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, 1997, 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: (650) 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. [X]

         The aggregate  market value of the voting stock held by  non-affiliates
of the Registrant was  approximately  $4,320,295 as of December 17, 1997,  based
upon the closing sale price on the Nasdaq  Stock 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  6,632,358  shares of  Registrant's  Common Stock issued and
outstanding as of December 17, 1997.

                       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
17, 1998.

         "Accom,"  "Axial," and "WSD" are some of the  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, sells,
and supports a complete line of digital video signal  processing,  editing,  and
disk recording tools, and its ELSET(TM)  virtual set systems,  primarily for the
professional worldwide video production,  post production and live broadcasting,
and computer video production and post-production,  marketplaces.  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 professional 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 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  professional  content  creators  and  broadcasters  in real time video
production,  post-production  and  distribution.  The Company's current products
include  the  ELSET(TM)  virtual set system  used in the  production  process by
replacing traditional physical studio sets with three-dimensional ("3D") virtual
sets, on-line video editing systems and digital video disk recorders used during
the content  creation  production and post production  processes,  and networked
still  image  and  video  clip  storage  systems  used  by  broadcasters  in the
distribution process.
<TABLE>

         The following table summarizes the Company's key products:
<CAPTION>
    ----------------------------------------------------------------------------------------------------------------
            Product                                                          Primary Applications
    ----------------------------------------------------------------------------------------------------------------
<S>                                                            <C>  
      Virtual Set Production Tools
    ----------------------------------------------------------------------------------------------------------------
       ELSET(TM) Virtual Set                                   Virtual sets for high-end video content creation
                                                               production in real time
    ----------------------------------------------------------------------------------------------------------------
      Computer Graphics and Animation Digital Disk Recorders
    ----------------------------------------------------------------------------------------------------------------
       WSD(R)/2Xtreme                                          Desktop computer graphics and animation production
    ----------------------------------------------------------------------------------------------------------------
      Digital Signal Processors
    ----------------------------------------------------------------------------------------------------------------
       Signal Processor                                        Bridges between various signal formats for
       Product Family                                          film-to-tape transfers and color correction process
                                       2
<PAGE>

    ----------------------------------------------------------------------------------------------------------------
      Digital On-Line Editors
    ----------------------------------------------------------------------------------------------------------------
       Axial(R) 2020                                           On-line post production editing for commercials and
       Axial(R) 2010                                           long form television programs
       Axial(R) 3000
    ----------------------------------------------------------------------------------------------------------------
      Video Digital Disk Recorders
    ----------------------------------------------------------------------------------------------------------------
       RTD(TM)4224                                             On-line post production editing and effects creation
                                                               for commercials and long form television programs
    ----------------------------------------------------------------------------------------------------------------
     Digital News Graphics and Clip Servers
    ----------------------------------------------------------------------------------------------------------------
       Axess(TM)                                               Creation and broadcast distribution of news graphics
                                                               and short video segments
    ----------------------------------------------------------------------------------------------------------------
</TABLE>

         The Company's  strategy is to maintain its  leadership  position in the
professional  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
also  plans to build  upon its  established  reputation  in the  post-production
segment to market the ELSET(TM)  Virtual Set and its Axess(TM) news graphics and
clip  server  to  the  production  and   distribution   markets,   respectively.
Additionally,  the Company  continues to pursue its 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.

o    Pre-production involves creation of the script and storyboard.

o    Production  (content  creation) involves shooting video or film, as well as
     creation of computer-generated graphics and sound recording.

o    Post-production  consists of editing and  manipulating  diverse  images and
     audio  elements  into a  final  program,  including  off-line  and  on-line
     editing.

o    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.

                                       3
<PAGE>

         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   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  production,   post-production,   and
distribution segments of marketplace.

Production

         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 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.

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.

         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 

                                       4
<PAGE>

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.

The Accom Approach

         The Company believes that  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.

         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.

                                       5
<PAGE>

         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.

         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.

                                       6

<PAGE>

         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:

o    The ELSET(TM) Virtual Set, which is designed to enable content producers to
     cost-effectively  create  programs with virtual  production sets instead of
     traditional sets;

o    Digital disk recorders to produce computer graphics and animation;

o    On-line video editing systems used by post production professionals;

o    Digital  video disk  recorders  used  during the  on-line  post  production
     editing process; and

o    Networked  still image and video clip  storage  systems  used by  broadcast
     distributors of video content.

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,  editing 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
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(TM)  Virtual Set and the  Axess(TM)  to the  production  and  distribution
markets, respectively.

         Broaden Lower-Priced Product Line. The Company has introduced products,
such as the  Axial(R)  3000  on-line  editor,  the  WSD(R)  digital  video  disk
recorders,  and the APR(TM)  digital video disk recorders that provide  high-end
users with reduced  feature sets at lower prices.  In the past the Company first
developed and marketed full-featured systems to prove technological  feasibility
and market acceptance,  then designed lower-priced products with reduced feature
sets to appeal to a broader base of customers. Beginning with the WSD(R)/2Xtreme
and APR(TM)  (Accom  Professional  Recorder)  line of products,  the Company has
shifted to introducing  products with  significant  price  advantages over their
competitors that still manage to offer high value, but at lower prices.

         Invest  in   Innovative   Technologies.   The  Company  has   developed
significant  expertise  in core  technologies  relating  to  editing,  real time
control,  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 functionality.
For example,  by acquiring  the company that  developed  ELSET(TM),  the Company
obtained access to virtual set technology.

                                       7
<PAGE>

         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.

Products

         The Company  currently  offers six product lines that address the needs
of the video and computer graphics production,  post-production and distribution
markets.  The ELSET(TM)  Virtual Set is designed to be used in the production of
video  content.  The  Company's  video digital  on-line  editing  systems,  disk
recorders and signal processing equipment are used primarily in post-production.
Digital news graphics and clip servers address the needs of video  distribution.
The Company's digital disk recorders are also used in the production of computer
graphics and animation.
<TABLE>

         The following table summarizes the Company's key markets and products:
<CAPTION>
    ----------------------------------------------------------------------------------------------------------------
                      MARKETS / Product                                      Primary Applications
    ----------------------------------------------------------------------------------------------------------------
<S>                                                            <C>   
    PRODUCTION:
    ----------------------------------------------------------------------------------------------------------------
      Virtual Set Production Tools
    ----------------------------------------------------------------------------------------------------------------
       ELSET(TM) Virtual Set                                   Virtual sets for high-end video content creation
                                                               production in real time
    ----------------------------------------------------------------------------------------------------------------
      Computer Graphics and Animation Digital Disk Recorders
    ----------------------------------------------------------------------------------------------------------------
       WSD(R)/2Xtreme                                          Desktop computer graphics and animation production
    ----------------------------------------------------------------------------------------------------------------
    POST PRODUCTION:
    ----------------------------------------------------------------------------------------------------------------
      Digital Signal Processors
    ----------------------------------------------------------------------------------------------------------------
       Signal Processor                                        Bridges between various signal formats for
       Product Family                                          film-to-tape transfers and color correction process
    ----------------------------------------------------------------------------------------------------------------
      Digital On-Line Editors
    ----------------------------------------------------------------------------------------------------------------
       Axial(R) 2020                                           On-line post production editing for commercials and
       Axial(R) 2010                                           long form television programs
       Axial(R) 3000
    ----------------------------------------------------------------------------------------------------------------
      Video Digital Disk Recorders
    ----------------------------------------------------------------------------------------------------------------
       RTD(TM)4224                                             On-line post production editing and effects creation
                                                               for commercials and long form television programs
    ----------------------------------------------------------------------------------------------------------------
    DISTRIBUTION:
    ----------------------------------------------------------------------------------------------------------------
      Digital News Graphics and Clip Servers
    ----------------------------------------------------------------------------------------------------------------
       Axess(TM)                                               Creation and broadcast distribution of news graphics
                                                               and short video segments
    ----------------------------------------------------------------------------------------------------------------
</TABLE>

The following table summarizes the Company's fiscal 1997 net sales by market:

                                                   1997
                                                   ----
                       Market              Amount        Percent
                       ------              ------        -------


Production                                 $ 8,259         46.9%

Post Production                              6,534         37.1%

Broadcasting                                 2,408         13.7%

Other                                          426          2.4%
                                           --------------------- 
                                           $17,627        100.0%
                                           ===================== 

                                       8
<PAGE>

Video Virtual Set Production Tools

         The  ELSET(TM)  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(TM)  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  or
augmented  by virtual sets to achieve the desired  look of large  studios  while
using a small physical studio. Virtual sets can be readily altered.

         The Company  believes that  ELSET(TM)  Virtual Set will enable  content
producers and the  organizations  that service such  producers to leverage their
investment 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(TM)
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(TM) Virtual Set will be used primarily in the
production of news and sports broadcasts,  children's programs,  news magazines,
music videos, video games and talk shows.

         To broadcast a virtual set or to produce a program  using virtual sets,
standard  production  equipment such as lights,  cameras,  camera control heads,
video keyers,  switchers is required. The Company does not supply this equipment
but it is readily  available  from a variety of  sources.  Similarly,  2D and 3D
painting,  modeling tools are required for creating the virtual sets,  which the
Company does not supply but are readily available from various sources.

         The Company currently offers four ELSET(TM) Virtual Set products:

         ELSET(TM) LIVE software operates on the Silicon Graphics ("SGI") Onyx 2
computers and is used for real time  productions.  The Company  primarily offers
the ELSET(TM) LIVE software;  however from time to time will also resell the SGI
hardware for the convenience of the customers.  The United States list price for
ELSET(TM) LIVE software  ranges from $145,000 to $300,000  depending on features
and functionality.

         ELSET(TM)POST  software operates on the SGI O2 computer and is used for
non-real time  productions.  ELSET(TM)POST  offers a lower cost  alternative  to
ELSET(TM)LIVE  by allowing  users to trade off  production  time  against  cost.
ELSET(TM)POST utilizes Alias 3D software to create the set and to preview scenes
in lower quality during production.  During production, camera moves in addition
to  animation  triggers  are recorded on the O2 while the actors are recorded in
full quality on a video recorder.  After the production is complete, the virtual
scenes are rendered in full  quality  using the SGI computer and recorded on the
Accom WSD(R)  digital disk recorder.  The final program is composited  using the
recording of the actors and the rendered sets from the Accom WSD(R) digital disk
recorder.  By rendering  virtual sets  off-line,  complex scenes may be produced
that are not possible in real time virtual set  productions.  The United  States
list price of the ELSET(TM)POST ranges from $40,000 to $50,000.

