UNITED STATES
                       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

                For the Fiscal Year Ended September 30, 1996, or

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

               For the Transition period from _____ to _________.

                         Commission file number: 0-26620


                                   ACCOM, INC.
             (Exact name of Registrant as specified in its charter)


                    Delaware                                 94-3055907
(State or other jurisdiction of incorporation or          (I.R.S. Employer
                  organization)                          Identification No.)

                               1490 O'Brien Drive
                              Menlo Park, CA 94025
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (415) 328-3818

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

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:
                    Common Stock, $0.001 par value per 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  than 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  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ ]

         The aggregate  market value of the voting stock held by  non-affiliates
of the Registrant was  approximately  $5,170,000 as of December 16, 1996,  based
upon the closing  sale price on the Nasdaq  National  Market  reported  for such
date.  Shares of Common  Stock held by each  officer  and  director  and by each
person who owns 5% of more of the outstanding Common Stock have been excluded in
that  such  persons  may be  deemed  to be  affiliates.  This  determination  of
affiliate  status  is not  necessarily  a  conclusive  determination  for  other
purposes.

         There were  6,568,767  shares of  Registrant's  Common Stock issued and
outstanding as of December 16, 1996.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Part III  incorporates  information  by reference  from the  definitive
proxy  statement for the Annual Meeting of  Shareholders  to be held on February
18, 1997.

         "Accom,"  "Axial," and "WSD" are registered  trademarks of the Company,
and all of the  Company's  other  product  names are  trademarks of the Company.
"Onyx(TM)"  is a trademark of Silicon  Graphics,  Inc. This Report also includes
trademarks of companies other than Accom, Inc. and Silicon Graphics.  Unless the
context  indicates  otherwise,  reference  in this Report to the  "Company"  and
"Accom" refers to Accom, Inc. and its consolidated subsidiaries.
<PAGE>

                                     PART I

Item 1.  Business

General

         Accom(R),  Inc.  ("Accom"  or  the  "Company")  designs,  manufactures,
markets  and  supports  digital  video  systems  for  the  high-end  production,
post-production and broadcast markets.  The Company's systems are designed to be
used by video  professionals  to create,  edit and broadcast  high quality video
content such as  television  shows,  commercials,  news,  music videos and video
games.

         The proliferation of distribution channels for video content, including
cable,  satellite  and  direct  view  systems  such as  videos  and CD ROMs,  is
increasing  the demand for  broadcast  content while  diminishing  the potential
viewing  audience  and  revenue  per  channel.   To  compete  more  effectively,
broadcasters and other high-end content creators require systems that reduce the
cost of developing and delivering video content and more flexibly distribute the
same or repurposed content over multiple channels. These systems must be capable
of  performing   mission-critical  tasks  reliably  and  in  real  time  without
detracting  from the  final  video  quality.  As  high-end  video  professionals
transition from  traditional  stand-alone  analog systems to integrated  digital
systems,  they also require systems that can be easily  integrated with existing
equipment to leverage their significant capital investments.

         The Company provides innovative products that cost-effectively meet the
needs of high-end  professional  content  creators and broadcasters in real time
video  production,  post-production  and  distribution.  The  Company's  current
products  include on-line video editing systems and digital video disk recorders
used during the content  creation  process and  networked  still image and video
clip  storage  systems  used  by  broadcasters.   At  the  April  1995  National
Association  of  Broadcasters  ("NAB")  convention,  the  Company  introduced  a
prototype of the ELSET(TM)  virtual set system (the "ELSET Virtual Set"),  which
operates on a Silicon Graphics,  Inc. ("SGI") Onyx(TM)  workstation (an "Onyx").
Accom  believes  that the ELSET  Virtual  Set has the  potential  to give  video
content creators enhanced freedom and control over their production environments
by replacing  traditional  physical  studio sets with  three-dimensional  ("3D")
virtual sets.  The Company  anticipates  that the ELSET Virtual Set will be used
primarily in the production of news and sports broadcasts, news magazines, music
videos,  video games and talk shows. The Company shipped its first ELSET virtual
set system in the second quarter of fiscal 1996.

         The ELSET Virtual Set technology is owned by ELSET  Electronic-Set GmbH
("ELSET GmbH").  Since  September 29, 1995,  100% of the  outstanding  shares of
ELSET GmbH have been owned by the Company through a wholly-owned subsidiary.

         The Company's  strategy is to maintain its  leadership  position in the
high-end segment of the video  post-production  market by enhancing its existing
product lines and  developing new products that  establish  higher  standards of
performance in video editing and digital  recording.  The Company plans to build
upon its  established  reputation  in the  high-end  post-production  segment to
market the ELSET  Virtual Set and its  Axess(TM)  news  graphics and clip server

                                      -2-
<PAGE>

(formerly  known  as the  "Brontostore")  to  the  production  and  distribution
markets. In addition, the Company has pursued a strategy of first developing and
marketing  full-featured  systems to prove technological  feasibility and market
acceptance and then designing lower-priced products with reduced feature sets to
appeal to a broader base of customers.

         The Company  sells its  products  through a  combination  of its direct
sales force and indirect distribution channels.

Industry Overview

         The creation and broadcast of video  content  consists of four distinct
stages:   pre-production,    production,   post-production   and   distribution.
Pre-production  involves  creation  of the  script  and  storyboard.  Production
(content  creation)  involves  shooting  video or film,  as well as  creation of
computer-generated  graphics and sound  recording.  Post-production  consists of
editing and manipulating diverse images and audio elements into a final program,
including  off-line  and on-line  editing.  Distribution  is the delivery of the
finished  video  content  to the viewer  through  traditional  channels  such as
broadcast,  satellite and cable channels or through direct distribution of video
rentals, CD ROMs and video games.

         The market for systems used in the video content creation,  editing and
broadcast  process  ranges from high-end  professional  users such as television
networks,   cable   television   companies  and   independent   production   and
post-production houses, to professionals and non-professionals that create video
content  for  less  demanding  applications  such as  corporate  communications.
High-end  professional  users  typically  drive the  performance  standards  for
innovation,  quality,  speed and features for the video production and broadcast
markets.

         The  channels   available  for   distribution   of  video  content  are
proliferating as new cable,  satellite and direct view  alternatives  supplement
traditional  delivery systems.  This  proliferation is increasing the demand for
broadcast  content.   Concurrently,   the  viewing  audience  per  channel  and,
therefore,  the  potential  revenue  per  channel  is  being  reduced.  To  more
effectively  compete  in this new  environment,  broadcasters  and  other  video
professionals must reduce the cost of developing and delivering content and find
more flexible means to distribute  the same or repurposed  content over multiple
channels. These requirements span the post-production,  distribution and content
creation segments of the video production and broadcast market.

Post-Production

         Video editing is critical to the  post-production  process and is often
completed  in two steps:  off-line,  to reduce raw  material to a smaller,  more
manageable group of elements;  and on-line, to assemble video, audio and graphic
elements  into a final  program.  The on-line video  editing  process  typically
occurs in a video "editing  suite"  comprised of  sophisticated,  interconnected
equipment such as video recorders and switchers,  digital video effects systems,
storage  devices for still images and  computer-based  graphics  systems.  Video
editing  suites  can  cost up to  several  million  dollars  due to the cost and
variety of equipment  required,  and professional  post-production  services can
cost in excess of $1,000 per hour.

                                      -3-
<PAGE>

         Over the  past  several  years,  a number  of  personal  computer-based
off-line  editing  systems have been  introduced  to enable more  efficient  and
cost-effective  editing.  However,  these off-line systems rely upon compression
algorithms to convert raw video content to signals capable of being  manipulated
on personal  computers.  This use of highly  compressed video  compromises video
fidelity.  Currently, video effects and compositing,  as well as two-dimensional
("2D") and 3D graphic  elements,  must be created in an uncompressed  format. An
editor using a compression-based  off-line system must decompress the video, add
effects and graphics and then recompress the video.  This adds complexity to the
editing  process and often further  compromises  the video fidelity of the final
content.  Moreover,  these off-line  systems  typically  provide the user with a
single  video  stream,  which does not allow the  simultaneous  manipulation  of
multiple streams of video elements in real time.

         To   improve   productivity   and   creative   flexibility,    high-end
professionals  increasingly  require on-line  editing systems with  simultaneous
random  access to multiple  video  streams  and video of D1 quality,  a standard
digital video format that  represents one of the highest levels of video quality
commercially available today. Unlike traditional  taped-based analog systems, an
on-line editing system based on digital video disk recorders enables the user to
instantly  and  randomly  access  any part of the stored  video,  audio or other
material,   rearrange  the  material  and  play  back  edited  material  without
repeatedly winding and rewinding tape to locate desired  sequences.  In contrast
to off-line systems, on-line digital-based systems do not require high levels of
compression and, therefore,  do not detract from the fidelity of the final video
content. As post-production professionals transition their on-line edit rooms to
digital  technologies,  they often create  hybrid  environments  that  integrate
traditional analog video processing  equipment with digital systems.  Therefore,
these  professionals  need on-line  editing  systems that easily  interface with
equipment made by different manufacturers.

Distribution

         Most  distributors  of video  content such as  television  networks and
cable broadcasters currently rely on standalone still image disk storage devices
and analog tape-based systems when broadcasting  graphics and video clips during
news,  sports or entertainment  presentations.  These are typically  single-user
devices  that  cannot be easily  networked  to serve  multiple  users.  With the
proliferation   of   distribution   channels,   distributors  of  video  content
increasingly  require more flexible means of accessing and distributing  content
over  multiple  channels.  Quick  access by  multiple  users to content  such as
computer-generated  graphics  and  short  segment  video  clips is  critical  to
effective and economical news, sports and entertainment broadcasting.  Networked
digital  video  disk  recorders  enable  distributors  of video  content to make
material  more readily  available to multiple  users and for  broadcast  through
multiple channels.  Distributors of video content are beginning to transition to
digitally-based networks that increase the speed at which information is shared,
reduce the time  necessary  to complete  production  tasks and more  efficiently
utilize the content they create and distribute.

Content Creation

         A large portion of the cost of creating  content is attributable to the
actual shooting of video,  which is performed on location or on studio stages. A
typical video studio consists of a 

                                      -4-
<PAGE>

soundproofed   stage,  a  specially  designed  set,   high-intensity   lighting,
sophisticated video equipment and, often, a fully-equipped control room. Studios
are often  dedicated  to a single  type of  production  due to the time and cost
necessary to change, or strike,  sets. Actual set costs vary widely depending on
the  nature  of  the  content  being  shot  on the  set  and  production  budget
constraints.  Physical sets are inflexible and require significant manual effort
to assemble and disassemble.  With the  proliferation of distribution  channels,
producers of video content need flexible production  techniques that will enable
them to quickly and efficiently create content for distribution through multiple
channels.  Content creators are therefore searching for innovative  solutions to
lower set costs, increase flexibility in the production of video and create more
interesting content.

         Traditional   video  systems  do  not  adequately   meet  the  emerging
production,  post-production and distribution needs of high-end content creators
and  broadcasters.  Professionals  in  this  market  segment  require  flexible,
cost-effective systems that perform  mission-critical tasks reliably and in real
time without  detracting  from the final video  quality.  These new systems must
also be capable of accommodating high-end video professionals as they transition
from traditional  stand-alone analog systems to integrated  digital systems.  In
addition,  high-end  professionals require systems that can be easily integrated
with existing  video  content  creation and  distribution  equipment to leverage
their significant equipment investments.

The Accom Approach

         Accom provides innovative products that cost-effectively meet the needs
of high-end  content  creators and  broadcasters in real time video  production,
post-production  and  distribution.  Relying  on its core  technologies  and its
knowledge of the  high-end  video  market,  the Company  develops  sophisticated
digital  systems  comprised  of  both  standard  and  proprietary  hardware  and
software.  Accom  believes  that this  approach  results in flexible  solutions,
offering  price  and  performance  advantages  over  competitive  systems  while
facilitating the transition to hybrid and digital environments.

         Accom's systems offer the following benefits:

         Open Systems. The Company designs products for ease of integration with
other manufacturers'  products,  such as video switchers,  digital video effects
devices and video  recorders.  This  capability  allows users to leverage  their
existing  equipment  investments and customize their systems to meet current and
future requirements.

         Real Time  Performance.  Accom systems operate in real time and execute
processing and control functions 50 or 60 times per second. This enables content
producers to  instantly  view video  content in  full-quality  video  resolution
during production and post-production.

         High Video Fidelity.  Accom systems operate in fully uncompressed video
formats.  This capability provides video content creators with D1 quality video,
enabling them to deliver the same content for high-end  distribution channels or
distribution channels requiring lower resolution.

                                      -5-
<PAGE>

         Ease  Of Use.  The  Company's  systems  are  designed  to  improve  the
productivity of users and to reduce  training time. For example,  certain of the
Company's  products  utilize video images and  graphical  user  interfaces  that
eliminate the need for complicated menu structures and time codes.

         Leveraged Solutions.  Accom combines certain of its individual products
to create  integrated  solutions that offer  performance  benefits  beyond those
available  when such products are used  individually.  For example,  the Company
integrates its on-line editor  products with its digital video disk recorders to
provide on-line, random access editing capability.

         The Company  offers a range of products to the high-end  segment of the
video  production,  post-production  and  distribution  markets.  The  Company's
current key products are: on-line video editing systems used by  post-production
professionals;  digital  video disk  recorders  used during the on-line  editing
process or to produce computer graphics and animation; networked still image and
video clip storage  systems used by  distributors of video content and the ELSET
Virtual Set, which is designed to enable content  producers to  cost-effectively
create programs with virtual production sets.

Accom Strategy

         Accom's goal is to be a leading supplier of production, post-production
and  distribution  systems to the high-end video content  creation and broadcast
markets.  To achieve this goal,  Accom is executing a strategy that includes the
following key elements:

         Maintain  Leadership  Position in Current High-End Market.  The Company
has  established  a reputation  for meeting the  exacting  needs of the high-end
segment of the video  post-production  market. The Company plans to maintain its
leadership position in the high-end segment of the video post-production  market
by enhancing  its existing  on-line  editing  product  line and  developing  new
products that  establish  higher  standards of  performance in video editing and
digital recording.

         Expand into New  High-End  Markets.  The Company  plans to leverage its
existing reputation in the high-end  post-production segment to market the ELSET
Virtual  Set  and  the  Axess  (formerly  known  as  the  "Brontostore")  to the
production and distribution markets.

         Broaden Lower-Priced Product Line. The Company has introduced products,
such as the Axial 2010  on-line  editor and the  WSD/XL and  WSD/Xtreme  digital
video disk recorders,  that provide  high-end users with reduced feature sets at
lower  prices.  Under this  strategy,  the Company  first  develops  and markets
full-featured systems to prove technological  feasibility and market acceptance.
Thereafter,  the Company designs lower-priced products with reduced feature sets
to appeal to a broader base of customers.

         Invest  in   Innovative   Technologies.   The  Company  has   developed
significant  expertise  in core  technologies  relating  to  editing,  real time
control, signal processing and digital video disk recording. The Company intends
to continue to internally  develop and acquire new  technologies as necessary to
design products that satisfy customer requirements for quality,  speed, cost and

                                      -6-
<PAGE>

functionality. For example, by acquiring ELSET GmbH, the Company obtained access
to virtual set technology.

