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, 1998, 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  $2,250,651 as of December 16, 1998,  based
upon  the  closing  sale  price on the  Over-the-Counter  (OTC)  Bulletin  Board
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 10,125,164  shares of  Registrant's  Common Stock issued and
outstanding as of December 16, 1998.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Information  required  under Part III will be filed as an  amendment to
this Form 10-K not later than 120 days after the end of the fiscal year  covered
by this Form 10-K.

         "Accom,"  "Abekas,"   "Axial,"   "DveousFX,"   "ELSET,"   "Digisphere,"
"Microsphere,"   "Stratasphere,"   "Videosphere"  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

         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  factors  set forth in the  sections
entitled  "Manufacturing and Supplies,"  "Competition"  "Proprietary  Rights and
Licenses" and  "Additional  Factors That May Affect Future  Results,"  below, 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.  Forward  looking
statements can be identified by forward  looking  words,  such as "may," "will,"
"expect," "anticipate," "believe," "estimate" and "continue" or similar words.

General

         Accom, Inc. ("Accom" or the "Company")  designs,  manufactures,  sells,
and supports a complete line of digital video signal  processing,  editing,  and
disk recording,  and virtual set tools, 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 DVDs, 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(R)  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:

                                       2
<PAGE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
           Product                                                    Primary Applications
------------------------------------------------------------------------------------------------------------------------------------
    <S>                                                               <C>
    Virtual Set Production Tools
------------------------------------------------------------------------------------------------------------------------------------
       ELSET(R) 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
------------------------------------------------------------------------------------------------------------------------------------
       Dveous(TM) and Brutus                                          Digital Video Effects systems for news and sports
------------------------------------------------------------------------------------------------------------------------------------
       8150 Switcher                                                  On-line post production editing for commercials and
                                                                      long form television programs
------------------------------------------------------------------------------------------------------------------------------------
    Digital Editors
------------------------------------------------------------------------------------------------------------------------------------
       Axial(R) 3000                                                  On-line post production editing for commercials and
                                                                      long form television programs
       Sphere(TM)                                                     Non-linear editing for long and short form programs
                                                                      and commercials
------------------------------------------------------------------------------------------------------------------------------------
    Video Digital Disk Recorders
------------------------------------------------------------------------------------------------------------------------------------
       APR(TM)/Attache                                                On-line post production editing and effects and on-air
                                                                      playback of graphics for broadcast
------------------------------------------------------------------------------------------------------------------------------------
   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(R)  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.

         On December 10, 1998,  the Company  acquired  substantially  all of the
assets and certain  liabilities of Scitex Digital Video, Inc. and certain of its
affiliates, as part of the Company's strategy to broaden its product line and to
grow the Company. The acquired assets include Scitex Digital Video's business of
developing,  manufacturing,  marketing and selling  digital  video  manipulation
equipment and non-linear video workstations for the video industry. The products
that were acquired in such  transaction  are  described in the Section  entitled
"Products" below.

Industry Overview

         The  creation  and  distribution  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.

                                        3
<PAGE>

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,  DVDs and video
     games.

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

         The  channels   available  for   distribution   of  video  content  are
proliferating as new cable,  satellite and direct view  alternatives  supplement
traditional  delivery systems.  This  proliferation is increasing the demand for
broadcast  content.   Concurrently,   the  viewing  audience  per  channel  and,
therefore,  the  potential  revenue  per  channel  is  being  reduced.  To  more
effectively   compete  in  this   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.

                                       4
<PAGE>

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

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

Distribution

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

The Accom(R) 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

                                       5
<PAGE>

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.

         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.

         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    Virtual  set tools,  which are  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;

                                       6
<PAGE>

o    Non-linear editing systrems used by post production professionals;

o    Digital   video   effects   and   switchers   used  by   broadcasters   and
     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  following a strategy  that
includes the following key elements:

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

         Expand into New High-End Market Segment.  The Company plans to leverage
its existing  reputation in the high-end  post-production  segment to market the
ELSET(R) Virtual Set and the Axess(TM) to the production and distribution market
segments, respectively.

         Broaden Lower-Priced Product Line. The Company has introduced products,
such as the Axial(R)  3000  on-line  editor,  the  Workstation  Disk  ("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  that offer high
value but also significant price advantages over competing products.

         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(R),  the Company
obtained access to virtual set technology.

         Enhance Distribution  Channels.  The Company plans to expand its direct
marketing and sales efforts to more  effectively  penetrate the high-end  market
segment.  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.