                                       9
<PAGE>

         ELSET(TM)  LIVE-NT system is a real time virtual set system  offering a
lower cost alternative to the  ELSET(TM)LIVE  running on the SGI Onyx2 platform.
ELSET(TM)  LIVE-NT runs on a Windows NT platform  and a Real 3D graphics  engine
from Lockheed Martin.  The virtual sets are designed by using 3D Studio Max from
Kinetex.  The Accom  proprietary  software  is a "plug in" for the 3D Studio Max
software. The United States list price of the ELSET(TM) LIVE-NT software and the
Real 3D graphics engine ranges from $99,000 to $170,000.

         ELSET(TM)  POST-NT is the non-real time and lower cost  counterpart  to
ELSET(TM) LIVE-NT system.  ELSET(TM) POST-NT utilizes 3D Studio Max running on a
Windows  NT  platform  to create and  preview  sets in  non-real  time and lower
quality during production. The Accom proprietary software is a "plug in" for the
3D Studio Max software. After the production is complete, the virtual scenes are
rendered  in full  quality  using a single or multiple  PCs and  recorded on the
Accom WSD(R)  digital disk recorder.  The final program is composited  using the
recording of the actors and the rendered sets from the Accom WSD(R) digital disk
recorder.  By rendering  virtual sets  off-line,  complex scenes may be produced
that are not possible in real time virtual set  productions.  The United  States
list price of the ELSET(TM)POST-NT ranges from $25,000 to $30,000.

Computer Graphics and Animation Digital Disk Recorder

         The  Company's  Workstation  Disk  ("WSD(R)")  digital disk recorder is
primarily used in the production  and post  production of computer  graphics and
animation.  The  WSD(R)/2Xtreme,  the fourth generation WSD(R) product,  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(R)/2Xtreme
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(R)/2Xtreme'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(R)/2Xtreme,  frames can be played back in real time so the user can see
the end  result in full  motion on a video  monitor.  An SGI  graphic  interface
option  enables  users to  preview  frames on the  workstation  display  at full
resolution  or  display  real time video  from the  WSD(R)/Xtreme  disk or input
source.  The Company has worked  closely with a number of  third-party  software
developers  to  integrate  the  WSD(R)/2Xtreme  with  their  applications.   The
WSD(R)/Xtreme also provides both Ethernet and SCSI interfaces,  thereby enabling
connection  to  other   computer   platforms.   Accom  has  interfaces  for  the
WSD(R)/Xtreme to enable Windows(TM)  personal computer and Apple Macintosh users
to integrate the WSD(R)/Xtreme into their systems.

         The WSD(R)/2Xtreme offers all of the features of its predecessors,  but
at a price that's almost half of the Xtreme model it replaced. The United States
list price of the  WSD(R)/2Xtreme  ranges from $10,900 to $20,900,  depending on
features.

Digital Signal Processing Equipment

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<PAGE>

The Company  offers three 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(R) editors
and the  Axess(TM).  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.

On-Line Video Editors


         The  Company's  Axial(R)  line of digital,  non-linear,  on-line  video
editing  systems  consists  of various  models of the new  Axial(R)  3000.  (The
Axial(R) 3000 replaces the Axial(R)  2010,  and with options  offers most of the
features of the top-end  Axial(R) 2020.) The Key upgrade option for the Axial(R)
3000 is Live Video,  and key options for both the Axial(R) 3000 and the Axial(R)
2020 are the Random Access Visual Editing System ("RAVE") and the Axial(R) Cache
Editor.  A primary  benefit of the Axial(R) 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(R)  2020 and Axial(R)  3000 are used to
perform editing and compositing for the high-end segment of the  post-production
market.

         The Axial(R) 3000 with Live Video Option and the Axial(R) 2020 offer an
enhanced visual  interface that enables the video editor to edit  information by
working with  pictures and video clips instead of only  timecode  numbers.  Both
Axial(R)  models  utilize 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.
Axial(R)  is  based  on  a  multi-process   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(R) 2020. The United
States  list  price of the  Axial(R)  2020  ranges  from  $70,000  to  $124,000,
depending on features, including the RAVE option.

         The basic  Axial(R)  3000 is a  lower-priced,  on-line  editing  system
designed  to address the needs of a broader  group of  professional  users.  The
Axial(R) 3000 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(R) 2020, the basic Axial(R) 3000 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(R)  3000 ranges from $30,000 to $50,000,
depending on features.

         RAVE and the Axial(R)  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(R)  and the  RTD(TM),  Accom's  high-end
uncompressed  digital  video disk  recorder,  or either of several  versions  of
Accom's  WSD(R) or APR(TM)  digital disk  recorders  (DDRs).  These DDRs provide

                                       11
<PAGE>

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(R)  Cache  combines the recording
capability of the Company's low-cost  WSD(R)/2Xtreme with the Axial(R) editor 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.

Post Production Digital Video Disk Recorder -- RTD(TM)

         The  Company's  first digital video disk recorder is the Real Time Disk
("RTD(TM)"), which is used in on-line video post production editing. The RTD(TM)
is based on older hard drive technology.

         The RTD(TM)  enables the digital  recording  and playback of D1 quality
video onto a real time, random access disk.  Applications of the RTD(TM) 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(TM)
can instantly  access  stored images and play back the images at speeds  ranging
from 1/100th to 100 times  normal play speed.  The RTD(TM) can also provide from
one to seven minutes of video  recording  time.  The Company's  RTD(TM)  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(TM) 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(TM)  ranges  from  $22,000  to  $117,500,
depending on features.

Post Production Digital Video Disk Recorder -- APR(TM)

         The  Company's  newest  family of digital  video disk  recorders is the
Accom Professional  Recorder  ("APR(TM)"),  which again is used in on-line video
post production editing. APR(TM)s will be based on newer hard drive technology.

         APR(TM)/Attache  is the first  product from this family and the seventh
DDR product from Accom. Attache was announced and first shown in September 1997,
and full  production  shipments  are  expected  early in the  first  quarter  of
calendar  1998.  The APR(TM)  enables the digital  recording  and playback of D1
quality video onto a real time, random access RAID.  Applications of the APR(TM)
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
APR(TM) can  instantly  access  stored images and play back the images at speeds
ranging from 1/100th to 100 times normal play speed.  The APR(TM)  provides 32.5
minutes of video recording time. The APR(TM) offers a  "half-bandwidth"  channel
option called KeyTrack(TM). KeyTrack allows a synchronous key/matte signal to be
recorded in sync with the video.  Two complete  videotape  recorders or DDRs are
normally required for this capability.

         APR(TM)/Attache  is the first digital disk recorder to offer  "PreRead"
and "PostRead"  functions.  "PreRead"  (write-after-read)  allows material to be
played off the disk, processed externally, and re-recorded back on the same disk
in real time.  This allows one Attache to 

                                       12
<PAGE>

function as both a playback  device and a record device,  effectively  replacing
two devices in the post production suite. "PostRead"  (read-after-write)  allows
material to be played out.  Limited  versions of PreRead and PostRead  have been
available  on videotape  recorders  for several  years and have become  standard
features of videotape recorders.

         The United  States  list price of the APR(TM)  ranges  from  $29,900 to
$41,900, depending on features.

Digital News Graphics and Clip Servers

         The Axess(TM) 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(TM)  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(TM)  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  real-time  video
storage.  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 up to 70,000 still images or from 17
minutes  up to 2+  hours of  uncompressed  video.  Each  Axess(TM)  system  is a
user-designed  configuration  based on just a few standard hardware  components.
The price of the Axess(TM)  varies  widely  depending on the number of nodes and
the amount of storage per node.  The United  States list price of the  Axess(TM)
ranges from  $27,000 for a single node to more than $1.0  million for a complex,
multi-node networked system.

Customers and Applications

         The  primary  end  users  of the  Company's  products  are  production,
post-production, broadcast and cable companies and studios. One customer, AIM, a
distributor,  accounted for 13% of the Company's  total revenues in fiscal 1997.
No customer  accounted for more than 10% of the Company's  total revenues during
fiscal 1996 or 1995.

Marketing, Sales and Service

         The Company  markets its products  through a combination  of its direct
sales  force and  indirect  distribution  channels.  The  Company  exhibits  its
products at major trade shows for the video and  computer  graphics  industries.
The Company also initiates  special direct mail and advertising  campaigns prior
to certain trade shows and advertises in industry trade journals.

         In the United States,  the Company  markets its products at trade shows
such as those held by the National  Association of Broadcasters  ("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 distributors
for its  WSD(R)/2Xtreme  product line to more effectively  reach the independent
dealers and VARs that integrate workstations, software and peripheral devices.

                                       13
<PAGE>

         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
distributors that cover a myriad of countries,  and approximately  one-fourth of
those international distibutors distribute only the WSD(R)/2Xtreme product line.
During fiscal 1997,  1996,  and 1995 the Company  generated  42.4%,  38.2%,  and
51.1%,  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.

         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 digital video
on-line editor,  video and computer  graphics digital disk recorders and virtual
set product  lines.  The Company's  engineering  staff  consists of software and
hardware  engineers and other support  personnel.  As of September 30, 1997, the
Company  employed 25 people in its research  and  development  organization,  of
which approximately 17 professionals are focused on software development. During
fiscal 1997, 1996 and 1995, the Company's research and development expenses were
approximately  $3.3  million,  $3.9  million,  and $3.8  million,  respectively.
Expenses  in fiscal 1995 do not  include  amounts  related to virtual set system
research and development,  which was being conducted through ELSET(TM) 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.

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.

         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 

                                       14
<PAGE>

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"),  The Grass Valley Group (a subsidiary 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(TM).  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(TM) and that  competition  will  increase  

                                       15
<PAGE>

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  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
eight registered trademarks in the United States and has several 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 

                                       16
<PAGE>

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(TM) Acquisition

         Development  of the  ELSET(TM)  Virtual Set was  initiated by Video Art
Production GmbH ("VAP"),  and all title and rights to the ELSET(TM)  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.

         Although  all  title  and  rights  to the  ELSET(TM)  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(TM)  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(TM)  Virtual Set has 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(TM)  Virtual Set to ELSET GmbH would make it difficult for a member of the
Mona Lisa Consortium to duplicate the ELSET(TM)  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 

                                       17
<PAGE>

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(TM)." 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,  1997,  the  Company  had  64  full-time  employees,
including 25 in research and development, 20 in marketing, sales and support, 13
in manufacturing and 6 in administration and finance. 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,  including  without  limitation
those contained in this 10-K report.

         Potential Fluctuations in Operating Results. The Company incurred a net
loss of $4.5  million in fiscal 1997.  The Company  also  incurred a net loss of
$916,000  for  fiscal  1996,  and 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 and product  enhancements,  including  the  ELSET(TM)  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 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.

                                       18
<PAGE>

         The Company  currently  anticipates  that a number of factors may 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 may 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,  if the Company expands
its  indirect  sales  channels,  its gross  margins may 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(TM)
Virtual Set will  positively  impact the Company's net sales but may  negatively
impact its gross margins if a significant portion of ELSET(TM) Virtual Set sales
include 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  continued  development  and  marketing of the
ELSET(TM)   Virtual  Set.  The  Company  may  therefore  be  required  to  incur
significant  expenses to support  continuing  development  and  marketing of the
ELSET(TM) 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.