         Enhance Distribution  Channels.  The Company plans to expand its direct
marketing and sales efforts to more  effectively  penetrate the high-end market.
In addition,  the Company intends to expand its indirect distribution  channels,
including  dealers,  value-added  resellers and third-party  software  solutions
vendors,  to increase sales of lower-priced  products such as the Axial 2010 and
WSD.

Products

         The Company  currently offers five product lines that address the needs
of the video production, post-production and distribution markets. The Company's
on-line video editing  systems,  digital video disk recorders and digital signal
processing  equipment  are  used  primarily  in  post-production.  Digital  news
graphics and clip  servers  address the needs of video  distribution.  The ELSET
Virtual Set is  designed  to be used in the  production  of video  content.  The
following table summarizes the Company's key products:

--------------------------------------------------------------------------------
   Product                 Date of First             Primary Applications
                           Shipment
--------------------------------------------------------------------------------
On-Line Video Editors
--------------------------------------------------------------------------------
   Axial 2020              November 1991       On-line editing for commercials 
   Axial 2010              June 1994           and long form television programs
--------------------------------------------------------------------------------
Digital Video Disk Recorders
--------------------------------------------------------------------------------
   RTD 4224                April 1992          On-line editing and effects 
                                               creation for commercials and long
                                               form television programs
   WSD/Xtreme              September 1996(1)   Desktop graphics and animation 
                                               production and post-production
--------------------------------------------------------------------------------
Digital News Graphics and Clip Servers
--------------------------------------------------------------------------------
   Axess (formerly
   Brontostore)
     RAID Storage           November 1993       Creation and distribution of 
                                                news graphics
--------------------------------------------------------------------------------
Virtual Set Production Tools
--------------------------------------------------------------------------------
   ELSET Virtual Set        March 1996          Virtual sets for high-end video
                                                content creation in real time
--------------------------------------------------------------------------------

(1) WSD/Xtreme is based on the Company's WSD digital video disk recorder,  which
    was first commercially shipped in November 1993.

                                      -7-
<PAGE>

On-Line Video Editors

         The Company's Axial line of digital, non-linear,  on-line video editing
systems  consists of the Axial 2020 and the Axial 2010. Key options to the Axial
2020 and the Axial 2010 are the Random Access Visual Editing System ("RAVE") and
the Axial 2010 Cache Editor,  respectively.  A primary benefit of the Axial line
of products is their ability to import edit decision lists from off-line editing
systems for quick assembly of  full-quality  video  content.  The Axial 2020 and
Axial 2010 are used to perform editing and compositing for the high-end  segment
of the post-production market.

         The Axial 2020 offers an enhanced  visual  interface  that  enables the
video  editor to edit  information  by working  with  pictures  and video  clips
instead of only timecode  numbers.  The Axial 2020 utilizes a text file approach
for  interfacing  with external  equipment  that minimizes the need to write new
software  device  drivers,  thereby  facilitating  the  integration  of external
equipment   with  the   editing   system.   The  Axial  2020  also   contains  a
multi-processor  architecture that enables it to simultaneously control up to 47
independent  devices.  In August  1994,  the Company  received an  International
Teleproduction   Society  ("ITS")  Monitor  Award  for  Special  Achievement  in
Engineering  Excellence  for the Axial 2020. The United States list price of the
Axial 2020 ranges from $70,000 to $124,000, depending on features, including the
RAVE option.

         The Axial 2010 is a  lower-priced,  on-line  editing system designed to
address the needs of a broader group of  professional  users.  The Axial 2010 is
used in post-production  suites producing content such as long form programs and
corporate videos under lower production  budgets. In contrast to the Axial 2020,
the Axial 2010 employs a graphical  representation of the video time line in the
user  interface  rather than live video images.  The United States list price of
the Axial 2010 ranges from $30,000 to $45,000, depending on features,  including
the Cache option.

         RAVE  and the  Axial  2010  Cache  are  options  that  enable  users to
integrate the Company's  on-line video editing and digital video disk  recording
technologies.  RAVE  combines  the  Axial  2020  and the RTD,  Accom's  high-end
uncompressed  digital video disk  recorder.  The RTD provides  immediate  random
access to stored images and the  flexibility of non-linear  operation.  RAVE was
one of the first  editing  systems to feature  non-linear,  D1 quality video for
on-line editing.  The Axial 2010 Cache combines the recording  capability of the
Company's  low-cost  WSD/Xtreme  with the Axial 2010 to  accelerate  the on-line
editing process by reducing the time necessary to access  sequences of video and
enabling  the  automatic  assembly of edit  decision  lists  created by off-line
systems.  The Company intends to continue to pursue other innovative uses of its
editor and disk technologies to continue to maintain its leadership  position in
on-line random access editing.

Digital Video Disk Recorders

         The  Company's  line of  digital  video  disk  recorders  includes  the
WSD/Xtreme,  which is used in graphics and  animation  production,  and the RTD,
which is used in on-line video editing.

                                      -8-
<PAGE>

         The  WSD/Xtreme  is a D1 quality  digital video disk recorder and video
subsystem  that enables  users to record and play back  digital  video images in
real  time and  rapidly  transfer  digital  video  images  to and from  computer
workstations.  The  WSD/Xtreme  enables  more  efficient  creation  of 2D and 3D
graphics and  animation by providing a bridge  between the computer  workstation
and video tape  recorders  and other video  devices.  The  WSD/Xtreme's  digital
random  access  recording and playback  features  improve the quality of desktop
graphics production by eliminating the speed and maintenance problems associated
with analog video tape recorders. With the WSD/Xtreme, frames can be played back
in real  time so the  user  can see the end  result  in full  motion  on a video
monitor.  The Company has worked closely with a number of  third-party  software
developers to integrate the WSD/Xtreme with their  applications.  The WSD/Xtreme
also provides both Ethernet and SCSI interfaces,  thereby enabling connection to
other  computer  platforms.  Accom has  interfaces  for the WSD/Xtreme to enable
personal  computer and Apple  Macintosh  users to integrate the WSD/Xtreme  into
their  systems.  The United  States  list price of the  WSD/Xtreme  ranges  from
$20,900 to $27,400, depending on features.

         The RTD is the  Company's  higher-priced  digital  disk  recorder  that
enables the digital recording and playback of D1 quality video onto a real time,
random access disk.  Applications of the RTD include random access video editing
and  the  editing  of 2D  and 3D  graphics  and  animation  for  production  and
post-production.  Unlike a video tape  recorder,  the RTD can  instantly  access
stored  images and play back the images at speeds  ranging  from  1/100th to 100
times normal play speed.  The RTD can also provide from one to seven  minutes of
video  recording  time. The Company's RTD digital  recorders  feature the Smooth
Motion(TM)  option,  which eliminates the picture content stuttering and jerking
that  normally  occurs  during  off-speed  videotape  and  disk  playback.  This
functionality  is  derived  from  the  Company's  expertise  in  digital  signal
processing.  The RTD offers a single  channel  option as well as a dual  channel
option that can be operated  simultaneously by two users. The United States list
price of the RTD ranges from $22,000 to $117,500, depending on features.

Digital News Graphics and Clip Servers

         The Axess,  formerly known as "Brontostore",  is designed to be used by
broadcast   professionals  for  the  preparation  and  on-air   presentation  of
computer-generated  graphics,  still images and video clips.  The Axess  enables
broadcasters to digitally store, categorize, search and obtain quick access to a
library of previously  recorded  still images,  computer-generated  graphics and
video clips for use during on-air presentations of news, sports or entertainment
events. The Axess is a networked system of individual nodes, each having its own
storage modules. Storage is configured to meet the needs of each user, but every
node on the  network has access to the  information  stored in other  nodes.  An
option  designed with redundant  arrays of individual  disks  ("RAID")  provides
storage,  from eight  minutes to  fourteen  and  one-half  minutes.  The storage
options  enable a user to record  and play back a  mixture  of still and  moving
images.  Depending  on the  selected  storage  options,  a  single  node  can be
configured  to store from 1,000 to 190,000 still images or from eight minutes to
one and 3/4 hours of  uncompressed  video.  The price of the Axess varies widely
depending on the number of nodes and the amount of storage per node.  The 

                                      -9-
<PAGE>

United  States list price of the Axess  ranges from $27,000 for a single node to
more than $1.0 million for a complex, multi-node network.

Digital Video Signal Processing Equipment

         The Company  offers six digital video signal  processing  products that
can be utilized in film-to-tape transfer and the color correction process and to
provide  bridges  between  various  signal  formats.  These  components are also
sometimes sold as part of the Company's larger systems such as Axial editors and
the Axess.  In October 1990 and September 1991, the Company won EMMY Awards from
the National  Academy of Television Arts and Sciences for Outstanding  Technical
Achievement  and, in September 1989 and July 1993, the Company  received two ITS
Monitor Awards for Special Achievement in Engineering Excellence for its digital
video signal processing equipment. The United States list price of the Company's
digital  video  signal  processing  equipment  ranges  from  $4,000 to  $30,000,
depending on model and selected features.

Virtual Set Production Tools

         The ELSET Virtual Set is designed to enable content  creators to create
virtual sets utilizing standard 2D and 3D painting, modeling and animation tools
and to combine  these  virtual  sets with live  actors in real  time.  The ELSET
Virtual Set combines the virtual world and the real world to create the illusion
that the actors are a part of the virtual set. Thus,  content  creators are able
to achieve greater  artistic  control over the  environments in which content is
developed. Traditional physical sets can be replaced by virtual sets that appear
realistic and can be readily altered.

         The Company  believes  that the ELSET  Virtual Set will enable  content
producers and the  organizations  that service such  producers to leverage their
investments in existing studio  infrastructures.  Content  producers can utilize
the same virtual set in different studios and quickly load new sets to alter the
appearance  of the set.  The Company  believes  that by  implementing  the ELSET
Virtual Set, these  professionals will be able to greatly increase the amount of
content that can be produced in their existing studios and substantially  reduce
the labor and storage costs  associated  with  traditional  physical  sets.  The
Company  anticipates  that the ELSET  Virtual Set will be used  primarily in the
production of news and sports broadcasts,  news magazines,  music videos,  video
games and talk shows.

         The  ELSET  Virtual  Set  currently  operates  on an  Onyx  and  can be
configured to accommodate one or two live video streams.  To broadcast a virtual
set,  content  creators  will also  require  equipment  such as cameras,  camera
control  heads and video  keyers,  which are not provided by the Company but are
readily available from a variety of sources.  Content creators construct virtual
sets  using 3D  modeling  tools and apply  textures  to these  models  utilizing
scanned-in  images or 2D paint  systems.  3D modeling tools and 2D paint systems
are  readily   available  from  a  variety  of  sources,   including   Wavefront
Technologies,  Inc. and Alias  Research,  Inc. (each of which is a subsidiary of
SGI),  SOFTIMAGE  Inc.  ("SOFTIMAGE"),  a subsidiary  of  Microsoft  Corporation
("Microsoft") , Adobe Systems,  Inc., Parallax Graphics,  Inc., Quantel Ltd. and
Autodesk,  Inc. Once textures are applied to the 3D models,  lighting is applied
utilizing a 

                                      -10-
<PAGE>

third-party  lighting  package  included with the ELSET Virtual Set. The virtual
set is then rendered and stored for later use in production.

         Accom offers the ELSET Virtual Set as a complete system,  including the
ELSET  software,  the Onyx and interfaces to third-party  video  equipment.  The
Company  also offers a software  only option for users that  purchase or already
own the necessary SGI hardware.  The Company's  United States list price for the
full ELSET  Virtual Set ranges  from  approximately  $675,000  to $1.2  million,
depending on  features,  and the United  States list price of the software  only
option  ranges  from  $275,000  to  $400,000,  depending  on the number of video
streams and other  features.  Actual net prices to the Company of these  systems
will likely be much less than list prices due to pending delivery of the Onyx 2,
the successor to the Onyx, from SGI, competition and other factors.

Customers and Applications

         The  primary  end  users  of the  Company's  products  are  production,
post-production,   broadcast  and  cable  companies  and  studios.  No  customer
accounted  for more than 10.0% of the  Company's  total  revenues  during fiscal
1996.

Marketing, Sales and Service

         The  Company   markets  its  products  to  the   high-end   production,
post-production  and  distribution  markets  and  sells its  products  through a
combination of its direct sales force and indirect  distribution  channels.  The
Company markets its products at major trade shows for the broadcast and computer
graphics  industries.  The  Company  also  initiates  special  direct  mail  and
advertising  campaigns prior to certain trade shows and regularly  advertises in
industry trade journals.

         In the United States,  the Company  markets its products at trade shows
such as those held by NAB and ACM SIGGRAPH. The Company conducts domestic direct
sales through employees based in New Jersey,  Chicago and Los Angeles,  and uses
independent  representatives to market its products in geographic areas that are
not served by its direct sales organization.  The Company utilizes an additional
sales  channel  of 24  distributors  for  its  WSD/Xtreme  product  line to more
effectively reach the independent dealers and VARs that integrate  workstations,
software and peripheral devices.

         Outside the United  States,  the Company  markets its products at trade
shows such as those held by the International Broadcast Conference in Europe and
the InterBee in Japan.  The Company  sells its products  through a network of 59
distributors that cover 59 countries, 13 of which distribute only the WSD/Xtreme
product line.  During fiscal 1996,  1995, and 1994 the Company  generated 38.2%,
51.1%,  and  46.9%,  respectively,  of its net sales from  customers  in markets
outside  of the United  States.  The  Company  maintains  an office in  Reading,
England to manage and support the Company's  distributors in Europe,  Africa and
Middle East. The Company manages and supports its international  distributors in
the Americas,  the Pacific and Asia through its corporate  headquarters in Menlo
Park, California.

                                      -11-
<PAGE>

         The Company  provides  technical  support and training to its customers
directly and through its distributors and maintains a technical support group in
its Menlo Park facility.

         The  Company   generally  ships  its  products  within  30  days  after
acceptance of a customer  purchase order.  The Company does not believe that its
backlog at any  particular  point in time is  material or  indicative  of future
revenue levels.

Research and Development

         The Company's research and development efforts currently are focused on
the development of product enhancements and new products for its on-line editor,
digital  video disk  recorder  and  virtual  set product  lines.  The  Company's
engineering staff consists of software and hardware  engineers and other support
personnel.  As of  September  30,  1996,  the Company  employed 29 people in its
research and development  organization,  of which approximately 16 professionals
are focused on software  development.  During  fiscal 1996,  1995 and 1994,  the
Company's  research and development  expenses were  approximately  $3.9 million,
$3.8  million,  and $3.4 million,  respectively.  Expenses in fiscal 1995 do not
include amounts related to virtual set system  research and  development,  which
was being conducted through ELSET GmbH, and was acquired only shortly before the
end of fiscal  1995;  however,  the Company  incurred a charge of  approximately
$10.8 million for acquired  in-process  technology  in fiscal 1995.  The Company
believes  that its  success  will depend in part upon its ability to enhance its
existing  products  and to develop and  introduce  new  products and features to
incorporate  new  technologies  and  meet  changing  customer  requirements  and
emerging industry standards on a timely and cost-effective  basis.  Accordingly,
the Company currently intends to continue to increase  expenditures for research
and development activities.

