666       $    -         $    -
       Customer "B"                              -            1,000            -
       Customer "C"                                             713            -

</TABLE>


                                          46
<PAGE>

                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                              U.S. DOLLARS IN THOUSANDS

NOTE 12 - COST OF SALES

<TABLE>
<CAPTION>


                                                FOR THE YEAR ENDED DECEMBER 31,
                                              1997           1996           1995
                                            --------       --------       --------
     <S>                                    <C>            <C>            <C>
     Direct Product Costs                   $  1,631       $  3,548       $  1,737
     Amortization of Capitalized Software
       Development Costs                         555            719            267
     Royalties                                   693          2,286            694
     Other                                       183            214            274
                                            --------       --------       --------
                                            $  3,062       $  6,767       $  2,972
                                            --------       --------       --------
                                            --------       --------       --------
</TABLE>



Note 13 - PRODUCT DEVELOPMENT COSTS

<TABLE>
<CAPTION>

                                               FOR THE YEAR ENDED DECEMBER 31,
                                              1997           1996           1995
                                            --------       --------       --------
     <S>                                    <C>            <C>            <C>
     Salaries and Related Costs             $  3,705       $  2,740       $  1,458
     Other Cost                                1,108            692            339
     Software Development Costs
       Capitalized                                 -            (46)          (700)
                                            --------       --------       --------
                                            $  4,813       $  3,386       $  1,097
                                            --------       --------       --------
                                            --------       --------       --------
</TABLE>



Note 14 -  MARKETING EXPENSES

<TABLE>
<CAPTION>

                                                FOR THE YEAR ENDED DECEMBER 31,
                                              1997           1996           1995
                                            --------       --------       --------
     <S>                                    <C>            <C>            <C>
     Salaries and Related Costs             $    999       $  1,681       $    997
     Exhibitions (including travel and
       related expenses)                         329          1,797          1,663
     Advertising and Public Relations            395          4,386          2,290
     Other                                       454          1,378          1,005
                                            --------       --------       --------
                                            $  2,177       $  9,242       $  5,955
                                            --------       --------       --------
                                            --------       --------       --------
</TABLE>

                                                                     47
<PAGE>



                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                              U.S. DOLLARS IN THOUSANDS



Note 15 - GENERAL AND ADMINISTRATIVE EXPENSES

<TABLE>
<CAPTION>

                                                FOR THE YEAR ENDED DECEMBER 31,
                                              1997           1996           1995
                                            --------       --------       --------
     <S>                                    <C>            <C>            <C>
     Salaries and Related Costs             $    962       $  2,153       $  1,027
     Bad and Doubtful Debts                      209          1,736            722
     Professional Fees and Expenses              922            687            411
     Public/Investor Relations Costs             332              -              -
     Other                                       744          1,861            636
                                            --------       --------       --------
                                            $  3,169       $  6,437       $  2,796
                                            --------       --------       --------
                                            --------       --------       --------

</TABLE>

Note 16  - 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.

     INFLATIONARY TAX  LAW

     The Company is subject to the Income Tax Law (Inflationary Adjustments),
1985, which provides for an adjustment to taxable income for the effects of
inflation (based on the Israeli Consumer Price Index) on that portion of
shareholders' equity not invested in inflation resistant assets.  To date, the
Company has had no taxable income and, therefore, no adjustments have been
necessary.

     CARRYFORWARD LOSSES

     The Company has carryforward losses for tax purposes and deductible
temporary differences of approximately $43,000. There are no deferred tax
balances as of December 31, 1997. 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.

                                          48
<PAGE>


                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                              U.S. DOLLARS IN THOUSANDS

NOTE 17  - TRANSACTIONS WITH RELATED PARTIES

<TABLE>
<CAPTION>

                                                   FOR THE YEAR ENDED DECEMBER 31,
                                               1997             1996          1995
                                            ----------      ---------     ----------
             <S>                            <C>             <C>          <C>
             Sales to Shareholder           $    -          $    -       $       14
                                            ----------      ----------    ----------
                                            ----------      ----------    ----------
             Purchases from Shareholder     $    -          $    -       $     -
                                            ----------      ----------    ----------
                                            ----------      ----------    ----------
             Consulting Fee to Shareholder  $    -          $    -        $      16
                                            ----------      ----------    ----------
                                            ----------      ----------    ----------



</TABLE>

     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 financing transaction. The Company
issued promissory notes to shareholders in the amount of $1,500 during 1996. All
of the notes were repaid in full with the proceeds from the secondary offering.
The Company borrowed and issued promissory notes in 1995 to shareholders in the
amount of $1,500 as part of a short-term financing.  All of the notes were
repaid in full with the proceeds from the IPO.

                                          49
<PAGE>

                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

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, 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
     Year ended December 31, 1995
       Allowance for Doubtful Accounts           116            722           (242)           596
       Allowance for Sales Returns               -              401            -              401

</TABLE>


                                          50
<PAGE>

                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

     None.















                                      51


<PAGE>

                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

                                       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.

                                          52
<PAGE>

                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

                                       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.

     (a)(2)    FINANCIAL STATEMENT SCHEDULES.

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

     (a)(3)    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.
               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).*
               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).*
               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).*

     (b)  REPORTS ON FORM 8-K.


               Form 8K, filed February 5, 1997, in connection with the
               resignation of Mitchell Joelson as an officer and director of the
               Company.

                                          53
<PAGE>


                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

               Form 8K, filed August 20, 1997, in connection with the August
               1997 private placement

               Form  8K, filed November 6, 1997, in connection with the November
               1997 private placement

(a)      EXHIBITS.

     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

--------------------
* Incorporated by Reference


                                          54
<PAGE>

                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

                underwriters, and American Stock Transfer & Trust Company
                (filed as Exhibit 4.6 to the Company's Registration
                Statement No. 333-7637).*

     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).*


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

                                          55
<PAGE>

                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

     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).*

     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).*

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

                                         56

<PAGE>

                          ACCENT SOFTWARE INTERNATIONAL LTD.
                                   AND SUBSIDIARIES

     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).

     10.6(f)-   CEO Share Option Plan (1997).

     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.

     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.

     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).*

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

     27     -   Financial Data Schedule.

     (d)        [Not applicable.]


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

                                          57
<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 30, 1998                          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.

<TABLE>
<CAPTION>



SIGNATURE                                        TITLE                               DATE
---------                                        -----                               ------
<S>                                <C>                                               <C>
/s/ TODD A. OSETH                  President, Chief Executive Officer (principal     March 30, 1998
-------------------------          Executive Officer) and
Todd A. Oseth                      Director

/s/ ROBERT J. BEHR                 Chief Financial Officer (principal                March 30, 1998
-------------------------          Financial and Accounting Officer)
Robert J. Behr

/s/ ROBERT S. ROSENSCHEIN          Chief Technology Officer, Co-                     March 30, 1998
-------------------------          Chairman and Director
Robert S. Rosenschein

/s/ JEFFREY S. ROSENSCHEIN         Chief Technology Officer and                      March 30, 1998
-------------------------          Director
Jeffrey S. Rosenschein

/s/ ROGER R. CLOUTIER, II          Co-Chairman and Director                          March 30, 1998
-------------------------
Roger R. Cloutier, II

/s/ ESTHER DYSON                   Director                                          March 30, 1998
-------------------------
Esther Dyson

/s/ MARK TEBBE                     Director                                          March 30, 1998
-------------------------
Mark Tebbe



</TABLE>