         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  product  lines.  There  can be no
assurance that the Company will be successful in developing,  manufacturing  and
marketing  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 

                                       19
<PAGE>

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
performance  deficiencies.  For example,  in the first half of fiscal 1995,  the
Company  first  delivered  its  Axess(TM)  to  certain  customers.  The  Company
experienced  technical  problems with the  introduction of Axess(TM),  including
delays in delivering additional functionality when originally requested by these
customers.   Similarly,  the  software  component  of  the  Company's  products,
particularly the ELSET(TM)  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.

         Uncertainty  as to  Development  and  Market  Acceptance  of  ELSET(TM)
Virtual Set. The Company's  ability to achieve revenue growth and  profitability
in fiscal 1998 and  subsequent  years is dependent to a significant  degree upon
the successful development and market acceptance of its ELSET(TM) 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(TM) Virtual Set
is still being further developed with respect to certain key features. There can
be no assurance  that the Company will be able to  successfully  complete  these
developments  of the ELSET(TM)  Virtual Set in a timely  manner.  The failure to
complete the  development  of the ELSET(TM)  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(TM)
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(TM)  Virtual
Set will depend on many factors that are difficult to predict.  For example, the
ELSET(TM)  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(TM)  Virtual Set,
especially for  mission-critical  functions,  until the ELSET(TM)  Virtual Set's
reliability in real time use has been demonstrated. In addition, a potential end
user's  decision to purchase the  ELSET(TM)  Virtual Set may be subject to SGI's
timing  of  shipments  of its  computer  platforms  and  SGI's  announcement  of
enhancements to its computer platforms.  Potential end users may be unwilling to
incur the  significant  cost of  converting  from physical sets to the ELSET(TM)
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  

                                       20
<PAGE>

determine the potential market for and acceptance of the ELSET(TM)  Virtual Set.
The Company expects that sales of the ELSET(TM) 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(TM) 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(TM)
Virtual Set over time. If this market  development does not occur or occurs over
an extended  period,  or if the  ELSET(TM)  Virtual Set does not achieve  market
acceptance,   the  Company's  business,   financial  condition  and  results  of
operations will be materially and adversely affected.

         Dependence on Silicon Graphics,  Inc. Some of the ELSET(TM) Virtual Set
products operate only on Silicon  Graphics,  Inc.  ("SGI")  computer  platforms.
Financial,  market or other developments  adversely  affecting SGI could have an
adverse  effect on its ability to supply the Company with computer  platforms or
enhancements  or  upgrades,  and,  consequently,  upon the  Company's  business,
financial  condition  and results of  operations.  If the Company were unable to
obtain sufficient  quantities of the SGI 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 SGI  platforms,  sales of the  ELSET(TM)  Virtual  Set and,  therefore,  the
Company's  business,  financial  condition  and results of  operations  would be
materially and adversely affected.

         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.  Although the Company  streamlined its operations
during fiscal 1997, 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(TM) 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.

                                       21
<PAGE>

         International   Operations.   In  the  fiscal  1997,   1996  and  1995,
international  sales  accounted  for  42%,  38% and  51%,  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 may result in
foreign currency  denominated  sales. Gains and losses on the conversion to U.S.
dollars of receivables and payables  arising from  international  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(TM) 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 may expand its
existing  indirect  sales  channels to implement its strategy of broadening  its
lower-priced products. There can be no assurance that the Company's distributors
will  choose or be able to  effectively  market and support  these lower  priced
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.

         Problems  Associated with the Year 2000. The Company is actively taking
steps to ensure that all  software  used in the  Company's  products  and in the
Company's  internal  systems will manage data  involving the transition of dates
from 1999 to 2000 without  functional or data abnormality and without inaccurate
results.  In  particular,  the Company  believes  that its  internal  accounting
software, purchased from a third party vendor, will be unable to transition from
1999 to 2000  without  causing  errors;  therefore,  the  Company  will  need to
purchase  either  an  upgrade  or a new  accounting  software  that  is  able to
transition  from 1999 to 2000 without error.  In addition,  one of the Company's
products runs on the Windows NT operating system, and while the Company has been
notified  that the  Windows NT  manufacturer  does not believe  that

                                       22
<PAGE>

Windows NT contains a Year 2000 problem that will affect the Company's  product,
the vendor has been  unable to give  complete  assurances  to the  Company.  Any
failure on the part of the Company or its  vendors to ensure  that any  software
complies with Year 2000 requirements could have a material adverse effect on the
Company's business, financial condition and results of operations.



                                       23
<PAGE>


         Management of Growth.  Although the Company  streamlined its operations
during fiscal 1997, the Company's  long-term  success will depend in part on its
ability to manage growth, both domestically and internationally. In addition, if
the  Company  grows,  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(TM)  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.

         Substantial  Control  by  Existing  Stockholders;   Effect  of  Certain
Anti-Takeover  Provisions.  As of December 17,  1997,  the  Company's  executive
officers and directors, and their affiliates, beneficially own approximately 15%
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 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.

                                       24
<PAGE>
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,  2000. 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, 1997.

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

         None.


                                       25
<PAGE>

Executive Officers of the Company

         The  executive  officers of the Company,  and their ages as of December
31, 1997, are as follows:

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

Junaid Sheikh....................      44     Chairman of the  Board,  President
                                              and Chief Executive Officer
Cal R. Hoagland..................      41     Vice President, Finance and  Chief
                                              Financial Officer
Ian Craven.......................      43     Senior Vice President, Engineering
Paul G. Hansil...................      53     Senior Vice President,  Sales  and
                                              Marketing
Donald W. Petersen...............      52     Vice President, Manufacturing

         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.

         Cal R.  Hoagland  has  served  as Vice  President,  Finance  and  Chief
Financial Officer since joining the Company in July 1997. From April 1995 to May
1997,  Mr.  Hoagland  served  as  Global  and  Corporate  Controllers  for  ADAC
Laboratories,  a publicly traded company which provides nuclear medicine imaging
equipment,  radiation  therapy  planning  systems and radiology,  laboratory and
cardiology  information  systems.  From  June 1992 to March  1995,  he served as
Corporate  Controller of Valence  Technologies,  Inc., a publicly traded company
engaged in research and development to produce advanced  rechargeable  batteries
based on lithium and polymer  technologies.  Prior to that, Mr.  Hoagland was an
Audit Manager with the San Jose,  California and National offices of Coopers and
Lybrand,  a big six  public  accounting  firm.  He is a member of the  Financial
Executives Institute and a Certified Public Accountant.

         Ian Craven  has  served as Senior  Vice  President,  Engineering  since
October  1991.  From  October 1991 to April 1995 he also served as a director of
the Company.

         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.

         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.

                                     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 Stock 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 

                                       26
<PAGE>

prices for the Company's Common Stock as reported in the Nasdaq Stock Market for
the quarters indicated.

                                                               High        Low
                                                               ----        ---
          Fiscal Year ended September 30, 1997:
              First Quarter...............................     $2.63      $0.91
              Second Quarter..............................     $2.00      $1.00
              Third Quarter...............................     $2.25      $1.00
              Fourth Quarter..............................     $2.88      $1.56
          Fiscal Year ended September 30, 1996:
              First Quarter...............................     $9.75      $6.25
              Second Quarter..............................     $7.75      $5.00
              Third Quarter...............................     $5.63      $2.38
              Fourth Quarter..............................     $4.25      $1.00

         The Company had  approximately 89 stockholders of record as of December
17, 1997 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. The Company must obtain the approval of
its bank before declaring or paying dividends.


                                       27
<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.


<TABLE>
                                       Selected Consolidated Financial Data
                                       (in thousands, except per share data)
<CAPTION>
                                                            Fiscal Year Ended September 30,
                                                ----------------------------------------------------
                                                 1993       1994       1995(1)     1996       1997
                                                 ----       ----       -------     ----       ----
<S>                                             <C>         <C>        <C>        <C>        <C>    
Consolidated Statement of Operations Data:
  Net sales...........................          $12,230     $18,034    $21,312    $21,408    $17,627
  Gross margin........................            6,927       9,591     11,175     10,398      6,593
  Operating income (loss).............            1,254       1,428    (10,792)     (1621)    (4,657)
  Net income (loss)...................              909         918    (10,840)      (916)    (4,490)
  Net income (loss) per share(1)......             0.21        0.20      (3.85)     (0.14)     (0.68)
  Shares used in computing
     net income (loss) per share(1)...            4,392       4,660      2,816      6,439      6,587
</TABLE>
<TABLE>
<CAPTION>
                                                          Fiscal Year Ended September 30,
                                                ----------------------------------------------------
                                                 1993       1994        1995       1996       1997
                                                 ----       ----        ----       ----       ----
<S>                                             <C>         <C>        <C>        <C>        <C>    
Balance Sheet Data:
  Working capital.....................           $3,809      $4,522    $12,220    $11,171     $7,550
  Total assets........................            8,169      10,111     19,712     17,279     11,545
  Long-term obligations...............                -           -         83         24          -
  Total stockholders' equity..........           $4,731      $5,650    $13,679    $12,952     $8,566
<FN>
---------------

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

         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.

                                       28

<PAGE>

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

         The  following  Management's   Discussion  and  Analysis  of  Financial
Condition  and  Results of  Operations  should be read in  conjunction  with the
Company's  Consolidated  Financial  Statements as of September 30, 1997 and 1996
and for the three fiscal years ended  September 30, 1997, 1996 and 1995 included
herein this Report on Form 10-K for the fiscal year ended September 30, 1997.

         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 below.

Overview

         Accom  designs,  manufactures,  sells,  and supports a complete line of
digital video signal  processing,  editing,  and disk recording  tools,  and its
ELSET(TM)  virtual set systems,  primarily for the professional  worldwide video
and computer graphics production, post production and distribution marketplaces.
<TABLE>

         The following table  summarizes the Company's  products and the primary
markets they address.
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                        Primary Markets / Products
                                        --------------------------
<S>        <C>
      Production:
           ELSET(TM) Virtual Set
           Work Station Disk ("WSD(R)") 2Xtreme(TM)  Computer Graphics Digital Disk Recorder
      Post Production:
           Signal Processors
           Editing:
               On-line Video Editors:
                    Axial(R) 2020 (first generation)
                    Axial(R) 2010 (lower cost first generation)
                    Axial(R) 3000 (second generation)
               Digital Disk Recorders:
                    Real Time Disk ("RTD(TM)") 4224
                    Accom Professional Recorder ("APR(TM)") Attache(TM)
      Distribution:
           Axess(TM) Digital News Graphic and Clip Server
-----------------------------------------------------------------------------------------------------------
</TABLE>

         In late fiscal 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  fiscal 1995 initial public  offering (the  "ELSET(TM)
Acquisition").  The  ELSET(TM)  virtual set system  operates on either a Silicon
Graphics, Inc. ("SGI") workstation or a Windows NT platform.