Manufacturing and Suppliers

         The Company  manufactures  its  systems at its  facility in Menlo Park,
California.  The Company's  manufacturing  operation  consists  primarily of the
testing of  subassemblies  and  components  purchased  from third  parties,  the
duplication of software and the configuration,  assembly and testing of complete
systems.  The Company relies on independent  contractors to manufacture  certain
systems,   components  and   subassemblies  in  accordance  with  the  Company's
specifications.  Each of the Company's  products  undergoes  testing and quality
inspection during the final assembly stage.

         Under a supply agreement with the Company dated June 30, 1995 (the "SGI
Agreement"),  SGI  agreed  to  supply  the Onyx and  certain  enhancements  on a
non-exclusive  basis to the  Company  for one year,  after which the parties may
mutually agree to extend this agreement for subsequent  one-year terms.  SGI and
the Company have not formally  renewed this  agreement,  but are operating under
the original terms on an interim basis. Under the SGI Agreement,  the Company is
required to make a minimum  dollar level of Onyx  purchases  and to use its best
efforts to market the Onyx at or above an annual  volume  level;  the  Company's
success in meeting this annual  marketing volume level determines the prices the
Company pays for the Onyx. There can be no assurance that the SGI Agreement will
be extended or that the Company will be able to obtain sufficient  quantities of
the Onyx or any successor  platform to the Onyx or that the 

                                      -12-
<PAGE>

Company will be able to satisfy the purchase and  marketing  requirements  under
the SGI Agreement.  Financial,  market or other developments adversely affecting
SGI could have an adverse  effect on its ability to supply the Company  with the
Onyx or  enhancements  or  upgrades  to the  Onyx  and,  consequently,  upon the
Company's  business,  financial  condition  and  results of  operations.  If the
Company  were unable to obtain  sufficient  quantities  of the Onyx or successor
platforms,  or certain key  enhancements or upgrades,  on a timely basis or on a
commercially   reasonable   terms,   or  experienced   defects  or  performance,
compatibility  or  reliability  problems  with the Onyx or successor  platforms,
sales of the ELSET Virtual Set and, therefore, the Company's business, financial
condition and results of operations would be materially and adversely affected.

         The  Company is  dependent  on sole  source  suppliers  for certain key
components  and parts used in its products.  The Company  purchases  sole source
components in some product lines pursuant to purchase orders placed from time to
time,  does not carry  significant  inventories  of these  components and has no
long-term supply arrangements. Financial, market or other developments adversely
affecting sole source  suppliers  could have an adverse effect on its ability to
supply  the  Company  with  components  and,  consequently,  upon the  Company's
business,  financial  condition  and results of  operations.  In  addition,  the
Company and certain of its  suppliers  subcontract  the  manufacture  of certain
systems, components and subassemblies to third parties. While the timeliness and
quality of deliveries to date from the Company's  suppliers and assemblers  have
been acceptable, there can be no assurance that supply or assembly problems will
not occur in the future. While the Company believes that alternative sources for
these  components or services  could be arranged,  the process of qualifying new
suppliers or assemblers could be lengthy, and there can be no assurance that any
additional  sources  would be available to the Company on a timely basis or at a
cost acceptable to the Company. Any disruption or reduction in the future supply
of any key components  currently  obtained from a single or limited source could
have a material adverse effect on the Company's  business,  financial  condition
and results of operations.

Competition

         The  video  production,   post-production  and  distribution  equipment
markets are highly  competitive  and are  characterized  by rapid  technological
change,  frequent  new product  introductions,  short  product  lives,  evolving
industry standards and significant price erosion over the life of a product. The
Company  anticipates  increased  competition in these markets from both existing
vendors  and  new  market  entrants.  The  Company  believes  that  the  primary
competitive  factors in the high-end market are feature  availability,  quality,
price, ease of use, compatibility with other manufacturers' products, ability to
provide  complete  systems,  continued  introduction of new products and product
enhancements,  customer  service  and  support  and  distribution.  The  Company
believes  that it  competes  favorably  in the  high-end  segment  of the  video
production,  post-production  and  distribution  market with  respect to most of
these factors.

         In the digital  on-line  video editor and digital  video disk  recorder
market, the Company has to date encountered competition primarily from a limited
number of  comparably-sized  companies  as well as larger  vendors  such as Sony
Corporation  ("Sony"),  Abekas  Video  Systems,  Inc.  (a  subsidiary  of Scitex
Corporation Ltd.) ("Abekas"), The Grass Valley Group (a subsidiary 

                                      -13-
<PAGE>

of Tektronix,  Inc.) ("Grass Valley"), and Avid Technology,  Inc. ("Avid"). Each
of these  larger  companies  has  substantially  greater  financial,  technical,
marketing,  sales and customer support  resources,  greater name recognition and
larger installed  customer bases than the Company.  As the Company  continues to
broaden its  lower-priced  on-line  video editor and digital video disk recorder
product  lines,  the  Company  anticipates  that  it  will  encounter  increased
competition, including from these larger vendors.

         The digital news graphics and clip server market is an emerging market.
The  Company  currently  is  encountering  competition  from  established  video
companies  such as Quantel Ltd. (a  subsidiary  of Carlton  Communications  plc)
("Quantel"), Leitch Technology Corporation ("Leitch") and Pinnacle Systems, Inc.
("Pinnacle").   In  addition,   certain  established  computer  and  electronics
companies are currently  offering or have  announced  their  intentions to offer
products or  solutions  that  compete with the Axess.  These  companies  include
Hewlett-Packard Co.  ("Hewlett-Packard")  and Sony, through a collaboration with
Oracle Corporation  ("Oracle").  In addition,  the Company expects that existing
vendors and new market entrants will develop products that will compete directly
with the Axess and that  competition  will increase  significantly as the market
for digital  news  graphics  and clip servers  develops.  Many of the  Company's
current  and  potential   competitors  have  substantially   greater  financial,
technical,  marketing,  sales  and  customer  support  resources,  greater  name
recognition and larger installed customer bases than the Company.

         The virtual set system market is also an emerging  market.  The Company
competes with Discreet Logic, Inc. ("Discreet Logic"), RT-SET Ltd. (a subsidiary
of BVR Technologies Ltd., an Israeli corporation), ORAD (an Israeli corporation)
and privately-held companies such as Brainstorm (a Spanish company). The Company
expects that competition  will increase  significantly as the market for virtual
set systems develops.  In addition,  certain  established  software and computer
companies such as SGI, which have substantially  greater  financial,  technical,
marketing, sales and customer support resources than the Company, may acquire or
develop virtual set technology and compete with the Company.

         Increased  competition in any of the Company's  markets could result in
price  reductions,  reduced  margins and loss of market  share,  all which would
materially and adversely affect the Company's business,  financial condition and
results of  operations.  There can be no assurance that the Company will be able
to compete successfully against current or future competitors.

Proprietary Rights and Licenses

Proprietary Rights

         The Company's  success and ability to compete is dependent in part upon
its proprietary technology. The Company relies on a combination of patent, trade
secret,   copyright  and  trademark  law,  nondisclosure  agreements  and  other
intellectual property methods to protect its technology.  The Company's products
are  generally  sold  pursuant to purchase and license  agreements  that contain
terms and conditions restricting unauthorized disclosure or reverse-compiling of
the proprietary  software embodied in the products.  The Company has been issued
seven United States patents,  six foreign patents and has  applications  pending
for two additional  

                                      -14-
<PAGE>

patents in the United States.  The Company is also pursuing patent  applications
in  certain  foreign  countries.  There  can  be no  assurance  that  any of the
Company's  currently pending patent  applications or future applications will be
granted in full or in part or that claims allowed will be sufficiently  broad to
protect the  Company's  technology.  The Company  also owns  certain  registered
trademarks  in  the  United  States  and  has  one  pending  foreign   trademark
application.  Although  the  Company  relies to a great  extent on trade  secret
protection for much of its technology,  and has obtained written confidentiality
agreements from all of its key employees,  consultants and vendors, there can be
no assurance that third parties will not either  independently  develop the same
or similar technology,  obtain unauthorized access to the Company's  proprietary
technology or misuse the technology to which the Company has granted access.

         There  has  been  substantial  industry  litigation  regarding  patent,
trademark and other intellectual property rights involving technology companies.
In the future,  litigation may be necessary to enforce any patents issued to the
Company,  to protect trade secrets,  trademarks and other intellectual  property
rights owned by the Company, to defend the Company against claimed  infringement
of the  rights  of  others  and to  determine  the  scope  and  validity  of the
proprietary  rights of others.  The  Company  is not aware of any stated  claims
against it regarding intellectual property rights. Any litigation arising out of
such claims  could result in  substantial  cost and  diversion of resources  and
could  have a  material  adverse  effect on the  Company's  business,  financial
condition and results of operations.  Adverse  determinations in such litigation
could  result  in the loss of the  Company's  proprietary  rights,  subject  the
Company to  significant  liabilities,  require the Company to seek licenses from
third parties or prevent the Company from manufacturing or selling its products,
any of which could have a material  adverse  effect on the  Company's  business,
financial condition and results of operations.

         The  Company  believes  that,  due to the  rapid  proliferation  of new
technology in the industry,  legal  protection  through means such as the patent
and copyright laws will be less influential on the Company's  ability to compete
than such factors as the creativity of its development  staff and its ability to
develop new products and markets and to service its customers.

         The  laws  of  certain  foreign   countries  treat  the  protection  of
proprietary  rights  differently  from those in the United  States,  and in many
cases the protection  afforded by such foreign laws is weaker than in the United
States.

ELSET Acquisition

         Development  of the  ELSET  Virtual  Set was  initiated  by  Video  Art
Production GmbH ("VAP"),  and all title and rights to the ELSET Virtual Set were
contributed  to ELSET GmbH when ELSET GmbH was formed as a joint  venture by the
Company and VAP in December 1994.  Through its  wholly-owned  subsidiary,  Accom
Virtual Studio, Inc. ("AVS"), the Company owns 100% of the outstanding shares of
ELSET GmbH. In connection  with the completion of the acquisition of 100% of the
outstanding  shares of ELSET GmbH in September  1995 (the "ELSET  Acquisition"),
the  Company  incurred a charge of  approximately  $10.8  million  for  acquired
in-process technology in fiscal 1995.

                                      -15-
<PAGE>

         Although all title and rights to the ELSET Virtual Set were contributed
to ELSET GmbH when it was formed as a joint  venture by the Company and VAP, VAP
has certain  obligations  under a December 1991 contract with the  Commission of
the  European  Communities  entitled  "Mona Lisa -- Modeling  Natural  Images of
Synthesis and Animation" (the "Mona Lisa  Contract").  In particular,  materials
developed  pursuant to the Mona Lisa Contract must be shared with all members of
the consortium of companies that  contribute to the Mona Lisa project (the "Mona
Lisa Consortium") for such members' research and development purposes.  However,
pursuant to the Mona Lisa Contract,  the materials need not be shared with other
members of the Mona Lisa  Consortium if such sharing  opposes the major business
interests of the developer or the products  covered by such  materials are about
to become commercially  available.  It is possible that the ELSET Virtual Set in
the form in which it was  contributed  to ELSET  GmbH by VAP  could be deemed to
have been developed pursuant to the Mona Lisa Contract. Even if this is found to
be the case,  the Company  believes that since the ELSET Virtual Set is about to
become commercially available, the earlier version need not be shared with other
members of the Mona Lisa Consortium. However, there can be no assurance that the
Mona Lisa Contract  would not be interpreted to require VAP to share the earlier
version.  Although the Company  believes that the development work that has been
undertaken  since the  contribution of the ELSET Virtual Set to ELSET GmbH would
make it difficult  for a member of the Mona Lisa  Consortium  to  duplicate  the
ELSET Virtual Set, if such sharing is required,  there can be no assurance  that
members of the Mona Lisa  Consortium,  acting alone or in concert,  would not be
able to use the shared  technology  to  develop,  market and sell a  competitive
virtual set system. In such event, the Company's  business,  financial condition
and results of operations  would be materially  adversely  affected.  It is also
possible that VAP has granted to the other  members of the Mona Lisa  Consortium
the right to use the  trademark  "ELSET."  Therefore,  there can be no assurance
that the  ELSET  GmbH  will be able to  claim  the  exclusive  right to use this
trademark,  which  could  have a  material  adverse  effect on the value of such
trademark to the Company.

Employees

         On  September  30,  1996,  the  Company  had  83  full-time  employees,
including 29 in research and development, 26 in marketing, sales and support, 20
in manufacturing and 8 in finance and administration. The Company's success will
depend in large part on its ability to attract and retain  qualified  personnel,
who are in great demand throughout the industry. None of the Company's employees
is  represented  by a labor  union.  The  Company  believes  that  its  employee
relations are good.

Additional Factors That May Affect Future Results

         The company  desires to take advantage of the "safe harbor"  provisions
of the  Private  Securities  Litigation  Reform Act of 1995.  Specifically,  the
Company wishes to alert readers that the following important factors, as well as
other factors,  could in the future affect,  and in the past have affected,  the
Company's actual results and could cause the Company's  results for future years
or quarters to differ  materially  from those  expressed in any forward  looking
statements made by or on behalf of the Company.

                                      -16-
<PAGE>

         Uncertainty  as to Development  and Market  Acceptance of ELSET Virtual
Set. The Company's ability to achieve revenue growth and profitability in fiscal
1997  and  subsequent  years  is  dependent  to a  significant  degree  upon the
successful  development  and  market  acceptance  of its ELSET  Virtual  Set,  a
prototype of which was introduced at the April 1995 NAB convention and the first
commercial  shipments of which were made in March 1996. The ELSET Virtual Set is
still being further developed with respect to certain key features,  including a
user  interface,  the  movement of cameras in the set and porting to the new SGI
Onyx 2 platform . There can be no  assurance  that the  Company  will be able to
successfully  complete these  developments  of the ELSET Virtual Set in a timely
manner.  The  failure to  complete  the  development  of the ELSET  Virtual  Set
successfully  and in a timely manner would have a material adverse impact on the
Company's business,  financial condition and results of operations. In addition,
the ELSET Virtual Set represents a new approach to studio set creation,  and its
commercial  success  will  depend  on the  rate at  which  potential  end  users
transition from the use of traditional physical sets to virtual sets and whether
this  transition  occurs at all. A potential end user's  decision to purchase an
ELSET Virtual Set will depend on many factors that are difficult to predict. For
example,  the  ELSET  Virtual  Set  is  based  to a  significant  extent  on new
technology,  including continuing enhancements to the Onyx. Therefore, potential
end users such as  broadcasters  may be reluctant to purchase the ELSET  Virtual
Set, especially for  mission-critical  functions,  until the ELSET Virtual Set's
reliability in real time use has been demonstrated. In addition, a potential end
user's decision to purchase the ELSET Virtual Set may be subject to SGI's timing
of shipments of the Onyx and SGI's announcement of enhancements to the Onyx. The
current U.S.  list price for the ELSET Virtual Set,  including the Onyx,  ranges
from  approximately  $675,000  to over $1.2  million,  depending  on the desired
functionality.  The Company  expects that these prices will be less once the new
Onyx 2 platform  from SGI is  available.  Potential  end users may  therefore be
unwilling to incur the significant  cost of converting from physical sets to the
ELSET Virtual Set. Although the Company currently  anticipates that broadcasters
and  post-production  facilities  will be the  primary  end users of virtual set
systems,  the Company has not conducted  any formal market  surveys to determine
the  potential  market for and  acceptance of the ELSET Virtual Set. The Company
expects  that sales of the ELSET  Virtual Set will  entail a longer  sales cycle
than with the  Company's  other  products.  Although  the Company made its first
commercial  shipments  of the ELSET  Virtual Set in March 1996,  there can be no
assurance that a significant market for virtual set systems will develop or that
the Company will be able to successfully market the ELSET Virtual Set over time.
If this market  development does not occur or occurs over an extended period, or
if the ELSET  Virtual  Set does not achieve  market  acceptance,  the  Company's
business,  financial  condition and results of operations will be materially and
adversely affected.