         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(TM)
software.  In the fourth  quarter of 1996,  revenues also included the resale of
SGI workstations.

                                       29
<PAGE>

                  The Company's  gross margin has  historically  fluctuated from
quarter to quarter and declined on an annual basis. If the Company resells a SGI
workstation as part of the ELSET(TM) Virtual Set, gross margins will 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.

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

Results of Operations

Fiscal Years 1997 vs. 1996
<TABLE>
         The  following  table  presents  the  Company's  fiscal  1997  and 1996
Consolidated  Statements of Operations,  as reported and as normalized to remove
the effects of special charges and credits  incurred during each of those fiscal
years (dollar amounts in thousands, except per share data).
<CAPTION>
                                                                                       Increase (Decrease)
                                                                                       -------------------
                                                               1997         1996       Amount      Percent
                                                               ----         ----       ------      -------
<S>                                                           <C>         <C>         <C>           <C>    
Net sales
  Reported                                                    $ 17,627    $ 21,408    $ (3,781)     (17.7)%
  Normalized                                                    17,627      21,408      (3,781)     (17.7)%
Cost of sales
  Reported                                                      11,034      11,010          24        0.2%
  Normalized                                                     8,534      10,410      (1,876)     (18.0)%
                                                              ---------------------------------------------
     Gross margin
       Reported                                                  6,593      10,398      (3,805)     (36.6)%
       Normalized                                                9,093      10,998      (1,905)     (17.3)%
                                                              ---------------------------------------------
Operating expenses:
  Research and development
     Reported                                                    3,344       3,926        (582)     (14.8)%
     Normalized                                                  3,344       3,926        (582)     (14.8)%
  Marketing and sales
     Reported                                                    5,981       7,356      (1,375)     (18.7)%
     Normalized                                                  5,136       6,762      (1,626)     (24.0)%
  General and administrative
     Reported                                                    1,925       1,487         438       29.5%
     Normalized                                                  1,274       1,487        (213)     (14.3)%
  Charge (credit) for acquired in-process technology
     Reported                                                     --          (750)        750      100.0%
     Normalized                                                   --          --          --       --
                                                              ---------------------------------------------
  Total operating expenses
     Reported                                                   11,250      12,019        (769)      (6.4)%
     Normalized                                                  9,754      12,175      (2,421)     (19.9)%
                                                              ---------------------------------------------
Operating loss
  Reported                                                      (4,657)     (1,621)     (3,036)     187.3%
  Normalized                                                      (661)     (1,177)        516       43.8%
Interest and other income (expense), net
  Reported                                                         176         209         (33)     (15.8)%
  Normalized                                                       176         209         (33)     (15.8)%
                                                              ---------------------------------------------
Loss before provision for (benefit from) income taxes
  Reported                                                      (4,481)     (1,412)     (3,069)    (217.4)%
  Normalized                                                      (485)       (968)        483       49.9%
Provision for (benefit from) income taxes
  Reported                                                           9        (496)        505     (101.8)%
  Normalized                                                         9        (287)        296     (103.1)%
                                                              ---------------------------------------------
Net loss
  Reported                                                    $ (4,490)   $   (916)   $ (3,574)    (390.2)%
  Normalized                                                      (494)       (681)        187       27.5%
                                                              =============================================
Net loss per share
  Reported                                                    $  (0.68)   $  (0.14)   $  (0.54)    (390.2)%
  Normalized                                                     (0.08)      (0.11)       0.03       27.5%
                                                              =============================================
</TABLE>

         Note:  Special charges for fiscal 1997 represent $4.0 million pretax to
streamline  operations  and  provide  valuation  reserves  against  inventories,
receivables  and fixed  assets.  Special  charges  and  credits  for fiscal 1996
represent  $1.2  million  pretax  charges to writedown  demonstration  inventory
offset by $0.8  million  pretax  reversal  of  acquired  in  process  technology
charges.

                                       30
<PAGE>
<TABLE>

         The  following  table  presents  the  Company's  fiscal  1997  and 1996
Consolidated  Statements of Operations as a percentage of net sales, as reported
and as normalized to remove the effects of special charges and credits  incurred
during each of those fiscal years.
<CAPTION>
                                                                                                            Increase
                                                                                      1997       1996      (Decrease)
                                                                                      ----       ----      ----------
<S>                                                                                    <C>        <C>          <C> 
Net sales
     Reported                                                                          100.0%     100.0%       0.0%
     Normalized                                                                        100.0%     100.0%       0.0%
Cost of sales
     Reported                                                                           62.6%      51.4%      11.2%
     Normalized                                                                         48.4%      48.6%      (0.2)%
                                                                                   ---------------------------------
           Gross margin
             Reported                                                                   37.4%      48.6%     (11.2)%
             Normalized                                                                 51.6%      51.4%       0.2%
                                                                                   ---------------------------------
Operating expenses:
     Research and development
        Reported                                                                        19.0%      18.3%       0.6%
        Normalized                                                                      19.0%      18.3%       0.6%
     Marketing and sales
        Reported                                                                        33.9%      34.4%      (0.4)%
        Normalized                                                                      29.1%      31.6%      (2.4)%
     General and administrative
        Reported                                                                        10.9%       6.9%       4.0%
        Normalized                                                                       7.2%       6.9%       0.3%
     Charge (credit) for acquired in-process technology
        Reported                                                                           -       (3.5)%      (3.5)%
        Normalized                                                                         -          -           -
                                                                                   ---------------------------------
     Total operating expenses
        Reported                                                                        63.8%      56.1%       7.7%
        Normalized                                                                      55.3%      56.9%      (1.5)%
                                                                                   ---------------------------------
Operating loss
     Reported                                                                         (26.4)%     (7.6)%     (18.8)%
     Normalized                                                                        (3.7)%     (5.5)%       1.7%
Interest and other income (loss), net
     Reported                                                                            1.0%       1.0%         -
     Normalized                                                                          1.0%       1.0%         -
                                                                                   ---------------------------------
Loss before provision for (benefit from) income taxes
     Reported                                                                         (25.4)%     (6.6)%     (18.8)%
     Normalized                                                                        (2.8)%     (4.5)%       1.7
Provision for (benefit from) income taxes
     Reported                                                                            0.1%     (2.3)%       2.4%
     Normalized                                                                          0.1%     (1.3)%       1.4%
                                                                                   ---------------------------------
Net loss
     Reported                                                                         (25.5)%     (4.3)%     (21.2)%
     Normalized                                                                        (2.8)%     (3.2)%       0.4%
                                                                                   =================================
</TABLE>

         Note:  Special charges for fiscal 1997 represent $4.0 million pretax to
streamline  operations  and  provide  valuation  reserves  against  inventories,
receivables  and fixed  assets.  Special  charges  and  credits  for fiscal 1996
represent  $1.2  million  pretax  charges to writedown  demonstration  inventory
offset by $0.8  million  pretax  reversal  of  acquired  in  process  technology
charges.

                                       31
<PAGE>

         The following  fiscal 1997 vs. 1996 results of  operations  discussions
are based upon normalized results,  without inclusion of the above noted special
charges and credits incurred during each of those fiscal years.

         Net sales.  The  decrease in net sales  during  fiscal 1997 from fiscal
1996 levels was  primarily due to decreased  sales in the video post  production
marketplace.  That decrease was partially offset by increased sales in the video
broadcasting and computer graphics production and post production marketplaces.

         International sales in fiscal 1997 and 1996 represented 42.4% and 38.2%
of net sales, respectively, as export sales to Europe decreased to 10% from 14%,
respectively, and export sales to the Pacific Rim increase to 27% from 19%.

         The  following  table  presents  fiscal 1997 and 1996 net sales  dollar
volumes by market and related  percentages of total net sales (dollar amounts in
thousands).

                                       1997                      1996
                                       ----                      ----
                  Market       Amount        Percent     Amount        Percent
                  ------       ------        -------     ------        -------


Production                     $ 8,259        46.9%     $ 7,806           36.5%

Post Production                  6,534        37.1%      11,608           54.2%

Broadcasting                     2,408        13.7%       1,681            7.9%

Other                              426         2.4%         313            1.5%
                               --------------------     -----------------------
                               $17,627       100.0%     $21,408          100.0%
                               ====================     =======================


         Cost of sales.  Normalized  gross  margin  percentage  for fiscal  1997
increased over fiscal 1996 levels  primarily due to a greater  portion of higher
margin ELSET(TM) software sales included in the sales mix.

         Research and development. Fiscal 1997's decrease in normalized research
and  development  expenses  primarily was a result of decreases in headcount and
related overhead expenses after the Company's streamlining of operations.

         Marketing and sales. Fiscal 1997's decrease in normalized marketing and
sales  expenses  was  primarily  due to decreases  in  headcount,  demonstration
equipment  refurbishment  costs, and trade show and promotion expenses after the
Company's streamlining of operations.

         General and  administrative.  The  decrease in  normalized  general and
administrative  expenses from fiscal 1996 levels was primarily due to reductions
in headcount after the Company's streamlining of operations.

         Interest  and other  income,  net.  The  decrease in interest and other
income,  net during fiscal 1997 was primarily  due to reduced  average  interest
bearing cash and cash equivalent balances.

         Provision for (benefit  from) income taxes.  Fiscal 1996's benefit from
income  taxes was due to the  Company's  ability to carry back federal and state
net operating losses to prior periods.  In fiscal 1997, no further net operating
loss  carrybacks  were  available  and the  Company is in a net  operating  loss
carryforward position.

         Net loss.  As result of the factors  noted above,  normalized  net loss
decreased in fiscal 1997 from fiscal 1996's normalized net loss.