         Potential Fluctuations in Operating Results. The Company incurred a net
loss of $916,000 for fiscal 1996.  The Company also incurred a net loss of $10.8
million in fiscal 1995, primarily as a result of a charge of approximately $10.8
million for acquired in-process  technology.  There can be no assurance that the
Company will be  profitable  on a quarterly  or annual basis in the future.  The
Company's  quarterly  operating  results  have in the  past  fluctuated  and may
fluctuate  significantly  in the future  depending on such factors as the timing
and shipment of significant  orders,  new product  introductions  and changes in
pricing  policies  by the  Company  and its  competitors,  the timing and market
acceptance of the Company's new products

                                      -17-
<PAGE>

and product  enhancements,  particularly  the ELSET  Virtual Set, the  Company's
product  mix,  the mix of  distribution  channels  through  which the  Company's
products are sold, the Company's inability to obtain sufficient supplies of sole
or limited source  components for its products and charges related to refocusing
and streamlining operations. In response to competitive pressures or new product
introductions,  the Company may make certain  pricing  changes or other actions,
such as  restructuring  the product lines,  that could  materially and adversely
affect the Company's operating results. In addition,  new product  introductions
by the Company could contribute to quarterly  fluctuations in operating  results
as orders for new products  commence and orders for existing  products  decline.
The Company  believes that its net sales  generally  will decrease in the second
quarter of each fiscal year as compared to the prior quarter (as occurred in the
second   quarter  of  fiscal  1996)  due  to  decreased   expenditures   in  the
post-production  market  during  that  period and  delayed  customer  purchasing
decisions in anticipation of new product introductions by the Company and others
at the annual NAB convention.

         The Company  currently  anticipates that a number of factors will cause
its gross margins to decline in future periods from current levels.  The Company
believes  that the market for  on-line  video  editors  and  digital  video disk
recorders  will  continue to mature and,  therefore,  that the gross margins the
Company derives from sales of these products will decline in future periods. The
Company intends to increase its sales of  lower-margin  on-line video editor and
digital video disk recorder products in the future as it pursues the strategy of
broadening its lower-priced product lines.  Furthermore,  as the Company expands
its indirect  sales  channels,  its gross  margins will be  negatively  impacted
because of discounts associated with sales through these channels.  In addition,
the Company currently  anticipates that revenues from sales of the ELSET Virtual
Set will  positively  impact the Company's net sales but  negatively  impact its
gross  margins  because a  significant  portion of ELSET  Virtual  Set sales are
expected to be the resale of the Onyx,  which generates lower gross margins than
sales of the Company's products.

         The Company's expense levels are based, in part, on its expectations of
future  revenues.  In  particular,  the  Company  expects  to incur  significant
expenses in connection  with the further  development and marketing of the ELSET
Virtual Set. The Company may therefore be required to incur significant expenses
to support  continuing  development and marketing of the ELSET Virtual Set. Many
of the Company's  expenses are  relatively  fixed and cannot be changed in short
periods of time. Because a substantial  portion of the Company's revenue in each
quarter  frequently results from orders booked and shipped in the final month of
that  quarter,  revenue  levels are extremely  difficult to predict.  If revenue
levels are below expectations,  net income will be  disproportionately  affected
because only a small portion of the Company's  expenses  varies with its revenue
during any particular quarter. In addition,  the Company typically does not have
material backlog as of any particular date.

         As a result of the  foregoing  factors and  potential  fluctuations  in
operating  results,  the Company  believes that its results of operations in any
particular  quarter  should  not  be  relied  upon  as an  indicator  of  future
performance. In addition, in some future quarter the Company's operating results
may be below the  expectations of public market analysts and investors.  In such
event,  the price of the Company's  Common Stock would likely be materially  and
adversely affected.

                                      -18-
<PAGE>

         Dependence  on Silicon  Graphics,  Inc. The ELSET Virtual Set currently
operates  only on the  Onyx.  Under its  agreement  with the  Company  (the "SGI
Agreement"),  SGI has agreed to supply the Onyx and certain  enhancements to the
Company for one year,  after which the parties may mutually agree to extend this
agreement for subsequent  one-year terms.  SGI and the Company have not formally
renewed this agreement, but are operating under the original terms on an interim
basis. Although the Company expects to renew this agreement under similar terms,
there can be no assurance that such renewal will occur. Under the SGI Agreement,
the Company is required to make a minimum  dollar level of Onyx purchases and to
use its best  efforts  to market  the Onyx at or above an annual  volume  level.
There can be no assurance  that the SGI  Agreement  will be extended or that the
Company  will  be  able  to  obtain  sufficient  quantities  of the  Onyx or any
successor  platform to the Onyx or that the Company  will be able to satisfy the
purchase and marketing requirements under the SGI Agreement.  Financial,  market
or other  developments  adversely  affecting SGI could have an adverse effect on
its ability to supply the Company with the Onyx or  enhancements  or upgrades to
the Onyx and, consequently, upon the Company's business, financial condition and
results  of  operations.  If  the  Company  were  unable  to  obtain  sufficient
quantities of the Onyx or successor  platforms,  or certain key  enhancements or
upgrades, on a timely basis or on commercially  reasonable terms, or experienced
defects or performance,  compatibility or reliability  problems with the Onyx or
successor  platforms,  sales  of the  ELSET  Virtual  Set  and,  therefore,  the
Company's  business,  financial  condition  and results of  operations  would be
materially and adversely affected.

         Rapid Technological  Change;  Product  Development.  The market for the
Company's  products is characterized by rapidly  changing  technology,  evolving
industry standards and frequent new product introductions. The Company's success
will  depend in part upon its ability to enhance its  existing  products  and to
develop and introduce new products and features to incorporate new  technologies
and meet changing  customer  requirements and emerging  industry  standards in a
timely and  cost-effective  manner.  The  Company is  currently  developing  new
products  and product  enhancements  for its ELSET  Virtual Set,  on-line  video
editor and digital video disk recorder product lines.  There can be no assurance
that the Company will be successful in developing,  manufacturing  and marketing
these or other new products and product enhancements,  that the Company will not
experience  difficulties  that delay or prevent the successful  development  and
introduction  of these  products  and  enhancements  or that the  Company's  new
products and product enhancements will achieve market acceptance.  The Company's
business,  financial condition and results of operations would be materially and
adversely  affected if the Company were to experience  delays in developing  new
products or product  enhancements or if these products or  enhancements  did not
gain market acceptance.  In addition, the introduction of products embodying new
technologies  or the  emergence of new industry  standards  can render  existing
products  unmarketable.  There can be no assurance that products or technologies
developed by others will not render the Company's  products  non-competitive  or
obsolete. In such case, the Company's business,  financial condition and results
of operations would be materially and adversely affected.

         The  introduction  of  new  products  or  product   enhancements   with
reliability,  quality or compatibility problems can result in reduced or delayed
sales,  delays in  collecting  accounts  receivable  or  additional  service and
warranty costs.  In the past, the Company has delivered  certain new products to
customers   prematurely,   and,  as  a  result,  such  products  have  contained

                                      -19-
<PAGE>

performance  deficiencies.  For example,  in the first half of fiscal 1995,  the
Company first  delivered its Axess  (formerly  known as  Brontostore) to certain
customers.  The Company experienced  technical problems with the introduction of
Axess,  including delays in delivering additional  functionality when originally
requested by these customers. Similarly, the software component of the Company's
products,  particularly  the ELSET  Virtual Set, may contain  errors that may be
detected at any point in the  product's  life  cycle,  including  after  product
introduction.  For  example,  the Company has from time to time needed to update
the  software  for its  products to address  performance  problems.  The Company
expects the software  content of its  products to increase in the future.  There
can be no assurance that the Company will not experience  delays and software or
hardware related technical problems in its current and future efforts to develop
products  and product  enhancements.  Any such  delays or problems  could have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

         Dependence on Key  Personnel.  The Company's  success  depends in large
part  on the  continued  service  of its key  technical  and  senior  management
personnel and on its ability to attract,  motivate and retain  highly  qualified
employees.  None of the Company's key technical and senior management  personnel
is bound by an  employment  agreement  or an  agreement  not to compete with the
Company  following  termination of employment.  Competition for highly qualified
employees is intense, and the process of identifying and successfully recruiting
personnel with the combination of skills and attributes  required to execute the
Company's strategies is often lengthy.  Accordingly, the loss of the services of
key personnel could have a material  adverse effect upon the Company's  research
and development efforts and on its business,  financial condition and results of
operations.  There can be no assurance  that the Company will be  successful  in
retaining  its key  technical and  management  personnel  and in attracting  and
retaining the personnel it requires for  continued  growth.  The Company has key
person life insurance covering certain of its management personnel.

         Management of Growth.  The Company's  long-term  success will depend in
part on its ability to manage growth, both domestically and internationally.  In
addition,  the Company will be required to enhance its  operational,  management
information and financial  control systems.  The Company may be required at some
point to recruit a  substantial  number of  qualified  employees to continue the
development  and  marketing  of the ELSET  Virtual Set. To support  growth,  the
Company will be required to increase the  personnel in its sales,  marketing and
customer  support  departments.  If the  Company is unable to hire a  sufficient
number of employees  with the  appropriate  levels of experience to increase the
capacity of these departments in a timely manner, or if the Company is unable to
effectively manage its growth, the Company's  business,  financial condition and
results of operations could be materially and adversely affected.

         International  Operations.  In the fiscal 1996 and 1995,  international
sales  accounted for 38.2% and 51.1%,  respectively,  of the Company's total net
sales. The Company expects that international sales will continue to represent a
significant  portion of its net sales in the future.  The  Company's  results of
operations  may  be  adversely  affected  by  fluctuations  in  exchange  rates,
difficulties  in collecting  accounts  receivable,  tariffs and  difficulties in
obtaining   export   licenses.   Although  the  Company's  sales  are  currently
denominated in U.S. dollars, future international sales of the ELSET Virtual Set
may  result in  foreign  currency  denominated  sales.  Gains and  losses on the
conversion  to  U.S.   dollars  of   receivables   and  payables   arising  from
international

                                     -20-
<PAGE>

operations  may  contribute  to  fluctuations   in  the  Company's   results  of
operations.  In  addition,   international  sales  are  primarily  made  through
distributors and result in lower gross margins than direct sales.  Moreover, the
Company's  international  sales may be adversely  affected by lower sales levels
that  typically  occur during the summer months in Europe and other parts of the
world.  International sales and operations are also subject to risks such as the
imposition of governmental controls,  political instability,  trade restrictions
and changes in regulatory  requirements,  difficulties  in staffing and managing
international   operations,   generally  longer  payment  cycles  and  potential
insolvency  of  international  dealers.  There can be no  assurance  that  these
factors  will  not  have a  material  adverse  effect  on the  Company's  future
international  sales and,  consequently,  on the Company's  business,  financial
condition and results of operations.

         Dependence  on  Distributors.  The  Company  derives a majority  of its
revenues from sales through  distributors.  The Company  depends on distributors
for substantially  all of its international  sales. The loss of certain of these
distributors could have a material adverse effect on the Company. Certain of the
Company's  distributors  also act as distributors for competitors of the Company
and could devote greater effort and resources to marketing competitive products.
Because  the  Company's  products  are  sold to  high-end  video  professionals,
effective  distributors must possess sufficient  technical,  marketing and sales
resources  and  must  devote  these  resources  to a  lengthy  sales  cycle  and
subsequent  customer  support.  There  can be no  assurance  that the  Company's
current  distributors  will  be able to  continue  to  market  and  support  the
Company's existing products  effectively or that economic conditions or industry
demand will not adversely affect such distributors. The markets for new products
such as the ELSET  Virtual Set and digital  video disk based  servers  require a
different marketing,  sales,  distribution and support strategy than markets for
the Company's  other products.  In addition,  the Company  currently  intends to
expand its  existing  indirect  sales  channels  to  implement  its  strategy of
broadening its lower-priced on-line video editor and digital video disk recorder
product lines.  There can be no assurance that the Company's  distributors  will
choose or be able to  effectively  market and support  these new  products or to
continue to market the Company's existing  products.  A failure of the Company's
distributors  to  successfully  market and support the Company's  products would
have a material adverse effect on the Company's  business,  financial  condition
and results of operations.

         Substantial  Control  by  Existing  Stockholders;   Effect  of  Certain
Anti-Takeover  Provisions.  As of December 16,  1996,  the  Company's  executive
officers and directors, and their affiliates, beneficially own approximately 45%
of the Company's  outstanding Common Stock. As a result, the Company's executive
officers and directors and their affiliates will be able to exercise significant
influence  over the  Company  and its  business  and affairs as well as over the
election of directors,  regardless of how other  stockholders of the Company may
vote.  Furthermore,  acting together, such stockholders may be able to block any
change in control of the Company.  In addition,  the Board of Directors  has the
authority to issue up to 2,000,000 shares of undesignated Preferred Stock and to
determine the rights,  preferences,  privileges and  restrictions of such shares
without further vote or action by the Company's stockholders.  The rights of the
holders of Common  Stock will be subject to, and may be  adversely  effected by,
the  rights of the  holders  of any  Preferred  Stock  that may be issued in the
future.  The issuance of Preferred Stock could have the effect of making it more
difficult  for third  parties to acquire a majority  of the  outstanding  voting
stock of the  Company.  In  September  1996,  the  Company's  Board of Directors
adopted a 

                                      -21-
<PAGE>

stockholder rights plan, which entitles existing  stockholders of the Company to
certain rights  (including the right to purchase  shares of Preferred  Stock) in
the event of the acquisition of 15% or more of the Company's  outstanding common
stock,  or an  unsolicited  tender offer for such shares.  The  existence of the
rights plan could delay,  prevent, or make more difficult a merger, tender offer
or proxy  contest  involving  the Company.  Further,  certain  provisions of the
Company's  Amended and Restated  Certificate of Incorporation  and Bylaws and of
Delaware  law could  delay or make  difficult  a merger,  tender  offer or proxy
contest involving the Company.

         Possible  Volatility of Stock Price.  The Company's  stock price may be
subject to  significant  volatility,  particularly  on a  quarterly  basis.  Any
shortfall in revenue or earnings from levels expected by securities  analysts or
others could have an immediate  and  significant  adverse  effect on the trading
price of the  Company's  common  stock in any given  period.  Additionally,  the
Company may not learn of, or be able to confirm,  revenue or earnings shortfalls
until late in the fiscal  quarter or  following  the end of the  quarter,  which
could result in an even more  immediate and adverse effect on the trading of the
Company's common stock.  Finally,  the Company  participates in a highly dynamic
industry,  which may result in  significant  volatility of the Company's  common
stock price.

Item 2.  Properties

         The Company's  principal offices are located in Menlo Park,  California
and consist of  approximately  30,000  square feet under a lease that expires in
February  1997. The Company is currently in  negotiations  with its landlord and
expects to renew the lease.  The  Company  occupies a sales  office in  Reading,
England under a tenancy  agreement that is renewable  every 90 days. The Company
believes that its existing  facilities are adequate to meet its requirements for
the near  term and that  additional  space  will be  available  on  commercially
reasonable terms if needed.

Item 3.  Legal Proceedings

         There is no material  legal  proceeding to which the Company is a party
or to which any of its  properties are subject.  No material  legal  proceedings
were terminated in the year ended September 30, 1996.

Item 4.  Submission of Matters to a Vote of Security Holders

         None.

Executive Officers of the Company
<TABLE>

         The  executive  officers of the Company,  and their ages as of December
31, 1996, are as follows:
<CAPTION>

Name                                     Age                         Position(s)
----                                     ---                         -----------

<S>                                       <C>    <C>                                                            
Junaid Sheikh....................         43     Chairman of the Board, President and Chief Executive Officer
Robert L. Wilson.................         42     Executive Vice President, Chief Operating Officer,
                                                 Chief Financial Officer and Director

                                      -22-
<PAGE>

Ian Craven.......................         42     Senior Vice President, Engineering
Paul G. Hansil...................         52     Senior Vice President, Sales and Marketing
Lance E. Kelson..................         35     Vice President,Virtual Studios
Donald W. Petersen...............         51     Vice President, Manufacturing
</TABLE>

         Junaid  Sheikh has served as the  Chairman  of the  Company's  Board of
Directors  since June 1988 and as the Company's  President  and Chief  Executive
Officer since  November  1991. Mr. Sheikh was also the President and Chairman of
the  Board of  Directors  of Axial  Systems  Corporation  ("Axial"),  a maker of
on-line editing systems, from May 1990 to October 1991.

         Robert  L.  Wilson  has  served  as  Executive  Vice  President,  Chief
Operating  Officer and Chief Financial  Officer of the Company since joining the
Company in May 1994 and has served on the  Company's  Board of  Directors  since
April 1995.  From March 1991 to April 1994,  Mr.  Wilson served as President and
Chief  Executive  Officer of Grass Valley,  which  provides video systems to the
high-end  production  post-production  and broadcast market.  From March 1989 to
March 1991,  Mr.  Wilson was a Vice  President of the Merchant  Banking Group of
Wasserstein Perella & Co., Inc. ("Wasserstein  Perella"), an investment bank; in
that  capacity,  he was Chief  Financial  Officer  and a director  of the Wickes
Companies, which was an affiliate of Wasserstein Perella.

         Ian Craven has served as Senior Vice President,  Engineering  since the
merger of Axial with and into the Company in October 1991.  From October 1991 to
April 1995 he also served as a director of the Company.  From  February  1990 to
October 1991, Mr. Craven served as Vice President of Engineering  and a director
of Axial, which he co-founded.

         Paul G. Hansil has served as Senior Vice President, Sales and Marketing
of the Company since March 1995. From January 1992 to March 1995, Mr. Hansil was
with  Crawford   Communications,   Inc.,  a  diversified  media  production  and
post-production  company,  serving  initially  as  Vice  President  of  Business
Development and then as Executive Vice President.  From November 1990 to January
1992, Mr. Hansil was Senior Vice  President of Quantel,  a digital video systems
manufacturer.  From May 1987 to November  1990,  Mr.  Hansil  served as Regional
Sales Manager and as Vice President of Sales and Marketing for Abekas, a digital
video systems manufacturer.

         Lance E. Kelson has served as Vice  President,  Virtual  Studios  since
July 1996 and Vice  President  of Product  Planning of the Company  from October
1994 through June 1996.  From October 1991 to October 1994, Mr. Kelson served as
Vice President of Marketing.  In January 1990, Mr. Kelson  co-founded  Axial and
served as Vice  President of  Marketing  until the merger of Axial with and into
the Company in October 1991.

         Donald W. Petersen has served as Vice President,  Manufacturing  of the
Company since April 1990.

         Each executive  officer  serves at the sole  discretion of the Board of
Directors.

                                      -23-
<PAGE>

                                     PART II


Item 5.  Market for the Registrant's Common Stock and Related Shareholder 
         Matters

         The  Company's  Common  Stock has been  traded on the  Nasdaq  National
Market under the symbol ACMM since the effective  date of the Company's  initial
public offering on September 26, 1995. Prior to the initial public offering,  no
public market existed for the Common Stock. The price per share reflected in the
table below  represents  the range of low and high  closing  sale prices for the
Company's  Common  Stock as  reported  in the  Nasdaq  National  Market  for the
quarters indicated.

          Fiscal Year ended September 30, 1996                 High        Low
                                                               ----        ---
              First Quarter...............................     $9.75      $6.25
              Second Quarter..............................     $7.75      $5.00
              Third Quarter...............................     $5.63      $2.38
              Fourth Quarter..............................     $4.25      $1.00

          Fiscal Year ended September 30, 1995                 High        Low
                                                               ----        ---
              Fourth Quarter ended September 30, 1995 
              (from September 26, 1995)...................     $9.50      $8.00


         The Company had  approximately 95 stockholders of record as of December
16, 1996,  including several holders who are nominees for an undetermined number
of beneficial owners.

         The Company has never paid cash  dividends  on its capital  stock.  The
Company currently anticipates that it will retain all available funds for use in
the operation and expansion of its business,  and does not anticipate paying any
cash dividends in the foreseeable future. However, the Board of Directors of the
Company will review the dividend policy  periodically  to determine  whether the
declaration of dividends is appropriate.

                                      -24-
<PAGE>

Item 6.  Selected Consolidated Financial Data

         The following table presents  selected  consolidated  financial data of
the  Company.  This  historical  data  should  be read in  conjunction  with the
attached  consolidated  Financial  Statements  and the related notes thereto and
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" appearing in Item 7 of this Form 10-K. In addition, in order to take
advantage of the "safe harbor" provisions of the Private  Securities  Litigation
Reform Act of 1995,  the Company  hereby  notifies  readers that the factors set
forth above in Item 1 under "Additional Factors That May Affect Future Results,"
as well as other  factors,  could in the  future  affect,  and in the past  have
affected, the Company's actual results and could cause the Company's results for
future periods to differ  materially from those expressed in any forward looking
statements  made by or on behalf of the Company,  including  without  limitation
those made in the discussion set forth in Item 7 below.
<TABLE>

                      Selected Consolidated Financial Data
                      (in thousands, except per share data)
<CAPTION>

                                                            Fiscal Year Ended September 30,
                                                            -------------------------------
                                                  1992       1993        1994      1995(1)     1996
                                                 ------     -------    -------    -------    -------
<S>                                              <C>        <C>        <C>        <C>        <C>    
Consolidated Statement of Operations Data:
  Net sales...........................           $8,533     $12,230    $18,034    $21,312    $21,408
  Gross margin........................            5,401       6,927      9,591     11,175     10,398
  Operating income (loss).............              972       1,254      1,428   (10,792)     (1621)
  Net income (loss)...................              665         909        918   (10,840)      (916)
  Net income (loss) per share(2)......             0.15        0.21       0.20     (3.85)     (0.14)
  Shares used in computing
     net income (loss) per share(2)...            4,364       4,392      4,660      2,816      6,439



                                                            Fiscal Year Ended September 30,
                                                            -------------------------------
                                                  1992       1993        1994       1995       1996
                                                 ------     -------    -------    -------    -------
Balance Sheet Data:
  Working capital.....................           $3,210      $3,809     $4,522    $12,220    $11,171
  Total assets........................            6,075       8,169     10,111     19,712     17,279
  Long-term obligations...............               --          --         --         83         24
  Total stockholders' equity..........           $3,796      $4,731     $5,650    $13,679    $12,952
<FN>
---------------

(1) Reflects a charge of  approximately  $1.7 million in the second  quarter and
    $9.02 million in the fourth  quarter of fiscal 1995 for acquired  in-process
    technology.

(2) Computed on the basis described in Note 1 of Notes to Consolidated Financial
    Statements.
</FN>
</TABLE>

Item 7.  Management's  Discussion and Analysis of Financial Condition and 
         Results of Operations

Overview
         Accom designs, manufactures, markets and supports digital video systems
for the high-end production,  post-production and broadcast markets. The Company
was  incorporated  in December  1987 and began  shipments of its digital  signal
processing  products in fiscal 1988. In 

                                      -25-
<PAGE>

November 1991, the Company merged with Axial Systems  Corporation  ("Axial"),  a
developer  of  digital  on-line  editing  systems.  The first  shipments  of the
Company's  Axial(R) 2020 Visual  On-Line  Editing  System ("Axial 2020") and RTD
4224 digital video disk recorder (the "RTD")  occurred in fiscal 1992. The first
shipments of the  Company's  Brontostore(TM)  news graphics and clip server (the
"Brontostore", renamed "Axess" in April 1996) and the Company's lower cost Axial
2010 On-Line Editing System ("Axial 2010") and WSD(R) Work Station Disk Recorder
(the "WSD") occurred in fiscal 1994. In January 1995, the Company began shipping
the  WSD(R)/XL  Work  Station  Disk  Recorder  ("WSD/XL")  , in June 1996  began
shipping the WSD(R)/XLS and in September 1996 began shipping the WSD(R)/Xtreme.

         In September  1995,  the Company  increased its  ownership  interest in
ELSET Electronic-Set GmbH, a German limited liability company ("ELSET GmbH"), to
100% for  approximately  $7.6  million  in cash,  funded  with a portion  of the
proceeds of the Company's initial public offering (the "ELSET Acquisition").  At
the April 1995 National  Association of  Broadcasters  ("NAB")  convention,  the
Company  introduced a prototype of the ELSET(TM)  virtual set system (the "ELSET
Virtual  Set"),  which operates on a Silicon  Graphics,  Inc.  ("SGI")  Onyx(TM)
Reality Engine2 or OnyxTM Infinite Reality workstation (an "Onyx").  The Company
shipped its first ELSET  Virtual Set in the second  quarter of fiscal 1996.  See
"Additional Factors That May Affect Future Results" above.

         The Company's gross margin has historically  fluctuated from quarter to
quarter and  declined on an annual  basis.  As the Company  begins to resell the
Onyx as part of the ELSET Virtual Set, gross margins may decline. In the future,
gross margins will be dependent on the mix of higher and  lower-priced  products
and the  percentage  of sales  made  through  direct and  indirect  distribution
channels.

         The Company's  revenues are currently  derived  primarily  from product
sales.  The Company  generally  recognizes  revenue  upon product  shipment.  If
significant  obligations exist at the time of shipment,  revenue  recognition is
deferred until  obligations  are met.  Beginning in the second quarter of fiscal
1996, the Company's revenues included revenues from licensing of ELSET software.
In the fourth quarter of 1996, revenues also included the resale of SGI Onyxs.

         Software development costs are recorded in accordance with Statement of
Financial  Accounting Standards No. 86. To date, the Company has expensed all of
its software development costs.

Results of Operations
<TABLE>

    The  following  table  sets  forth,  for  the  periods  indicated,   certain
consolidated statement of operations data as a percentage of net sales:
<CAPTION>

                                                                    Fiscal Year Ended
                                                                      September 30,
                                                          -----------------------------------
                                                             1996         1995         1994
                                                          ---------    ---------    -------
<S>                                                         <C>          <C>          <C>   
Net sales ..........................................        100.0%       100.0%       100.0%
Cost of sales ......................................         51.4         47.6         46.8
                                                            -----        -----        -----

                                      -26-
<PAGE>

  Gross margin .....................................         48.6         52.4         53.2
Operating expenses:                                                                  
  Research and development .........................         18.3         17.8         18.7
  Marketing and sales ..............................         34.4         28.8         20.6
  General and administrative .......................          6.9          5.9          5.9
  Charge (credit)for acquired in-process technology          (3.5)        50.5       
                                                            -----        -----        -----
     Total operating expenses ......................         56.1        103.1         45.3
  Operating income (loss) ..........................         (7.6)       (50.6)         7.9
Interest and other income (expense), net ...........          1.0         (0.8)        (0.6)
                                                            -----        -----        -----
  Income (loss) before income taxes ................         (6.6)       (51.5)         7.4
Provision (benefit) for income taxes ...............         (2.3)%       (0.6)         2.3
                                                            -----        -----        -----
  Net income (loss) ................................         (4.3)%      (50.9)%        5.0%
                                                            =====        =====        =====
</TABLE>

Years Ended September 30, 1996, 1995 and 1994

   Net Sales.  The Company's annual net sales increased by 0.5% to $21.4 million
in  fiscal  1996,  18.3% to $21.3  million  in fiscal  1995,  and 47.5% to $18.0
million  in  fiscal  1994.  The  increase  in fiscal  1996 was due to  increased
shipments of the Axial editors and Axess (formerly  called  Brontostore) and the
initial shipments of the ELSET Virtual Set, offset by decreased shipments of the
RTD,  WSD, and the  Company's  digital  video signal  processing  products.  The
increase in fiscal 1995 was primarily due to increased  shipments of the WSD and
Axial 2010,  partially offset by lower  Brontostore  shipments.  The increase in
fiscal 1994 was primarily due to the initial  shipments of the WSD,  Brontostore
and Axial 2010,  partially  offset by lower RTD shipments.  International  sales
represented  approximately 38.2%, 51.1%, and 46.9% of the Company's sales during
fiscal 1996, 1995, and 1994.

   Cost of Sales. Gross margin was 48.6%, 52.4%, and 53.2% in fiscal 1996, 1995,
and 1994, respectively. Gross margin declined in fiscal 1996 due to increases in
inventory reserves and increased costs of manufacturing disk recording products.
Gross margin  declined in fiscal 1995 due to  increases  in  inventory  reserves
partially offset by sales of higher margin disk recording products. Gross margin
declined in fiscal 1994 due to  increased  sales of  lower-margin  WSD and Axial
2010 products.

   Research and Development. Research and development expenses increased by 3.6%
to $3.9 million in fiscal 1996, by 12.3% to $3.8 million in fiscal 1995,  and by
19.8% to $3.4 million in fiscal 1994.  The increase in fiscal 1996 was primarily
due to an increase in personnel  costs  related to ELSET  development  partially
offset by reduced  personnel costs in other product  development  areas and by a
decrease  in  prototyping  expenses  related to new product  introductions.  The
increase in fiscal 1995 was primarily due to an increase in prototyping expenses
related  to new  product  introductions  and  expenses  related to the hiring of
additional software engineers.  The increase in fiscal 1994 was primarily due to
an increase in expenses  related to the hiring of software  engineers.  Research
and  development  expenses as a percentage of net sales were 18.3%,  17.8%,  and
18.7% in fiscal 1996, 1995, and 1994, respectively.