                                       32
<PAGE>

Fiscal Years 1996 vs. 1995
<TABLE>

         The  following  table  presents  the  Company's  fiscal  1996  and 1995
Consolidated  Statements of Operations,  as reported and as normalized to remove
the effects of special charges and credits  incurred during each of those fiscal
years (dollar amounts in thousands, except per share data).
<CAPTION>
                                                                                   Increase (Decrease)
                                                                                   -------------------
                                                          1996         1995        Amount       Percent
                                                          ----         ----        ------       -------
<S>                                                     <C>         <C>               <C>         <C> 
Net sales
  Reported                                              $ 21,408    $ 21,312          96          0.5%
  Normalized                                              21,408      21,312          96          0.5%
Cost of sales
  Reported                                                11,010      10,137         873          8.6%
  Normalized                                              10,410      10,137         273          2.7%
                                                        ----------------------------------------------
     Gross margin
       Reported                                           10,398      11,175        (777)        (7.0)%
       Normalized                                         10,998      11,175        (177)        (1.6)%
                                                        ----------------------------------------------
Operating expenses:
  Research and development
     Reported                                              3,926       3,791         135          3.6%
     Normalized                                            3,926       3,791         135          3.6%
  Marketing and sales
     Reported                                              7,356       6,142       1,214         19.8%
     Normalized                                            6,762       6,142         620         10.1%
  General and administrative
     Reported                                              1,487       1,268         219         17.3%
     Normalized                                            1,487       1,268         219         17.3%
  Charge (credit) for acquired in-process technology
     Reported                                               (750)     10,766     (11,516)      (107.0)%
     Normalized                                             --          --          --         --
                                                        ----------------------------------------------
  Total operating expenses
     Reported                                             12,019      21,967      (9,948)       (45.3)%
     Normalized                                           12,175      11,201         974          8.7%
                                                        ----------------------------------------------
Operating loss
  Reported                                                (1,621)    (10,792)      9,171         85.0%
  Normalized                                              (1,177)        (26)     (1,151)    (4,426.9)%
Interest and other income (expense), net
  Reported                                                   209        (180)        389        216.1%
  Normalized                                                 209        (180)        389        216.1%
                                                        ----------------------------------------------
Loss before provision for (benefit from) income taxes
  Reported                                                (1,412)    (10,972)      9,560         87.1%
  Normalized                                                (968)       (206)       (762)      (369.9)%
Provision for (benefit from) income taxes
  Reported                                                  (496)       (132)       (364)       275.8%
  Normalized                                                (287)       (132)       (155)       117.4%
                                                        ----------------------------------------------
Net loss
  Reported                                              $   (916)   $(10,840)   $  9,924         91.5%
  Normalized                                                (681)        (74)       (607)      (820.3)%
                                                        ==============================================
Net loss per share
  Reported                                              $  (0.14)   $  (3.85)   $   3.71         96.4%
  Normalized                                               (0.11)      (0.03)      (0.08)      (820.3)%
                                                        ==============================================
</TABLE>

         Note:  Special  charges  and credits  for fiscal  1996  represent  $1.2
million  pretax  charges to  writedown  demonstration  inventory  offset by $0.8
million  pretax  reversal  of acquired in process  technology  charges.  Special
charges for fiscal 1995  represent  $10.8 million pretax for acquired in process
technology.

                                       33
<PAGE>
<TABLE>
         The  following  table  presents  the  Company's  fiscal  1996  and 1995
Consolidated  Statements of Operations as a percentage of net sales, as reported
and as normalized to remove the effects of special charges and credits  incurred
during each of those fiscal years.
<CAPTION>
                                                                                                          Increase
                                                                                    1996        1995     (Decrease)
                                                                                    ----        ----     ----------
<S>                                                                                <C>          <C>          <C>  
Net sales
     Reported                                                                      100.0%       100.0         -
     Normalized                                                                    100.0%       100.0         -
Cost of sales
     Reported                                                                       51.4%        47.6%        3.9%
     Normalized                                                                     48.6%        47.6%        1.1%
                                                                                ------------------------------------
           Gross margin
              Reported                                                              48.6%        52.4%       (3.9)%
              Normalized                                                            51.4%        52.4%       (1.1)%
                                                                                ------------------------------------
Operating expenses:
     Research and development
        Reported                                                                    18.3%        17.8%        0.6%
        Normalized                                                                  18.3%        17.8%        0.6%
     Marketing and sales
        Reported                                                                    34.4%        28.8%        5.5%
        Normalized                                                                  31.6%        28.8%        2.8%
     General and administrative
        Reported                                                                     6.9%         5.9%        1.0%
        Normalized                                                                   6.9%         5.9%        1.0%
     Charge (credit) for acquired in-process technology
        Reported                                                                    (3.5)%       50.5%       54.0%
        Normalized                                                                     -            -           -
                                                                                ------------------------------------
     Total operating expenses
        Reported                                                                    56.1%       103.1%      (46.9)%
        Normalized                                                                  56.9%        52.6%        4.3%
                                                                                ------------------------------------
Operating loss
     Reported                                                                       (7.6)%      (50.6)%      43.0%
     Normalized                                                                     (5.5)%       (0.1)%      (5.4)%
Interest and other income (expense), net
     Reported                                                                        1.0%        (0.8)%       1.8%
     Normalized                                                                      1.0%        (0.8)%       1.8%
                                                                                ------------------------------------
Loss before benefit from income taxes
     Reported                                                                       (6.6)%      (51.5)%      44.9%
     Normalized                                                                     (4.5)%       (1.0)%      (3.6)%
Benefit from income taxes
     Reported                                                                       (2.3)%       (0.6)%      (1.7)%
     Normalized                                                                     (1.3)%       (0.6)%      (0.7)%
                                                                                ------------------------------------
Net loss
     Reported                                                                       (4.3)%      (50.9)%      46.6%
     Normalized                                                                     (3.2)%       (0.3)%      (2.8)%
                                                                                ====================================
</TABLE>

         Note:  Special  charges  and credits  for fiscal  1996  represent  $1.2
million  pretax  charges to  writedown  demonstration  inventory  offset by $0.8
million  pretax  reversal  of acquired in process  technology  charges.  Special
charges for fiscal 1995  represent  $10.8 million pretax for acquired in process
technology.

                                       34
<PAGE>

         The following  fiscal 1996 vs. 1995 results of  operations  discussions
are based on normalized  results,  without  inclusion of the above noted special
charges and credits.

         Net sales.  The  increase in net sales  during  fiscal 1996 from fiscal
1995  levels  was  primarily  due to  increased  sales in the  video  production
marketplace from introduction of the ELSET(TM)  virtual set,  increases sales in
the video broadcasting marketplace, and increases of Axial(R) sales in the video
broadcast marketplace, offset by decreases in signal processing and digital disk
recorder sales in the video broadcast  marketplace and in the computer  graphics
production and post production marketplaces.

         International sales in fiscal 1996 and 1995 represented 38.2% and 51.1%
of net sales, respectively, as export sales to Europe decreased to 14% from 19%,
respectively, and export sales to the Pacific Rim decreased to 19% from 24%.

         The  following  table  presents  fiscal 1996 and 1995 net sales  dollar
volumes by market and related  percentages of total net sales (dollar amounts in
thousands).

                                      1996                        1995
                                      ----                        ----
                   Market      Amount        Percent      Amount        Percent
                   ------      ------        -------      ------        -------


Production                     $ 7,806         36.5%     $ 8,908           41.8%

Post Production                 11,608         54.2%      11,853           55.6%

Broadcasting                     1,681          7.9%         342            1.6%

Other                              313          1.5%         209            1.0%
                               ---------------------     -----------------------
                               $21,408        100.0%     $21,312          100.0%
                               =====================     =======================

         Cost of sales.  Normalized  gross margin  percentage  decreased  during
fiscal 1996 primarily due to increased costs of manufacturing certain disk based
products.

         Research  and  development.  Fiscal  1996's  increase in  research  and
development expenses was primarily due to an increase in personnel costs related
to ELSET(TM)  virtual set product  development,  offset by reduced  headcount in
other  product  development  areas and by a  decrease  in  prototyping  expenses
related to other new product development.

         Marketing and sales. Fiscal 1996's increase in normalized marketing and
sales expenses resulted from a increase in ELSET(TM) marketing activities and an
increase in headcount.

         General and  administrative.  The increase in fiscal 1996's general and
administrative expenses was due to an increase in insurance costs.

         Interest  and other  income,  net.  The  increase in interest and other
income in fiscal 1996 was due to  investment  of the  Company's  initial  public
offering proceeds in interest bearing cash and cash equivalent accounts.

         Provision  for  (benefit  from)  income  taxes.  Fiscal 1996 and 1995's
benefit from income taxes was due to the Company's ability to carry back federal
and state net operating losses to prior periods.

         Net loss. As a result of the above noted  factors,  normalized net loss
increased in fiscal 1996 from the amount incurred in fiscal 1995.

                                       35
<PAGE>

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, 1997, the Company had $5.3 million of cash and
cash equivalents.

         Operating  activities  provided  $1.5 million in net cash during fiscal
1997 and used $3.7 million in net cash during fiscal 1996.  Net cash provided in
fiscal  1997  was  due  primarily  to  decreases  in  accounts   receivable  and
inventories  partially  offset by  decreases  in  accounts  payable  and accrued
liabilities.  Net cash  used in 1996 was due  primarily  to  decreases  in other
accrued  liabilities and increases in accounts  receivable  partially  offset by
increases in accounts payable.

         The  Company has a revolving  line of credit  with  Comerica  Bank that
allows for  borrowings  up to $4.0  million,  subject  to the level of  accounts
receivable.  As of September 30, 1997,  approximately $2.2 million of borrowings
were available under this line of credit, of which the Company had no borrowings
outstanding.  Indebtedness  under the line of credit accrues 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, 1997.

         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, if at all.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

         Not Applicable

                                       36
<PAGE>

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

         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  17, 1997 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  reference  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.

                                       37
<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 as of September 30, 1997 and 1996.

                  Consolidated  Statements  of Operations - For
                  the Fiscal  Years ended  September  30, 1997,
                  1996 and 1995.

                  Consolidated  Statement  of  Shareholders'  Equity  - For  the
                  Fiscal Years ended September 30, 1997, 1996 and 1995.

                  Consolidated  Statements  of Cash Flows - For
                  the Fiscal  Years ended  September  30, 1997,
                  1996 and 1995.

                  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.

                                       38

<PAGE>


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

  Number                               Description
  ------                               -----------
  3.1(1)        Bylaws of the Company.
  3.2(2)        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.
  3.3           Certificate of Designation of Rights, Preferences and Privileges
                of Series A Participating  Preferred Stock. Reference is made to
                Exhibit 4.3
  4.1           Reference is made to Exhibits 3.1, 3.2, 3.3 and 4.3.
  4.2(1)        Specimen Common Stock Certificate.
  4.3(3)        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           Lease  Extension  dated  October 25,  1996 by and between  Menlo
                Business Park and Partician Associates, Inc. and the Company.
 10.2(4)        1997  Non-Executive   Stock  Option  Plan  and  Form  of  Option
                Agreement.
 11.1(5)        Statement Regarding Computation of Net Loss Per Share.
 21.1           Subsidiaries of the Company
 23.1           Consent of Ernst & Young LLP, Independent Auditors.
 23.2           Report of Ernst & Young LLP, Independent  Auditors, on Financial
                Statement  Schedule  (reference  is  made  to  page  F-1 of this
                Report) 
 24.1           Power of Attorney (reference is made to page 39 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.

(2)  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).

(3)  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.

(4)  Incorporated  by  reference  from  an  exhibit  filed  with  the  Company's
     Registration Statement on Form S-8 (File No. 333-23635), filed on March 20,
     1997

(5)  Incorporated  by reference from an exhibit filed with the Company's  Annual
     Report on 10-K for the  fiscal  year  ended  September  30,  1996 (File No.
     0-26620).

(b)  Reports on Form 8-K

No Reports on Form 8-K were filed during the three months  ended  September  30,
1997.

                                       39
<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 23rd day of December 1997.

                                          ACCOM, INC.


                                          By: /s/        CAL R. HOAGLAND
                                              ----------------------------------
                                                         Cal R. Hoagland
                                                     Vice President Finance
                                                   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 Cal R.  Hoagland,
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,           December 23, 1997
          -----------------             President and Chief Executive Officer  
           (Junaid Sheikh)              (Principal Executive Officer)          
                                        

         /s/ CAL R. HOAGLAND            Vice President Finance and  Chief             December 23, 1997
         -------------------            Financial Officer (Principal Financial 
          (Cal R. Hoagland)             and Accounting Officer)                
                                                                               
                                        
         /s/ LIONEL M. ALLAN            Director                                      December 23, 1997
         -------------------
          (Lionel M. Allan)

        /s/ THOMAS E. FANELLA           Director                                      December 23, 1997
        ---------------------
         (Thomas E. Fanella)

         /s/ ROBERT L. WILSON           Director                                      December 23, 1997
         --------------------
          (Robert L. Wilson)
</TABLE>

                                       40
<PAGE>


                                   Accom, Inc.
                        Consolidated Financial Statements
                        As of September 30, 1997 and 1996
                                       and
          For the three fiscal years ended September 30, 1997, 1996 and
                       1995 with Report of Independent Auditors


<PAGE>


                                   Accom, Inc.
                        Consolidated Financial Statements
                        As of September 30, 1997 and 1996
                                       and
          For the three fiscal years ended September 30, 1997, 1996 and
                       1995 with Report of Independent Auditors



                                    Contents


Report of Ernst & Young LLP, Independent Auditors ........................   F-1

Consolidated Financial Statements:

         Consolidated Balance Sheets .....................................   F-2

         Consolidated Statements of Operations ...........................   F-3

         Consolidated Statements 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.
as of September 30, 1997 and 1996,  and the related  consolidated  statements of
operations,  stockholders'  equity and cash  flows for each of the three  fiscal
years in the period  ended  September  30,  1997.  Our audits also  included the
consolidated  financial  statement  schedule  listed in the Index at Item 14(a).
These consolidated  financial  statements and schedule are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
consolidated 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 consolidated  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. as
of September 30, 1997 and 1996, and the  consolidated  results of its operations
and its cash  flows  for each of the  three  fiscal  years in the  period  ended
September 30, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion,  the related  consolidated  financial  statement schedule,
when considered in relation to the basic consolidated 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, 1997

                                      F-1

<PAGE>


<TABLE>
                                   Accom, Inc.
                           Consolidated Balance Sheets
                      (in thousands, except per share data)


<CAPTION>
                                                                                                            As of September 30,
                                                                                                         --------------------------
                                                                                                           1997              1996
                                                                                                         --------          --------
                                Assets
<S>                                                                                                      <C>               <C>
Current assets:
   Cash and cash equivalents                                                                             $  5,317          $  4,221
   Accounts receivable, net of allowance for doubtful accounts of
     $401 and $223 as of September 30, 1997 and 1996, respectively
                                                                                                            3,239             4,519
   Inventories                                                                                                980             5,447
   Income tax refunds receivable                                                                              621               195
   Deferred tax assets                                                                                         38               695
   Prepaid expenses and other current assets                                                                  334               377
                                                                                                         --------------------------
     Total current assets                                                                                  10,529            15,454
Property and equipment, net                                                                                   967             1,683
Other assets                                                                                                   49               142
                                                                                                         --------------------------
     Total assets                                                                                        $ 11,545          $ 17,279
                                                                                                         ==========================

                  Liabilities and Stockholders' Equity
Current liabilities:
   Notes payable                                                                                               24                58
   Accounts payable                                                                                         1,476             2,242
   Accrued liabilities and customer deposits                                                                1,338             1,455
   Deferred revenue                                                                                           141               528
                                                                                                         --------------------------
     Total current liabilities                                                                              2,979             4,283
Long-term liabilities                                                                                        --                  44
                                                                                                         --------------------------
     Total liabilities                                                                                      2,979             4,327
                                                                                                         --------------------------
Stockholders' equity:
   Preferred stock, $0.001 per share par value; issuable in series; 2,000 shares
     authorized and no shares issued and outstanding as
     of September 30, 1997 and 1996                                                                          --                --
   Common stock, $0.001 per share par value; 20,233 shares authorized
     as of  September  30,  1997 and 1996;  6,627 and 6,494  shares  issued  and
     outstanding as of September 30, 1997 and 1996, respectively
                                                                                                           21,427            21,323
   Accumulated deficit                                                                                    (12,861)           (8,371)
                                                                                                         --------------------------
     Total stockholders' equity                                                                             8,566            12,952
                                                                                                         --------------------------
     Total liabilities and stockholders' equity                                                          $ 11,545          $ 17,279
                                                                                                         ==========================

<FN>
                       The  accompanying  notes  are an  integral  part of these
consolidated financial statements.
</FN>
</TABLE>

                                       F-2

<PAGE>


<TABLE>
                                   Accom, Inc.
                      Consolidated Statements of Operations
                      (in thousands, except per share data)

<CAPTION>
                                                                                          Fiscal Years Ended September 30,
                                                                                   ------------------------------------------------
                                                                                     1997                1996                1995
                                                                                   --------            --------            --------
<S>                                                                                <C>                 <C>                 <C>
Net sales                                                                          $ 17,627            $ 21,408            $ 21,312

Cost of sales                                                                        11,034              11,010              10,137
                                                                                   ------------------------------------------------

  Gross margin                                                                        6,593              10,398              11,175
                                                                                   ------------------------------------------------

Operating expenses:
  Research and development                                                            3,344               3,926               3,791
  Marketing and sales                                                                 5,981               7,356               6,142
  General and administrative                                                          1,925               1,487               1,268
  Charge (credit) for acquired in-process technology
                                                                                       --                  (750)             10,766
                                                                                   ------------------------------------------------

  Total operating expenses                                                           11,250              12,019              21,967
                                                                                   ------------------------------------------------

Operating loss                                                                       (4,657)             (1,621)            (10,792)

  Interest and other income (expense), net                                              176                 209                (180)
                                                                                   ------------------------------------------------

Loss before provision for (benefit from)
  income taxes                                                                       (4,481)             (1,412)            (10,972)

  Provision for (benefit from) income taxes                                               9                (496)               (132)
                                                                                   ------------------------------------------------

Net loss                                                                           $ (4,490)           $   (916)           $(10,840)
                                                                                   ================================================

Net loss per share                                                                 $  (0.68)           $  (0.14)           $  (3.85)
                                                                                   ================================================

Shares used in computing net loss per share                                           6,587               6,439               2,816
                                                                                   ================================================


<FN>
                       The  accompanying  notes  are an  integral  part of these
consolidated financial statements.
</FN>
</TABLE>

                                       F-3

<PAGE>


<TABLE>
                                   Accom, Inc.
                 Consolidated Statements of Stockholders' Equity
                                 (in thousands)

<CAPTION>
                                               Convertible Preferred Stock          Common Stock,         Retained          Total
                                                $0.001 Per Share Par Value    $0.001 Per Share Par Value   Earnings        Stock-
                                               ---------------------------    -------------------------- (Accumulated      holders'
                                                   Shares         Amount         Shares        Amount       Deficit)        Equity
                                                  --------       --------       --------      --------      --------       --------
<S>                                                  <C>         <C>               <C>        <C>           <C>            <C>
Balances, September 30, 1994                         1,479       $      1          2,339      $  2,264      $  3,385       $  5,650
  Issuance of Series B
     preferred stock, net of
     issuance costs of $83                             417          2,218           --            --            --            2,218
  Issuance of common stock
     upon exercise of stock
     options                                          --             --               44            22          --               22
  Conversion of preferred
     stock into common stock                        (1,896)        (2,219)         1,896         2,219          --             --
  Initial public offering of
     common stock, net of
     issuance costs of $2,496                         --             --            2,125        16,629          --           16,629
  Net loss                                            --             --             --            --         (10,840)       (10,840)
                                                  ---------------------------------------------------------------------------------
Balances, September 30, 1995                          --             --            6,404        21,134        (7,455)        13,679
  Issuance of common stock
     upon exercise of stock
     options                                          --             --               36            19          --               19
  Purchase of common stock
     through Employee Stock
     Purchase Plan                                    --             --               53           170          --              170
  Net loss                                            --             --             --            --            (916)          (916)
                                                  ---------------------------------------------------------------------------------
Balances, September 30, 1996                          --             --            6,494        21,323        (8,371)        12,952
  Issuance of common stock
     upon exercise of stock
     options                                          --             --              104            58          --               58
  Purchase of common stock
     through Employee Stock
     Purchase Plan                                    --             --               29            46          --               46
  Net loss                                            --             --             --            --          (4,490)        (4,490)
                                                  ---------------------------------------------------------------------------------
Balances, September 30, 1997                          --             --            6,627      $ 21,427      $(12,861)      $  8,566
                                                  =================================================================================


<FN>
                       The  accompanying  notes  are an  integral  part of these
consolidated financial statements.
</FN>
</TABLE>

                                       F-4

<PAGE>

<TABLE>

                                                    Accom, Inc.
                                       Consolidated Statements of Cash Flows
                                                  (in thousands)

<CAPTION>
                                                                              Fiscal Years Ended September 30,
                                                                              ---------------------------------
                                                                              1997          1996           1995
                                                                              ----          ----           ----

<S>                                                                          <C>           <C>           <C>
                  Cash Flows From Operating Activities
Net loss                                                                     $(4,490)      $  (916)      $(10,840)
Adjustments to reconcile net loss to net cash provided by (used in)
     operating activities:
   Charge (credit) for acquired in-process technology                              -          (750)        10,766
   Depreciation and amortization                                                 528           760            533
   Establishment of reserves against accounts
      receivable, inventories, and property and
      equipment, and accruals for streamlining
      operations                                                               3,995             -              -
   Changes in operating assets and liabilities, net of effects of
       acquisition and reserves to streamline operations
     Accounts receivable                                                       1,030          (815)           224
     Inventories                                                               1,967          (711)          (539)
     Income tax refunds receivable                                              (426)         (145)           (51)
     Deferred tax assets, net                                                    637          (275)           (17)
     Prepaid expenses and other current assets                                    43           (82)          (155)
     Accounts payable                                                           (766)          523            503
     Accrued liabilities and customer deposits                                  (611)       (1,524)           161
     Income taxes payable                                                          -             -           (128)
     Deferred revenue                                                           (387)          192            (38)
                                                                          ------------------------------------------
       Net cash provided by (used in) operating activities                     1,520        (3,743)           419
                                                                          ------------------------------------------