                                      -27-
<PAGE>

   Marketing and Sales.  Marketing and sales expenses increased by 19.8% to $7.4
million in fiscal 1996, by 65.2% to $6.1 million in fiscal 1995, and by 74.6% to
$3.7 million in fiscal 1994.  The increase in fiscal 1996 resulted from a charge
of $594,000 related to write-downs of demonstration inventory used for marketing
purposes and staff  reductions as a result of implementing a plan to refocus and
streamline  operations  and  as a  result  of an  increase  in  ELSET  marketing
activities and an increase in salary expense for sales  personnel.  The increase
in fiscal 1995 was attributable to the initiation of ELSET marketing  activities
which included personnel and promotional  expenses, an increase in costs related
to sales  and  marketing  personnel,  an  increase  in  promotional  activities,
increased  trade show  expenditures,  an  increase  due to  commissions  paid to
independent sales  representatives,  and higher travel expenses. The increase in
fiscal 1994 was significantly attributable to an increase in expenses related to
the hiring of additional product and technical support  personnel,  and expenses
related to trade show and promotion expenditures for the Company's on-line video
editors and desktop digital video  recorders.  Marketing and sales expenses as a
percentage of net sales were 34.4%,  28.8%,  and 20.6% in fiscal 1996, 1995, and
1994, respectively.

   General and  Administrative.  General and  administrative  expenses increased
17.3% to $1.5 million in fiscal 1996,  18.4% to $1.3 million in fiscal 1995, and
by 47.5% to $1.1  million  in fiscal  1994.  The  increase  in  fiscal  1996 was
primarily due to an increase in insurance expenses. The increases in fiscal 1995
and  fiscal  1994  were   primarily   due  to  an  increase  in  financial   and
administrative  personnel  and costs  associated  with higher  staffing  levels.
General  and  administrative  expenses as a  percentage  of net sales were 6.9%,
5.9%, and 5.9% in fiscal 1996, 1995, and 1994, respectively.

   Charge for  acquired  in-process  technology.  In fiscal  1996,  the  Company
reversed $750,000 of charges for acquired  in-process  technology which had been
accrued in connection  with the ELSET  Acquisition  in fiscal 1995. The original
charges were for accrual of expenses which the Company  determined in 1996 would
not be incurred.  The Company incurred a charge of  approximately  $10.8 million
for acquired  in-process  technology in fiscal 1995. No such charge was incurred
in fiscal 1994.

   Interest  and  Other  Income   (Expense).   Net  interest  and  other  income
increasedto $209,000 in fiscal 1996. Net interest and other expense was $180,000
in fiscal 1995, a 17.6%  increase over fiscal 1994. The increase in interest and
other income in fiscal 1996 was  attributable  to an increase in interest earned
on  short-term  investments,  which  consist  primarily  of  proceeds  from  the
Company's  initial  public  offering in September  1995,  and as a result of the
Company paying down its outstanding bank  borrowings.  The increases in interest
and other  expense in fiscal 1995 and 1994 were due  primarily  to  increases in
indebtedness under the Company's bank line of credit.

   Provision  (Benefit)  for  Income  Taxes.  For fiscal  1996,  there was a tax
benefit of  approximately  $496,000,  or 35.1% of the pretax loss. The Company's
tax rate was reduced below the applicable  statutory  rates primarily due to the
utilization  of research and  development  tax credits.  

                                      -28-
<PAGE>

Income tax expense as a percentage of pretax income (loss) was 1.2% and 30.8% in
fiscal 1995 and 1994, respectively.


Liquidity and Capital Resources

    Since  inception,  the Company has financed its operations and  expenditures
for property and equipment through the sale of capital stock, borrowings under a
bank line of credit and term loans. On September 29, 1995 the Company  completed
its initial  public  offering and received  approximately  $17.8  million in net
proceeds.  On September 29, 1995 it completed the  acquisition  of the shares of
ELSET  GmbH it did  not  already  own  for  approximately  $7.6  million.  As of
September 30, 1996, the Company had $4.2 million of cash and cash equivalents.

    Operating  activities  used $3.7  million in net cash  during  fiscal  1996.
Operating  activities  provided $419,000 in net cash during fiscal 1995 and used
net cash in operations of $371,000 in fiscal 1994. Net cash used in 1996 was due
primarily to decreases in other  accrued  liabilities  and increases in accounts
receivable and inventories  partially  offset by increases in accounts  payable.
Net cash  provided in fiscal 1995  consisted  primarily of increases in accounts
payable and accrued  liabilities,  partially offset by increases in inventories.
Net cash used in fiscal  1994  consisted  primarily  of  increases  in  accounts
receivable  and  inventories,  partially  offset by net income and  increases in
accrued liabilities.

    The Company has a revolving  line of credit with  Comerica  Bank that allows
for  borrowings  of up to  $4.0  million,  subject  to  the  level  of  accounts
receivable.  As of September 30, 1996,  approximately $4.0 million of borrowings
was available under this line of credit,  of which the Company had no borrowings
outstanding.   Indebtedness  under  the  line  of  credit  accrues  interest  at
Comerica's  base  rate and is  secured  by  substantially  all of the  Company's
assets.  The line of credit  may be  terminated  by either  party  upon 30 days'
notice.  Borrowings  under the line of credit are  subject to certain  financial
covenants,  and the  Company  was in  compliance  with  all  such  covenants  at
September 30,1996.

    The Company  believes that its existing cash,  cash  equivalents  and credit
facilities  will be  sufficient to meet its cash  requirements  for at least the
next twelve months.  Although  operating  activities may provide cash in certain
periods,  to the extent the  Company  grows in the  future,  its  operating  and
investing activities may use cash and, consequently, such growth may require the
Company to obtain  additional  sources of  financing.  There can be no assurance
that any  necessary  additional  financing  will be  available to the Company on
commercially reasonable terms, or at all.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         See Item 14(a) for an index to the  consolidated  financial  statements
and supplementary financial information that are attached hereto.

Item 9.  Changes in and Disagreements with Accountants on Accounting and 
         Financial Disclosure

                                      -29-
<PAGE>

         Not applicable.

                                    PART III


         Certain  information  required by Part III is omitted  from this report
because the Company will file a definitive proxy statement within 120 days after
the end of its fiscal year  pursuant to Regulation  14A (the "Proxy  Statement")
for its annual  meeting of  shareholders  to be held  February  18, 1996 and the
information included therein is incorporated herein by reference.

Item 10. Directors and Executive Officers of the Registrant

         Information with respect to directors of the Company is incorporated by
reference   from   the    information    under   the   caption    "Election   of
Directors--Nominees" in the Company's Proxy Statement.

         Information as to the Company's  executive  officers appears at the end
of Part I of this report.

         Information  with  respect  to  compliance  with  Section  16(a) of the
Securities Exchange Act of 1934 is incorporated by refrence from the information
under the caption "Section 16(a) Beneficial  Ownership Reporting  Compliance" in
the Company's Proxy Statement.

Item 11. Executive Compensation

         Incorporated  by  reference  from the  information  under  the  caption
"Executive   Compensation  and  Related  Information"  in  the  Company's  Proxy
Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management

         Incorporated  by  reference  from the  information  under  the  caption
"Common Stock  Ownership of Certain  Beneficial  Owners and  Management"  in the
Company's Proxy Statement.

Item 13. Certain Relationships and Related Transactions

         Incorporated  by  reference  from the  information  under  the  caption
"Certain   Relationships  and  Related  Transactions"  in  the  Company's  Proxy
Statement.

                                      -30-
<PAGE>

                                     Part IV

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


(a)      The following documents are filed as part of this Report:

         (1)      Financial  Statements  and  Report  of  Ernst &  Young
                  LLP, Independent Auditors

                  Report of Ernst & Young LLP, Independent Auditors.

                  Consolidated Balance Sheet at September 30, 1996 and 1995.

                  Consolidated  Statements of Operations  Years ended  September
                  30, 1996, 1995 and 1994.

                  Consolidated  Statement of Shareholders'  Equity - Three years
                  ended September 30, 1996.

                  Consolidated  Statements  of Cash Flows Years ended  September
                  30, 1996, 1995, and 1994.

                  Notes to Consolidated Financial Statements.

         (2)      Financial Statement Schedules

                  The following financial statement schedule
                  is included herein:

                  Schedule II - Valuation and Qualifying
                  Accounts

                  Schedules  not listed  above  have been  omitted  because  the
                  information required to be set forth therein is not applicable
                  or is shown in the financial statements or notes thereto.

         (3)      Exhibits  (numbered  in  accordance  with  Item 601 of
                  Regulation S-K)


  Number                                 Description
  ------                                 -----------

  2.1(1)       Agreement  and Plan of Merger,  dated  October 14,  1991,  by and
               between the Company and Axial Systems Corporation.

  3.1(1)       Certificate of Incorporation of the Company.

  3.2(1)       Bylaws of the Company.

  3.3(1)       Amended and Restated  Certificate of Incorporation of the Company
               filed with the  Delaware  Secretary  of State upon the  Company's
               reincorporation in Delaware

  3.4(3)       Amended and Restated  Certificate of Incorporation of the Company
               filed with the  Delaware  Secretary  of State upon the closing of
               the Company's initial public offering.

                                      -31-
<PAGE>

  3.5          Certificate of Designation of Rights,  Preferences and Privileges
               of Series A Participating  Preferred Stock.  Reference is made to
               Exhibit 4.4

  4.1          Reference is made to Exhibits  3.1,  3.2,  3.3, 3.4, 3.5, 4.3 and
               4.4.

  4.2(1)       Specimen Common Stock Certificate.

  4.3(1)       Amended and  Restated  Investors'  Rights  Agreement  dated as of
               December 3, 1994, by and among the Company and the persons listed
               on Schedule A, B, and C thereto.

  4.4(4)       Preferred  Shares  Rights  Agreement,  dated as of September  13,
               1996,  between the Company and U.S. Stock  Transfer  Corporation,
               including the  Certificate of Designation of Rights,  Preferences
               and Privileges of Series A  Participating  Preferred  Stock,  the
               form of Rights  Certificate  and the  Summary of Rights  attached
               thereto as Exhibits A, B and C, respectively.

  10.1(1)      Form of  Indemnification  Agreement  between  the Company and its
               directors and officers.

  10.2(1)*     1995 Stock Option/Stock Issuance Plan.

  10.3(1)*     Employee Stock Purchase Plan.

  10.4(1)      Investment  Agreement,  dated  February 2, 1995, by and among VAP
               Video Art Production GmbH,  ELSET  Electronic-Set  GmbH,  Richard
               Kunicki, and Accom Virtual Studio, Inc.

  10.5(1)      Distribution  Agreement,  dated  February 2, 1995, by and between
               ELSET Electronic-Set GmbH and the Company.

  10.6(1)      Voting Agreement,  dated February 2, 1995, by and among VAP Video
               Art Production GmbH, Richard Kunicki, Accom Virtual Studio, Inc.,
               and the Company.

  10.7(1)      Agreement dated August 10, 1995 by and between the Company, Accom
               Virtual  Studio,  Inc.,  ELSET  Electronic-Set  GmbH, and Richard
               Kunicki.

  10.8(1)      Value-Added  Reseller  Agreement  dated June 30, 1995 between the
               Company and Silicon  Graphics,  Inc., and Addendum dated June 30,
               1995.

  10.9(1)      Lease dated January 28, 1992, by and between Menlo  Business Park
               and Patrician Associates, Inc., and the Company.

  10.10(1)     Loan and Security  Agreement dated May 31, 1994 between  Comerica
               Bank -- California and the Company.

  10.12(1)     Offer made by Accom Virtual Studio, Inc. and Accom Virtual Studio
               GmbH  to  purchase   from  Mr.   Robert  Vogel  shares  in  ELSET
               Electronic-Set  GmbH, and Mr.  Vogel's  acceptance of such offer.
               (Translation from German original.)

  10.13        Master Revolving Note  dated July 7, 1996 between Comerica Bank
               -- California and the Company

  11.1         Statement Re: Computation of Net Income per Share

  21.1         Subsidiaries of the Company.

  23.1         Consent of Ernst & Young LLP, Independent Auditors.

  24.1         Power of Attorney (reference is made to page 34 of this Report).

  27.1         Financial Data Schedule. 

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

(1)      Incorporated  by reference to exhibits filed in response to Item 16(a),
         "Exhibits," of the Registrant's  Registration Statement on Form S-1 and
         Amendment No. 1,  Amendment No. 2 and Amendment No. 3 thereto (File No.
         33-95728), which became effective on September 26, 1995.

                                      -32-
<PAGE>

(2)      Confidential  treatment has been granted as to certain portions of this
         Exhibit by the Securities and Exchange Commission.

(3)      Incorporated  by  reference  from an exhibit  filed with the  Company's
         Annual  Report on 10-K for the fiscal  year ended  September  30,  1995
         (File No. 0-26620).

(4)      Incorporated  by  reference  from an exhibit  filed with the  Company's
         Registration  Statement  on Form 8-A (File  No.  0-26620)  to  register
         Preferred Share Purchase Rights under the Company's  stockholder rights
         plan, adopted by the Company's board of directors on September 3, 1996.

*        Management contract or compensatory plan or arrangement

(b)      Reports on Form 8-K

         No  Reports  on Form 8-K were  filed  during  the  three  months  ended
September 30, 1996.


                                      -33-
<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 in the City of Menlo
Park, California on this 17 day of December 1996.

                                  ACCOM, INC.


                                  By: /s/       ROBERT L. WILSON 
                                      -----------------------------------------
                                                Robert L. Wilson
                                      Executive Vice President, Chief Operating
                                         Officer and Chief Financial Officer


                                POWER OF ATTORNEY


         KNOW ALL PERSONS BY THESE  PRESENTS,  that each person whose  signature
appears  below  constitutes  and  appoints  Junaid  Sheikh and Robert L. Wilson,
jointly  and  severally,   his   attorneys-in-fact,   each  with  the  power  of
substitution,  for him in any and all capacities, to sign any amendments to this
Report on Form  10-K,  and to file the same,  with  exhibits  thereto  and other
documents in connection  therewith with the Securities and Exchange  Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact,  or his
substitute or substitutes may do or cause to be done by virtue hereof.
<TABLE>

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this Report has been signed below by the following persons in the capacities and
on the dates indicated.
<CAPTION>

        Signature                                    Title                                  Date
        ---------                                    -----                                  ----

<S>                             <C>                                                   <C> 
/s/     JUNAID SHEIKH           Chairman of the Board of Directors, President         December 17, 1996
---------------------------
       (Junaid Sheikh)          and Chief Executive Officer (Principal
                                Executive Officer)

/s/   ROBERT L. WILSON          Executive Vice President, Chief Operating             December 17, 1996
---------------------------
     (Robert L. Wilson)         Officer, Chief Financial Officer, and Director
                                (Principal Financial and Accounting Officer)

/s/    LIONEL M. ALLAN          Director                                              December 17, 1996
---------------------------
      (Lionel M. Allan)

/s/    GARY W. KALBACH          Director                                              December 17, 1996
---------------------------
      (Gary W. Kalbach)

</TABLE>

                                      -34-

<PAGE>

                        Consolidated Financial Statements
                                   Accom, Inc.
                  Years ended September 30, 1996, 1995 and 1994
                       with Report of Independent Auditors



<PAGE>


                                   Accom, Inc.

                        Consolidated Financial Statements

                  Years ended September 30, 1996, 1995 and 1994




                                    Contents

Report of Ernst & Young LLP, Independent Auditors.......................... F-1
                                                                            
Audited Consolidated Financial Statements                                   
                                                                            
Consolidated Balance Sheets................................................ F-2
Consolidated Statements of Operations...................................... F-3
Consolidated Statement of Stockholders' Equity............................. F-4
Consolidated Statements of Cash Flows...................................... F-5
Notes to Consolidated Financial Statements................................. F-7
                                                                            

<PAGE>

                Report of Ernst & Young LLP, Independent Auditors


The Board of Directors and Stockholders
Accom, Inc.

We have audited the accompanying  consolidated  balance sheets of Accom, Inc. at
September  30,  1996  and  1995,  and the  related  consolidated  statements  of
operations,  stockholders'  equity and cash flows for each of the three years in
the period ended  September  30, 1996.  Our audits also  included the  financial
statement schedule listed in the Index at Item 14(a). These financial statements
and  schedule  are  the   responsibility  of  the  Company's   management.   Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts 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 and schedule
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 consolidated  financial  position of Accom, Inc. at
September 30, 1996 and 1995, and the consolidated  results of its operations and
its cash flows for each of the three  years in the period  ended  September  30,
1996, in conformity with generally accepted accounting principles.  Also, in our
opinion,  the related financial statement schedule,  when considered in relation
to the basic  financial  statements  taken as a whole,  present  fairly,  in all
material respects, the information set forth therein.


                                             Ernst & Young LLP


Palo Alto, California
October 29, 1996


                                       F-1
<PAGE>
<TABLE>

                                   Accom, Inc.

                           Consolidated Balance Sheets
<CAPTION>

                                                                                       September 30,
                                                                                      1996       1995
                                                                                  ----------------------
                                                                                       (In thousands)
<S>                                                                                <C>         <C>
Assets
Current assets:
   Cash and cash equivalents                                                       $  4,221    $  8,769
   Accounts receivable, net of allowance for doubtful accounts of $223 and $221
     in 1996 and 1995, respectively                                                   4,714       3,754
   Inventories                                                                        5,447       4,736
   Deferred tax assets                                                                  695         508
   Prepaid expenses and other current assets                                            377         295
                                                                                   --------    --------
Total current assets                                                                 15,454      18,062

Property and equipment, net                                                           1,683       1,596
Other assets                                                                            142          54
                                                                                   --------    --------
                                                                                   $ 17,279    $ 19,712
                                                                                   ========    ========
Liabilities and stockholders' equity 
Current liabilities:
   Bank borrowings - line of credit                                                $   --      $   --
   Notes payable                                                                         58          58
   Accounts payable                                                                   2,242       1,719
   Accrued compensation                                                                 328         318
   Accrued inventory purchases                                                           (6)        530
   Accrued initial public offering costs                                                 11         830
   Accrued ELSET transaction costs                                                      265         619
   Other accrued liabilities                                                            792         706
   Income taxes payable                                                                --           650
   Customer deposits                                                                     65          76
   Deferred revenue                                                                     528         336
                                                                                   --------    --------
Total current liabilities                                                             4,283       5,842

Note payable - noncurrent                                                                24          83
Deferred tax liabilities                                                                 20         108

Commitments

Stockholders' equity:
   Preferred stock, $0.001 par value;  2,000,000 shares authorized,  issuable in
     series; no shares issued and outstanding in 1996 and 1995
                                                                                       --          --
   Common  stock,  $0.001 par value;  20,233,497 shares authorized; 6,493,734
     shares and 6,404,197 shares issued and outstanding in 1996 and 1995,
     respectively                                                                         7           6
   Additional paid-in capital                                                        21,317      21,128
   Retained earnings (accumulated deficit)                                           (8,372)     (7,455)
                                                                                   --------    --------
Total stockholders' equity                                                           12,952      13,679
                                                                                   --------    --------
                                                                                   $ 17,279    $ 19,712
                                                                                   ========    ========
<FN>

                             See accompanying notes.
</FN>
</TABLE>

                                       F-2
<PAGE>



                                   Accom, Inc.

                      Consolidated Statements of Operations

                     (In thousands, except per-share data)


                                                    Years ended September 30,
                                                  1996        1995        1994
                                               --------    --------    --------

Net sales                                      $ 21,408    $ 21,312    $ 18,034

Cost of sales                                    11,010      10,137       8,443
                                               --------    --------    --------
Gross margin                                     10,398      11,175       9,561


Operating expenses:
     Research and development                     3,926       3,791       3,375
     Marketing and sales                          7,356       6,142       3,717
     General and administrative                   1,487       1,268       1,071
     Charge (credit) for acquired in-process
          technology                               (750)     10,766        --
                                               --------    --------    --------
Total operating expenses                         12,019      21,967       8,163
                                               --------    --------    --------

Operating income (loss)                          (1,621)    (10,792)      1,428

Interest income                                     235           7           8

Interest expense                                    (12)       (120)       (102)

Other expense                                       (14)        (67)         (8)
                                               --------    --------    --------
Income (loss) before income taxes                (1,412)    (10,972)      1,326

Provision (benefit) for income taxes               (496)       (132)        408
                                               --------    --------    --------
Net income (loss)                              $   (916)   $(10,840)   $    918
                                               ========    ========    ========

Net income (loss) per share                    $  (0.14)   $  (3.85)   $   0.20
                                               ========    ========    ========

Shares used in computation of net income
     (loss) per share                             6,439       2,816       4,660
                                               ========    ========    ========

                             See accompanying notes.

                                      F-3
<PAGE>
<TABLE>

                                                    Accom, Inc.

                                  Consolidated Statements of Stockholders' Equity

                                         (In thousands, except share data)

<CAPTION>
                                                                                                              
                                                                                                              
                                                       Convertible Preferred Stock        Common Stock        
                                                     ------------------------------------------------------   
                                                         Shares          Amount         Shares       Amount   
                                                     -------------------------------------------------------

<S>                                                    <C>          <C>              <C>         <C>          
Balance at September 30, 1993                          1,478,965    $         1      2,337,914   $         2  
   Issuance of common stock upon exercise of stock
     options                                                --             --            1,040          --    
   Net income                                               --             --             --            --    
                                                       ---------    -----------      ---------   -----------  
                                                                                                              
Balance at September 30, 1994                          1,478,965              1      2,338,954             2  
   Issuance of Series B preferred stock, net of
     issuance costs of $83                               416,914              1           --            --    
   Issuance of common stock upon exercise of stock
     options                                                --             --           44,364          --    
   Conversion of preferred stock into common stock    (1,895,879)            (2)     1,895,879             2  
   Initial public offering of common stock, net of
     issuance costs of $2,496                               --             --        2,125,000             2  
   Net loss                                                 --             --             --            --    
                                                       ---------    -----------      ---------   -----------  
Balance at September 30, 1995                               --             --        6,404,197             6  
   Issuance of common stock upon exercise of stock
     options                                                                            36,364            
    Purchase of common stock through
     Employee Stock Purchase Plan                                                       53,173            
   Net Loss                                                 
                                                       ---------    -----------      ---------   -----------  
                                                                                                              
Balance at September 30, 1996                               --       $        -      6,493,734   $         6  
                                                       =========    ===========      =========   ===========
</TABLE>

                                      F-4

<PAGE>

Continued ....

<TABLE>
                                               Accom, Inc.

                             Consolidated Statements of Stockholders' Equity

                                    (In thousands, except share data)

<CAPTION>

                                                       
                                                                            Retained                    
                                                              Additional     Earnings       Total       
                                                               Paid-In    (Accumulated   Stockholders'  
                                                               Capital      Deficit)      Equity
                                                        ------------------------------------------------
                                                         
<S>                                                        <C>           <C>            <C>        
Balance at September 30, 1993                              $     2,261   $     2,467    $     4,731
   Issuance of common stock upon exercise of stock       
     options                                                         1          --                1
   Net income                                                     --             918            918
                                                           -----------   -----------    -----------
Balance at September 30, 1994                                    2,262         3,385          5,650
   Issuance of Series B preferred stock, net of          
     issuance costs of $83                                       2,217          --            2,218
   Issuance of common stock upon exercise of stock       
     options                                                        22          --               22
   Conversion of preferred stock into common stock                --            --             --
   Initial public offering of common stock, net of       
     issuance costs of $2,496                                   16,627          --           16,629
   Net loss                                                       --         (10,840)       (10,840)
                                                           -----------   -----------    -----------
Balance at September 30, 1995                                   21,128        (7,455)        13,679
   Issuance of common stock upon exercise of stock       
     options                                                        19                           19
    Purchase of common stock through                     
     Employee Stock Purchase Plan                                  170                          170
   Net Loss                                                                     (916)          (916)
                                                           -----------   -----------    -----------
Balance at September 30, 1996                              $    21,317   $    (8,371)   $    12,952
                                                           ===========   ===========    ===========
                                                         
</TABLE>


                             See accompanying notes.

                                       F-4(a)
<PAGE>
<TABLE>

                                           Accom, Inc.

                              Consolidated Statements of Cash Flows

                         Increase (Decrease) in Cash and Cash Equivalents

                                          (In thousands)
<CAPTION>

                                                                  Years ended September 30,
                                                                1996        1995          1994
                                                            ------------------------------------

<S>                                                        <C>           <C>           <C>
Cash flows from operating activities
Net income (loss)                                          $   (916)     $(10,840)     $    918  
Adjustments to reconcile net income (loss) to net cash                               
   provided by (used in) operating activities:                                       
   Change (credit) for acquired in-process technology          (750)       10,766          --
   Depreciation and amortization                                760           533           343
   Changes in operating assets and liabilities, net of                               
     effects of acquisition:                                                         
     Accounts receivable                                       (960)          173          (775)
     Inventories                                               (711)         (539)       (1,075)
     Deferred tax assets, net                                  (275)          (17)          (65)
     Prepaid expenses and other current assets                  (82)         (155)          (31)
     Accounts payable                                           523           503           (66)
     Accrued compensation                                        10            84            17
     Other accrued liabilities                                 (873)          283           470
     Income taxes payable                                      (650)         (128)          128
     Customer deposits                                          (11)         (206)          (39)
     Deferred revenue                                           192           (38)         (196)
                                                           --------      --------      --------
                                                                                     
Net cash provided by (used in) operating activities          (3,743)          419          (371)
                                                           --------      --------      --------
                                                                                     
Cash flows from investing activities                                                 
Acquisition of ELSET, net of cash acquired                     --          (9,195)         --
Expenditures for property and equipment                        (847)         (965)         (588)
Other assets                                                    (88)           (1)            5
                                                           --------      --------      --------
Net cash used in investing activities                          (935)      (10,161)         (583)
                                                           --------      --------      --------
Cash flows from financing activities                                                 
Borrowings on line of credit                                   --           1,850         1,350
Payments on line of credit                                     --          (2,875)       (1,175)
Borrowings on notes payable                                    --             175           500
Repayments on notes payable                                     (58)         (534)         --
Issuance of convertible preferred stock                        --           2,218          --
Issuance of common stock                                        188        17,481             1
                                                           --------      --------      --------
Net cash provided by financing activities                       130        18,315           676
                                                           --------      --------      --------
Net increase (decrease) in cash and cash equivalents         (4,548)        8,573          (278)
Cash and cash equivalents at beginning of period              8,769           196           474
                                                           --------      --------      --------
Cash and cash equivalents at end of period                 $  4,221      $  8,769      $    196
                                                           ========      ========      ========
                                                                                   
<FN>

                             See accompanying notes.
</FN>
</TABLE>
 
                                      F-5

<PAGE>


                                   Accom, Inc.

                Consolidated Statements of Cash Flows (continued)

          Increase (Decrease) in Cash and Cash Equivalents (continued)

                                 (In thousands)

                                                     Years ended September 30,
                                                    1996        1995      1994
                                                   -----------------------------

Supplemental disclosure of cash flow information
Interest paid                                       $  11       $ 120     $  87
                                                    =====       =====     =====
Income taxes paid                                   $   2       $ 118     $ 366
                                                    =====       =====     =====
Supplemental disclosure of noncash                                      
   investing and financing activities                                   
Accrued acquisition costs                           $(354)      $ 619     $ --
                                                    =====       =====     =====
Net liabilities assumed in acquisition              $ --        $ 892     $ --
                                                    =====       =====     =====
Conversion of preferred stock to common                                 
   stock (par value)                                $ --        $   1     $ --
                                                    =====       =====     =====
Accrued initial public offering costs               $(819)      $ 830     $ --
                                                    =====       =====     =====
                                                                        
                                                                        
                                     F-6
  
<PAGE>
                                   Accom, Inc.

                   Notes to Consolidated Financial Statements

                               September 30, 1995


                                                                      
1. Summary of Significant Accounting Policies

Accom,  Inc.  (the  "Company" or "Accom") was founded in  California in December
1987 and  reincorporated  in the State of Delaware on September 14, 1995.  Accom
designs,  manufactures,  markets  and  supports  digital  video  systems for the
high-end production, post-production and broadcast markets.

On September 29, 1995, the Company completed an underwritten  public offering of
its common stock. At the closing of the IPO, all outstanding  shares of Series A
and B convertible  preferred stock were converted into shares of common stock on
a one-for-one basis.

Basis of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its wholly owned  subsidiaries  after  elimination of  significant  intercompany
transactions and balances.

Major Customers and Concentration of Credit Risk

The Company sells its processing  equipment to customers in the content creation
and broadcast  markets  primarily in North America,  Europe and the Pacific Rim.
The Company performs  ongoing credit  evaluations of its customers and generally
does not require  collateral.  The Company  maintains  allowances  for potential
credit  losses  and such  losses  have  historically  been  within  management's
expectations. No customers accounted for 10% or more of net sales in fiscal 1996
and fiscal 1995.  During  fiscal 1994,  one  customer  accounted  for 11% of net
sales.  Export sales for fiscal 1996, 1995, and 1994 were approximately 38%, 51%
and 47%, respectively.  Export sales to Europe and the Pacific Rim as percentage
of total sales were 14% and 19%,  respectively,  for fiscal  1996,  19% and 24%,
respectively, for fiscal 1995, 14% and 21%, respectively, for fiscal 1994.

Revenue Recognition

The Company generally recognizes revenue upon shipment of its systems. Estimated
costs for insignificant post shipment obligations are accrued for at the time of
shipment.  If significant post shipment  obligations exist or there are concerns
about collection at the time of shipment,  revenue is deferred until obligations
are met or collection occurs.

                                      F-7
<PAGE>


                                   Accom, Inc.