                  Cash Flows From Investing Activities
Acquisition of ELSET, net of cash acquired                                         -             -         (9,195)
Expenditures for property and equipment                                         (563)         (847)          (965)
(Increase) decrease in other assets                                               93           (88)            (1)
                                                                          ------------------------------------------
       Net cash used in investing activities                                    (470)         (935)       (10,161)
                                                                          ------------------------------------------

                  Cash Flows from Financing Activities
Borrowings under line of credit                                                    -             -          1,850
Payments on line of credit                                                         -             -         (2,875)
Borrowings under notes payable                                                     -             -            175
Repayments on notes payable                                                      (58)          (59)          (534)
Issuance of convertible preferred stock                                            -             -          2,218
Issuance of common stock                                                         104           189         17,481
                                                                          ------------------------------------------
       Net cash provided by financing activities                                  46           130         18,315
                                                                          ------------------------------------------

Net increase (decrease) in cash and cash equivalents                           1,096        (4,548)         8,573
Cash and cash equivalents at beginning of the year                             4,221         8,769            196
                                                                          ------------------------------------------
       Cash and cash equivalents at end of the year                          $ 5,317        $4,221         $8,769
                                                                          ==========================================

<FN>
                                                     -Continued-

               The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
                                                         F-5
<PAGE>

<TABLE>

                                                    Accom, Inc.
                                 Consolidated Statements of Cash Flows (Concluded)
                                                  (in thousands)

<CAPTION>
                                                                              Fiscal Years Ended September 30,
                                                                              ---------------------------------
                                                                              1997          1996           1995
                                                                              ----          ----           ----

<S>                                                                               <C>       <C>              <C>
            Supplemental Disclosure of Cash Flow Information

Interest paid                                                                     $6        $   11           $120
                                                                          ==========================================

Income taxes paid                                                                 $2       $     2           $118
                                                                          ==========================================

Noncash investing and financing activities:
  Accrued acquisition costs                                                        -         $(354)          $619
                                                                          ==========================================
  Assumption of net liabilities in acquisition                                     -             -           $892
                                                                          ==========================================
  Accrued initial public offering costs                                            -         $(819)          $830
                                                                          ==========================================
<FN>

               The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
                                                         F-6



<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements
           As of September 30, 1997 and 1996 and for each of the Three
                      Fiscal Years Ended September 30, 1997

1. Summary of Significant Accounting Policies

Nature of the Business

Accom,  Inc.  (the  "Company")  designs,  manufactures,  sells,  and  supports a
complete line of digital video signal  processing,  editing,  and disk recording
tools, and virtual set systems,  primarily for the professional  worldwide video
and computer graphics production, post production and distribution marketplaces.

Reclassifications

Certain amounts in the prior years' financial  statements have been reclassified
to conform with the fiscal 1997 presentation.

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.

Cash and Cash Equivalents

Cash equivalents  consist of financial  instruments having maturities of 90 days
or less at the time of acquisition  that are readily  convertible  into cash and
have  insignificant   interest  rate  risk.  As  of  September  30,  1997,  cash
equivalents consist of money market accounts,  commercial paper, treasury bills,
and municipal  notes.  Primarily all cash and cash  investments  are held by one
major national bank and two major investment brokerage companies.

Concentration of Credit Risk

The Company sells its product 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.

Inventories

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

                                      F-7

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements
           As of September 30, 1997 and 1996 and for each of the Three
                      Fiscal Years Ended September 30, 1997

1. Summary of Significant Accounting Policies (continued)

Property and Equipment

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

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.

Employee Stock-Based Compensation

Accounting  guidelines  allow the use of two alternative  methods to account for
employee  stock-based  compensation.  Under the first  method,  the recording of
compensation   expense  at  "fair  value"  is  encouraged,   but  not  required.
Determination of "fair value" under this method is based on the use of valuation
models not developed for use in valuing employee stock-based compensation. Under
the second method, the recording of compensation  expense is not required if the
purchase price of employee  stock-based  compensation equals the market price of
the underlying  stock on the date of grant. The Company's  employee  stock-based
compensation plans meet this requirement.  Therefore, the Company has elected to
follow the second method to account for employee stock-based compensation.

Although  the  Company  is not  required  to record  compensation  expense,  the
guidelines  of the first method  requires  disclosure  of pro forma  effects the
theoretical expense has on reported net loss and net loss per share (see Note 8)
based on that method's determination of "fair value."

Acquired In-Process Technology

In-process  technology  acquired  in an  acquisition  accounted  for  under  the
purchase method is expensed upon acquisition.

                                      F-8

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements
           As of September 30, 1997 and 1996 and for each of the Three
                      Fiscal Years Ended September 30, 1997

1. Summary of Significant Accounting Policies (continued)

Income Taxes

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.

Net Loss Per Share

Net loss per share is  computed  using  the  weighted  average  number of common
shares outstanding during the period. Common equivalent shares from common stock
options  are  excluded  from the  computation  for fiscal 1997 and 1996 as their
effect is antidilutive.

In addition,  for fiscal 1995,  pursuant to Securities  and Exchange  Commission
guidelines,  the computation  included 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 as if
they were issued at the  initial  public  offering  price.  For  purposes of the
fiscal 1995  computation,  common  equivalent  shares  consisted of  incremental
common  shares  issuable  upon  the  conversion  of the  previously  outstanding
convertible  preferred stock (using the if-converted method) and shares issuable
upon the exercise of stock options (using the treasury  stock  method).  Had the
calculation  not been modified by SEC  guidelines,  fiscal 1995's net loss would
have been $2.47 and the number of shares used in the calculation would have been
4,394,000.

New Accounting Guidelines

In fiscal 1997, new accounting guidelines were issued addressing the computation
of net income  (loss) per share,  which  will be  effective  for the  Company in
fiscal 1998 Under the new  guidelines,  two per share  disclosures are required:
the first,  "basic," which is based solely on the weighted average shares issued
and  outstanding  during the year;  and second,  "diluted,"  which  includes the
effect of dilutive  common stock  equivalents  (which for the Company are common
stock options).  Net loss per share under the new guidelines is the same as that
reported by the Company under the existing guidelines for all period presented.

Also in fiscal  1997,  two  additional  new  accounting  guidelines  were issued
addressing  the  reporting of  comprehensive  income and revised  disclosure  of
segment  information,  both of which will be effective for the Company in fiscal
1999.

                                      F-9

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements
           As of September 30, 1997 and 1996 and for each of the Three
                      Fiscal Years Ended September 30, 1997

2. ELSET Acquisition

During fiscal 1995 the Company and one of its wholly owned subsidiaries acquired
an  aggregate   100%  of  ELSET   Electronic-Set   GmbH   ("ELSET")  in  several
transactions.  The Company  accounted  for the  transactions  using the purchase
method.  The aggregate  purchase  price was $10,766,  000,  which  included $9.1
million  paid for the share  capital,  $0.9  million of  estimated  assumed  net
liabilities, and $0.8 million of estimated transaction and other costs. Based on
the stage of acquired  technology as of the date of acquisition,  it was treated
as  in-process  technology  and the  entire  purchase  price was  expensed  upon
acquisition.

At the  end of  fiscal  1996,  the  Company  reevaluated  its  estimates  of the
liabilities  assumed based on information  available at the time. As a result of
this  reevaluation,  $750,000 was  reversed as a credit for acquired  in-process
technology.

3. Inventories

Inventories consist of the following:
                                                      As of September 30,
                                                      -------------------
                                                  1997                  1996
                                                  ----                  ----
                                                        (In thousands)

Purchased parts and materials                   $   225                $1,105
Work-in-process                                     204                 1,842
Finished goods                                      182                   440
Demonstration inventory                             369                 2,060
                                             -----------------------------------
                                                $   980                $5,447
                                             ===================================

4. Property and Equipment

Property and equipment consist of the following:
                                                     As of September 30,
                                                      -------------------
                                                  1997                  1996
                                                  ----                  ----
                                                        (In thousands)

Machinery and equipment                         $ 1,768             $   2,574
Furniture and fixtures                              207                   207
Computer equipment                                1,070                 1,171
                                             -----------------------------------
                                                  3,045                 3,952
Less accumulated depreciation                    (2,078)               (2,269)
                                             -----------------------------------
Net property and equipment                      $   967             $   1,683
                                             ===================================

                                      F-10

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements
           As of September 30, 1997 and 1996 and for each of the Three
                      Fiscal Years Ended September 30, 1997

5. Accrued Liabilities and Customer Deposits

Accrued liabilities and customer deposits consist of the following:

                                                     As of September 30,
                                                      -------------------
                                                  1997                  1996
                                                  ----                  ----
                                                        (In thousands)

Accrued compensation                            $   275               $   328
Accrued acquisition liabilities                     208                   473
Accrued streamlining expenses                       379                     -
Other                                               476                   654
                                             -----------------------------------
                                                $ 1,338               $ 1,455
                                             ===================================

6. 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, 1997, the Company had no borrowings outstanding. and approximately
$2.2 million was  available  for  borrowing  under the line.  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 (8.50% and 8.25%
as of September 30, 1997 and 1996, respectively).  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, 1997, 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 equal monthly  principal  installments of approximately  $5,000
plus interest through April 1, 1998. The note's interest rate is the bank's base
rate plus 0.75% (9.25% at September  30,  1997).  Borrowings  under the note are
secured by certain assets of the Company.

                                      F-11

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements
           As of September 30, 1997 and 1996 and for each of the Three
                      Fiscal Years Ended September 30, 1997

7. Commitments

Leasing Arrangements

The  Company  leases its  primary  office and  manufacturing  facility  an under
operating  which  expires in February,  2000 and  provides for annual  increases
based on the local area's  consumer price index.  The Company is responsible for
utilities,  taxes and insurance  under the lease.  Rent expense for fiscal years
1995,  1996  and 1997  was  approximately,  $514,000,  $424,000  and $  395,000,
respectively.

Minimum future rental payments under noncancelable  leases at September 30, 1997
are as follows (in thousands):

1998                                                             $   499
1999                                                                 488
2000                                                                 206
                                                          ----------------------
Total                                                            $ 1,193
                                                          ======================

The Company is sublessor for a portion of its primary  office and  manufacturing
facility. Sublease rental income for fiscal 1997 was approximately $84,000.

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 made no contributions to the 401(k) plan through September 30, 1997

8. 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  under the 1990 Plan  generally  vested over a period of
five years.  In Fiscal 1995, the 1990 Plan was terminated with respect to future
grants due to adoption of the 1995 Stock  Option/Stock  Issuance Plan (the "1995
Plan").

                                      F-12

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements
           As of September 30, 1997 and 1996 and for each of the Three
                      Fiscal Years Ended September 30, 1997

8. Stockholders' Equity (continued)

Stock Options (continued)

The 1995 Plan  increased  the number of shares  available for grant by 1,258,036
plus automatic  annual  increases in 1996,  1997 and 1998.  Under the 1995 Plan,
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.

During Fiscal 1997, the Company adopted the 1997 Non-Executive Stock Option Plan
(the "1997 Plan"),  under which options for up to 500,000 shares of common stock
are  available  for grant to employees  other than  officers and  directors at a
price not less than 100% of the fair value of the Company's common stock on date
of grant.

<TABLE>
Stock option activity is summarized below:

<CAPTION>
                                            Shares            Outstanding Options            Weighted
                                           Available          -------------------             Average
                                           for Grant       Number of        Price Per        Exercise
                                          of Options         Shares           Share            Price
                                          ----------         ------           -----            -----

<S>                                          <C>             <C>           <C>                 <C>
Balances 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            $0.48
                                                                                          ================
   Options canceled                              6,161           (6,161)   $0.48-$4.80
                                       ---------------------------------------------------
Balances 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         $0.51
                                                                                          ================
   Options canceled                          1,066,612       (1,066,612)   $0.48-$9.25
                                       ---------------------------------------------------
Balances at September 30, 1996                 849,161        1,167,816    $0.48-$5.88
   Shares authorized                           565,689                          -
   Options granted                          (1,719,894)       1,719,894    $1.25-$1.69
   Options exercised                                           (103,613)   $0.48-$1.31         $0.56
                                                                                          ================
   Options canceled                          1,253,676       (1,253,676)   $0.48-$5.88
                                       ---------------------------------------------------
Balances at September 30, 1997                 948,772        1,530,421    $0.48-$5.88
                                       ===================================================
</TABLE>

During Fiscal 1997,  the Company  repriced,  through  cancellation  and regrant,
989,494 options having original exercise prices ranging from $1.63 to $4.80 with
a new exercise price of $1.31.  The repriced options have the same vesting terms
as the original options.

                                      F-13

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements
           As of September 30, 1997 and 1996 and for each of the Three
                      Fiscal Years Ended September 30, 1997

8. Stockholders' Equity (continued)

Stock Options (continued)

<TABLE>
The  options  outstanding  as of  September  30, 1997 have been  segmented  into
ranges:

<CAPTION>
                                            Weighted
                                            Average          Weighted                          Weighted
      Range of                             Remaining          Average          Options          Average
      Exercise            Options         Contractual        Exercise         Currently        Exercise
       Prices           Outstanding          Life             Price          Exercisable        Price
       ------           -----------          ----             -----          -----------        -----
<S>                       <C>                  <C>              <C>             <C>              <C>
       $0.48                 83,238            4.76             $0.48            75,866          $0.48
   $1.25 - $1.31          1,369,183            8.63             $1.28           381,738          $1.31
   $1.63 - $1.69             73,000            9.80             $1.69                 -           -
       $5.88                  5,000            8.38             $5.88             5,000          $5.88
                     --------------------------------------------------------------------------------------
   $0.48 - $5.88          1,530,421            8.47             $1.27           462,604          $1.22
                     ======================================================================================

</TABLE>
As of September 30, 1997,  the Company has reserved  2,479,193  shares of common
stock for issuance upon the exercise of stock options under all of its plans.

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.

Pro Forma Disclosure of Employee Stock-Based Compensation

Although  the  Company is not  required to record  compensation  expense for its
employee  stock-based  plans (see Note 1), the guidelines of the first method of
accounting  for  employee  stock-based  compensation  plans  require  pro  forma
disclosure of the theoretical  expense based on that method's  determination  of
"fair value."

                                      F-14

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements
           As of September 30, 1997 and 1996 and for each of the Three
                      Fiscal Years Ended September 30, 1997

8. Stockholders' Equity (continued)

Pro Forma Disclosure of Employee Stock-Based Compensation (continued)

For stock options granted  subsequent to September 30, 1995, the "fair value" of
those options was estimated at the date of grant using the Black-Scholes  option
pricing model. The following weighted-average assumptions were used:

                                Fiscal Year Ended
                                  September 30,
                                                             -------------
                                                           1997          1996
                                                           ----          ----

Risk-free interest rates                                   6.0%          6.0%
Dividends paid                                              -              -
Volatility factors - Company's common
stock expected market price                                0.80          0.80
Expected option life                                    4.83 years    4.83 years

The weighted  average "fair value" of stock options  granted  during fiscal 1997
and 1996 was $0.56 and $2.30, respectively.

For employee  purchase  rights under the Employee Stock Purchase Plan, the "fair
value"  of  those  rights  was   estimated  at  the  date  of  grant  using  the
Black-Scholes option pricing model. The following  weighted-average  assumptions
were used:
                                Fiscal Year Ended
                                  September 30,
                                                             -------------
                                                           1997          1996
                                                           ----          ----

Risk-free interest rates                                   6.0%          6.0%
Dividends paid                                              -              -
Volatility factors - Company's common
stock expected market price                                0.80          0.80
Expected option life                                    0.50 years    0.50 years

The weighted  average "fair value" of employee  purchase rights issued under the
Employee  Stock  Purchase  Plan during fiscal 1997 and 1996 was $0.85 and $4.06,
respectively.

                                      F-15

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements
           As of September 30, 1997 and 1996 and for each of the Three
                      Fiscal Years Ended September 30, 1997

8.  Stockholders' Equity (continued)

Pro Forma Disclosure of Employee Stock-Based Compensation (continued)

The above  assumptions  and  related  effects of  applying  them under the first
method of accounting for employee stock-based  compensation plans are not likely
to be  representative  of the  assumptions  and related  effects on reported net
income or loss in future years. For pro forma disclosure purposes, the estimated
"fair value" of the options is amortized to pro forma net loss over the option's
vesting period.

The pro forma  effect of  applying  the  estimated  "fair  value"  for  employee
stock-based compensation plans on net loss and net loss per share is as follows:

                                Fiscal Year Ended
                                  September 30,
                                                             -------------
                                                         1997           1996
                                                         ----           ----
Net loss (in thousands):
      Historical                                         $(4,490)        $(916)
      Pro forma                                          $(5,737)       (2,155)
Net loss per share:
      Historical                                         $(0.68)        $(0.14)
      Pro forma                                          $(0.87)        $(0.33)

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.

9.  Major Customers and Geographic Sales

One  customer  accounted  for 13% of net  sales in  fiscal  1997.  No  customers
accounted for 10% or more of net sales in fiscal 1996 and 1995. Export sales for
fiscal 1997, 1996, and 1995 were approximately 42%, 38%, and 51%,  respectively.
Export sales to Europe and the Pacific Rim as a  percentage  of total sales were
10% and 27%,  respectively,  for fiscal  1997,  14% and 19%,  respectively,  for
fiscal 1996, and 19% and 24%, respectively, for fiscal 1995.

                                      F-16

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements
           As of September 30, 1997 and 1996 and for each of the Three
                      Fiscal Years Ended September 30, 1997

10. Income Taxes

As  of  September  30,  1997,   the  Company  had  federal  net  operating  loss
carryforward of approximately $1,700,000.  The Company also had federal research
and development tax credit carryforwards of approximately $280,000.

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 are:

                               As of September 30,
                                    1997 1996
                                                    ----                ----
                                 (In thousands)
Deferred tax assets:
   Net operating losses                           $    735                $  -
   Capitalized R&D                                   2,711                   -
   Depreciation                                        144                   -
   Deferred revenue                                     93                 189
   Nondeductible reserves and accruals                 354                 256
   Inventory valuation                               1,055                 441
   Other                                               386                   8
                                                --------------------------------
                                                     5,478                 894
Valuation allowance                                 (5,440)               (199)
                                                --------------------------------
                                                        38                 695
Deferred tax liabilities:
   Depreciation                                          -                  20
                                                --------------------------------
Net deferred tax assets                           $     38                $675
                                                ================================

The net  valuation  allowance  increased by $5,241,000  and $199,000  during the
years ended September 30, 1997 and September 30, 1996, respectively.

                                      F-17

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements
           As of September 30, 1997 and 1996 and for each of the Three
                      Fiscal Years Ended September 30, 1997

<TABLE>
10. Income Taxes (continued)

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

<CAPTION>
                                                               Fiscal Year Ended September 30,
                                                               -------------------------------
                                                          1997               1996              1995
                                                          ----               ----              ----
                                                                       (In thousands)
<S>                                                        <C>                 <C>               <C>
 Federal:
    Current                                                $ (705)             $(231)            $(100)
    Deferred                                                  705               (231)              (23)
                                                        --------------------------------------------------
                                                                -               (462)             (123)
                                                        --------------------------------------------------
 State:
    Current                                                     -                 11               (20)
    Deferred                                                    -                (45)                6
                                                        --------------------------------------------------
                                                                -                (34)              (14)
                                                        --------------------------------------------------
 Foreign:
    Current                                                     9                  -                 5
                                                        --------------------------------------------------
 Total                                                     $    9              $(496)            $(132)
                                                        ==================================================

</TABLE>
<TABLE>
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:

<CAPTION>
                                                               Fiscal Year Ended September 30,
                                                               -------------------------------
                                                          1997               1996              1995
                                                          ----               ----              ----
                                                                       (In thousands)
<S>                                                       <C>                   <C>             <C>
 Income taxes computed at the federal
    statutory rate                                        $(1,524)              $(480)          $(3,730)
 State taxes (net of federal benefit)                        (370)                (23)               (9)
 Research and development tax credit                         (123)                (18)              (62)
 Technology basis step-up                                  (2,867)               (204)            3,660
 Valuation allowance                                        5,440                 199                 -
 Other                                                       (547)                 30                 9
                                                        --------------------------------------------------
 Total                                                    $     9               $(496)          $  (132)
                                                        ==================================================
</TABLE>

11. Other

Special  charges  of  approximately  $3,995,000  pretax  were taken in the first
quarter of fiscal 1997 to streamline  operations and provide valuation  reserves
against  inventories,  accounts  receivables  and  property and  equipment.  The
charges were taken to reflect  historic  changes in existing  product support as
well as anticipated changes due to future product development.

                                      F-18

<PAGE>


                                               SCHEDULE II


                                               ACCOM, INC.
<TABLE>
                                    VALUATION AND QUALIFYING ACCOUNTS
                                     ALLOWANCE FOR DOUBTFUL ACCOUNTS
                                              (In thousands)

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

<S>                                                  <C>                <C>                 <C>              <C>
Year ended September 30, 1995...............         174                 80                 33               221
Year ended September 30, 1996...............         221                 67                 65               223
Year ended September 30, 1997...............         223                256                 78               401
* All deductions represent write-offs of bad debt.

</TABLE>