             Notes to Consolidated Financial Statements (continued)


1. Summary of Significant Accounting Policies (continued)

Investment in ELSET; Acquired In-Process Technology

The Company's investment in ELSET (see Note 2), a development stage enterprise,
was charged to expense as acquired  in-process  technology,  reflecting  ELSET's
stage of product  development.  At September  30, 1996,  ELSET is a wholly owned
consolidated subsidiary.

Cash, Cash Equivalents and Short-Term Investments

Cash equivalents consist of financial  investments with maturities of 90 days or
less at the time of acquisition that are readily  convertible into cash and have
insignificant  interest  rate risk.  At  September  30, 1996,  cash  equivalents
consist  of  money  market  accounts,  commercial  paper,  treasury  bills,  and
municipal auction notes.

Inventories

Inventories,  which include demonstration  equipment, are stated at the lower of
cost (first-in, first-out) or market.

Property and Equipment

Property  and  equipment  is  stated  at  cost  and  is  depreciated  using  the
straight-line method over the assets' estimated useful lives, generally three to
five years.

Per-Share Data

Except  as noted  below,  net  income  (loss)  per share is  computed  using the
weighted  average  number  of  common  and  dilutive  common  equivalent  shares
(dilutive  in  1994  only)  outstanding  during  the  period.   Dilutive  common
equivalent  shares  consist  of the  incremental  common  shares  issuable  upon
conversion of the convertible  preferred stock (using the  if-converted  method)
and shares issuable upon the exercise of stock options (using the treasury stock
method).  In addition,  pursuant to the Securities and Exchange Commission Staff
Accounting  Bulletins and Staff policy, such computations  through June 30, 1995
include all dilutive and antidilutive common and common equivalent shares issued
at prices below the public  offering  price during the 12-month  period prior to
the initial filing of the public offering and have been included as if they were
outstanding  for all periods  presented  using the treasury stock method and the
initial public offering price of $9.00.

                                      F-8
<PAGE>



                                   Accom, Inc.


             Notes to Consolidated Financial Statements (continued)

  
1. Summary of Significant Accounting Policies (continued)

Per-Share Data (continued)

Had the  conversion of the shares taken place at the beginning of the year,  net
loss per share for the year ended  September  30, 1995 would have been $2.47 and
the number of shares 4,394,000.

Accounting Change - Income Taxes

In February 1992, the Financial  Accounting Standards Board issued Statement No.
109,  "Accounting  for Income Taxes." The Company  adopted the provisions of the
standard in its 1993  financial  statements and has elected to restate all prior
periods.  The  effect of  adopting  Statement  109 was to reduce  net  income by
$156,000  for the year  ended  September  30,  1993.  The  cumulative  effect of
adopting  Statement  109 as of October  1, 1992 was to  increase  the  beginning
balance of retained earnings by $407,000. The cumulative effect is primarily the
result of recording a benefit for the 1991 net operating  loss of Axial Systems,
Inc. in the year incurred in accordance with the principles of Statement 109.

Under  Statement  109, the  liability  method is used in  accounting  for income
taxes.  Under this method,  deferred tax assets and  liabilities  are determined
based on  differences  between  financial  reporting and tax bases of assets and
liabilities  and are measured  using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.

2. ELSET Acquisition

On February 2, 1995, the Company and its wholly owned subsidiary,  Accom Virtual
Studio, Inc. ("AVS"), entered into several related agreements with VAP Video Art
Production GmbH ("VAP"),  ELSET  Electronic-Set  GmbH ("ELSET"),  a newly formed
German company, and Richard Kunicki, the majority shareholder of VAP.

As of June 30, 1995, AVS had acquired 25% of ELSET's share capital from VAP, and
recorded  a charge for  acquired  in-process  technology  of  $1,742,000,  which
reflects a  $1,500,000  investment  made or accrued  through  June 30, 1995 plus
$242,000 of other costs, including transaction costs.

                                      F-9

<PAGE>


                                   Accom, Inc.


             Notes to Consolidated Financial Statements (continued)


2. ELSET Acquisition (continued)

On September 29, 1995,  the Company  completed the  acquisition of the remaining
75%  from VAP and one  individual  stockholder,  of  ELSET's  outstanding  share
capital  for $7.6  million.  The  Company  accounted  for the  transaction  as a
purchase.  The purchase  price was  $9,024,000 and consisted of the $7.6 million
paid for the share capital,  $892,000 of ELSET liabilities  assumed in excess of
its assets and $532,000 of estimated  transaction  costs.  Based on the stage of
the acquired  technology  at the date of  acquisition,  the  purchase  price was
charged to acquired in-process  technology and charged to expense in the quarter
ended September 30, 1995.

At September 30, 1996, the Company re-evaluated its estimates of the liabilities
assumed  based  on  information  available  at the  time.  As a  result  of this
re-evaluation,  $750,000  was  reversed  as a  credit  for  acquired  in-process
technology in the quarter ended September 30, 1996.

The  following  unaudited  pro forma  financial  summary is  presented as if the
operations  of the Company and ELSET were  combined as of October 20, 1994,  the
date of inception of ELSET.  The  unaudited pro forma  combined  results are not
necessarily  indicative  of the actual  results that would have occurred had the
purchase  been  consummated  at this date,  or of the future  operations  of the
combined entities.

In accordance with SEC Regulation S-X, Rule 11-02(b)(5),  nonrecurring  charges,
such as the  charge  for  acquired  in-process  technology  resulting  from  the
acquisition of the 75% interest in ELSET, are not reflected in the following pro
forma financial summary:

                                                Fiscal Year   
                                                   Ended
                                               September 30,
                                                   1995
                                              ----------------
                                               (In thousands)
                                                (Unaudited)

Revenues                                          $21,312
                                              ================
Net loss                                          $(1,978)
                                              ================
Net loss per share                                $ (0.70)
                                              ================

                                      F-10
<PAGE>


                                   Accom, Inc.


             Notes to Consolidated Financial Statements (continued)


3. Inventories

Inventories consist of the following:

                                                    September 30,
                                              1996                  1995
                                         -----------------------------------
                                                   (In thousands)

Purchased parts and materials              $  1,105                $1,075
Work-in-process                               1,842                   985
Finished goods                                  440                   611
Demonstration inventory                       2,060                 2,065
                                        ------------------------------------
                                           $  5,447                $4,736
                                        ====================================

4. Property and Equipment

Property and equipment consist of the following:

                                                   September 30,
                                             1996                  1995
                                        ------------------------------------
                                                   (In thousands)

Machinery and equipment                    $  2,574             $   2,033
Furniture and fixtures                          207                   204
Computer equipment                            1,171                   868
                                        ------------------------------------
                                              3,952                 3,105
Less accumulated depreciation                (2,269)               (1,509)
                                        ------------------------------------
Net property and equipment                 $  1,683             $   1,596
                                        ====================================

                                      F-11

<PAGE>



                                   Accom, Inc.


             Notes to Consolidated Financial Statements (continued)


5. Bank Borrowings

The  Company  has a  revolving  line of  credit  with a bank  which  allows  for
borrowings up to $4,000,000,  subject to the level of accounts receivable. As of
September  30,  1996,  the Company had no  borrowings  outstanding.  The line of
credit remains in effect until  terminated by either party upon 30 days' notice.
Interest  on the line of  credit  accrues  at the  bank's  base  rate  (8.25% at
September  30, 1996).  Borrowings  under the line are secured by all property of
the  Company.  Borrowings  on the  credit  arrangement  are  subject  to certain
financial  covenants.  As September 30, 1996, the Company was in compliance with
these financial covenants.

In March 1995,  the Company  entered into a variable  interest note payable with
the  same  bank  in the  amount  of  $175,000,  which  is due in  equal  monthly
installments  plus interest through April 1, 1998. The interest rate on the note
is equal to the  bank's  base rate plus  0.75%  (9.0% at  September  30,  1996).
Borrowings under the note are secured by certain assets of the Company.

6. Commitments

Leasing Arrangements

The Company leases its office and  manufacturing  facility under operating lease
agreements. Rent expense for fiscal years 1994, 1995 and 1996 was approximately,
$424,000, $430,000 and $ 424,000, respectively.

Minimum future rental payments under noncancelable  leases at September 30, 1996
are as follows (in thousands):

        1997                                                $245  
        1998                                                  19
                                                          --------
        Total                                               $264
                                                          ========

                                      F-12

<PAGE>


                                   Accom, Inc.


             Notes to Consolidated Financial Statements (continued)



6. Commitments (continued)

401(k) Plan

The Company has a 401(k)  plan under which the  employee  may defer and invest a
portion of his or her annual compensation up to certain annual limitations.  The
Company may, at its discretion, make certain matching contributions to the plan.
The Company has made no contributions  to the 401(k) plan through  September 30,
1996.

7. Stockholders' Equity

Stock Options

Under the  Company's  Restated  1990 Stock  Option Plan (the "1990  Plan") up to
833,333 shares of common stock could have been issued upon exercise of incentive
stock options  issued to employees or officers.  Options were granted at a price
not less than 100% of the fair market  value of the  Company's  common  stock on
date of grant.  Options  generally  vested over a period of five years.  In July
1995, the 1990 Plan was terminated with respect to future grants.

In July 1995,  the 1995 Stock  Option/Stock  Issuance Plan (the "1995 Plan") was
adopted,  increasing the number of shares  available for grant by 1,258,036 plus
automatic  annual  increases in 1996, 1997 and 1998.  Options may be granted and
shares  may be  issued  at a price  not less  than 85% of the fair  value of the
Company's common stock on date of grant.


                                      F-13
<PAGE>


                                   Accom, Inc.


             Notes to Consolidated Financial Statements (continued)



7. Stockholders' Equity (continued)

Stock Options (continued)
<TABLE>

Stock option activity is summarized below:
<CAPTION>

                                              
                                               Shares                     Outstanding Options
                                              Available          ------------------------------------------
                                              for Grant              Number of            Price Per
                                              of Options              Shares                Share
                                        -------------------------------------------------------------------

<S>                                            <C>                  <C>                  <C>   
Balance at September 30, 1993                     86,692               273,308           $0.48-$2.40
   Shares authorized                             416,667                    --               --
   Options granted                               (12,909)               12,909           $2.40-$4.80
   Options exercised                                  --                (1,040)          $0.48-$2.40
   Options canceled                                2,208                (2,208)          $0.48-$2.40
                                        -------------------------------------------------------------------
Balance at September 30, 1994                    492,658               282,969           $0.48-$4.80
   Shares authorized                           1,258,036                    --               --
   Options granted                              (507,645)              507,645           $4.80-$7.20
   Options exercised                                  --               (44,364)             $0.48
   Options canceled                                6,161                (6,161)          $0.48-$4.80
                                        -------------------------------------------------------------------
Balance at September 30, 1995                  1,249,210               740,089           $0.48-$7.20
   Shares authorized                              64,042                    --               --
   Options granted                            (1,530,703)            1,530,703           $1.88-$9.25
   Options exercised                                  --               (36,364)          $0.48-$4.80
   Options canceled                            1,066,612            (1,066,612)          $0.48-$9.25
                                        -------------------------------------------------------------------
Balance at September 30, 1996                    849,161             1,167,816           $0.48-$5.88
                                        ===================================================================
</TABLE>

At  September  30,  1996,   options  to  purchase  439,630  common  shares  were
exercisable and vested.

As of September 30, 1995,  the Company has reserved  2,016,977  shares of common
stock for issuance upon the exercise of stock options.

                                      F-14

<PAGE>


                                   Accom, Inc.


             Notes to Consolidated Financial Statements (continued)



7. Stockholders' Equity (continued)

Employee Stock Purchase Plan

In July 1995, the Company's  Employee Stock Purchase Plan (the "Purchase  Plan")
was adopted  which  authorizes  the issuance of 250,000  shares of common stock.
Shares may be purchased under the Purchase Plan at 85% of the lesser of the fair
market value of the common stock on the grant or purchase date.

Stockholder Rights Plan

In September 1996, the Company's Board of Directors adopted a stockholder rights
plan,  which  entitles  existing  stockholders  of the Company to certain rights
(including the right to purchase shares of Preferred  Stock) in the event of the
acquisition  of 15% or more of the Company's  outstanding  common  stock,  or an
unsolicited tender offer for such shares.

8. Income Taxes

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's  deferred tax assets and  liabilities  computed in accordance with
FAS 109 are as follows:

                                                      September 30,             
                                                1996                  1995
                                           -------------------------------------
                                                    (In thousands)
Deferred tax assets:                       
   Deferred revenue                            $  189                  $135
   Nondeductible reserves and accruals            256                   204
   Inventory valuation                            441                   158
   Valuation allowance                           (199)                   --
   Other                                            8                    11
                                           -------------------------------------
                                                  695                   508
Deferred tax liabilities:                  
   Depreciation                                    20                   108
                                           -------------------------------------
Net deferred tax assets                        $  675                  $400
                                           =====================================
                                           
                                      F-15
                                           
<PAGE>                                  

                                   Accom, Inc.


             Notes to Consolidated Financial Statements (continued)



8. Income Taxes (continued)

The provision (benefit) for income taxes consists of the following:

                                         September 30,                        
                        1996                  1995                  1994
                   -----------------------------------------------------------
                                         (In thousands)
Federal:
   Current              $(231)                $(100)                 $334
   Deferred              (231)                  (23)                    3
                   -----------------------------------------------------------
                         (462)                 (123)                  337
State:
   Current                 11                   (20)                  139
   Deferred               (45)                    6                   (68)
                   -----------------------------------------------------------
                          (34)                  (14)                   71
Foreign:
   Current                 --                     5                    --
                   -----------------------------------------------------------
Total                   $(496)                $(132)                 $408
                   ===========================================================

A reconciliation of the income tax provision  (benefit) at the federal statutory
rate to the income tax provision at the effective tax rate is as follows:

                                                    September 30,   
                                           1996          1995          1994
                                        ----------------------------------------
                                                    (In thousands)
Income taxes computed at the federal
   statutory rate                          $(480)       $(3,730)       $451
State taxes (net of federal benefit)         (23)            (9)         47
Foreign sales corporation tax benefit         --             --         (17)
Research and development tax credit          (18)           (62)        (63)
Acquired in-process technology              (204)         3,660          --
Valuation allowance                          199
Other                                         30              9         (10)
                                        ----------------------------------------
Total                                      $(496)     $    (132)       $408
                                        ========================================

The Company believes that net deferred tax assets are more likely than not to be
realized because of a history of past earnings and carryback refund potential.

                                      F-16

<PAGE>



                                                                     SCHEDULE II

<TABLE>

                                               ACCOM, INC.

                                    VALUATION AND QUALIFYING ACCOUNTS
                                     ALLOWANCE FOR DOUBTFUL ACCOUNTS
                                              (In thousands)

<CAPTION>

                                                   Balance at        Charges to                            Balance
                                                  Beginning of        Cost and                            at End of
                                                     Period           Expenses         Deductions*         Period
                                                 ---------------    --------------    ---------------    -----------

<S>                                                  <C>                 <C>                <C>              <C>
Year ended September 30, 1994...............         123                 52                  1               174
Year ended September 30, 1995...............         174                 80                 33               221
Year ended September 30, 1996...............         221                 67                 65               223
<FN>

* All deductions represent write-offs of bad debt.
</FN>
</TABLE>