                                       7
<PAGE>

Products

         The Company  currently  offers six product lines that address the needs
of the video and computer graphics production,  post-production and distribution
market  segments.  The  ELSET(R)  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 market  segments and
products:
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                     MARKETS / Product                               Primary Applications
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>
  PRODUCTION:
------------------------------------------------------------------------------------------------------------------------------------
    Virtual Set Production Tools
------------------------------------------------------------------------------------------------------------------------------------
       ELSET(R) 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
------------------------------------------------------------------------------------------------------------------------------------
       8150 Digital Switcher                                          On-line post production editing for commercials and
                                                                      long form television programs
------------------------------------------------------------------------------------------------------------------------------------
    Digital Editors
------------------------------------------------------------------------------------------------------------------------------------
       Axial(R) 3000                                                  On-line post production editing for commercials and
                                                                      long form television programs
       Sphere(TM)                                                     Non-linear editing for long and short form programs
                                                                      and commercials
------------------------------------------------------------------------------------------------------------------------------------
    Video Digital Disk Recorders
------------------------------------------------------------------------------------------------------------------------------------
       APR(TM)/Attache                                                On-line post production editing and effects and on-air
                                                                      playback of graphics for broadcast
------------------------------------------------------------------------------------------------------------------------------------
  DISTRIBUTION:
------------------------------------------------------------------------------------------------------------------------------------
    Digital Signal Processors
------------------------------------------------------------------------------------------------------------------------------------
       Dveous(TM) and Brutus                                          Digital Video Effects systems for news and sports
------------------------------------------------------------------------------------------------------------------------------------
   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 1998 net sales by market
segment:

                                                           1998
                                                           ----
                    Market                       Amount            Percent
                    ------                       ------            -------
             Production                          $ 6,551            51.9%
             Post Production                       3,593            28.5%
             Distribution                          1,847            14.6%
             Other                                   626             5.0%
                                            ------------------------------------
                                                 $12,617          100.0%
                                            ====================================

Video Virtual Set Production Tools

         The  ELSET(R)  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(R) Virtual Set combines the virtual world

                                       8
<PAGE>

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(R)  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(R)
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(R) 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 and 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 three ELSET(R) Virtual Set products:

         ELSET(R) LIVE software  operates on the Silicon Graphics ("SGI") Onyx 2
computers and is used for real time  productions.  The Company  primarily offers
the ELSET(R) LIVE  software;  however from time to time will also resell the SGI
hardware for the convenience of the customers.

         ELSET(R)POST  software  operates on the SGI O2 computer and is used for
non-real  time  productions.  ELSET(R)POST  offers a lower cost  alternative  to
ELSET(R)LIVE  by  allowing  users to trade off  production  time  against  cost.
ELSET(R)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.

         ELSET(R)  LIVE-NT  system is a real time virtual set system  offering a
lower cost  alternative to the  ELSET(R)LIVE  running on the SGI Onyx2 platform.
ELSET(R)  LIVE-NT runs on a Windows NT platform and a graphics  engine from Real
3D. The virtual sets are designed by using 3D Studio Max modeling  software from
Kinetex.  The Accom  proprietary  software  is a "plug in" for the 3D Studio Max
software.

                                       9
<PAGE>

Computer Graphics and Animation Digital Disk Recorder

         The  Company's  WSD  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  is  almost  half of the  Xtreme  model  it
replaced.

Digital Signal Processing Equipment

         On December 10, 1998 Accom acquired  substantially all of the assets of
Scitex Digital Video.  The 8150 switcher,  the Dveous(TM) and the Brutus digital
video effects (DVE) product lines were a part of this acquisition.

         The 8150 Digital Switcher with Built-in 3D Effects

The 8150 switcher is typically used in an on-line post-production editing suite.
In  addition to a switcher,  this type of an editing  suite  requires an on-line
editor like the Axial(R) and digital disk recorder  like the APR(TM)  Attache or
the WSD  2Xtreme ---  products  manufactured  by Accom.  This 8150 is a powerful
switcher which  combines the familiar  Mix/Effects  architecture  with limitless
effects layering capabilities. The 8150's graphically assisted control panel and
built-in high density 3.5" floppy drive and other advanced features make it easy
to operate.  The 8150 offers an optional 3D Digital  Video  Effects based on the
twin channel  Dveous(TM)  architecture.  This technology  provides  powerful new
effects such as SuperShadow(TM),  UltraWarp(TM),  and the realistic textures and
light sources of SurfaceFX(TM).

         Dveous(TM) Digital Video Effects

The Dveous is a powerful, full quality and fully featured DVE. Dveous is used in
post-production  suites  as well as for live  sports  and news  applications  by
television stations and production companies.  DVEs are used to manipulate video
images in real-time to create effects like flying pictures,  page turns and more
complex  effects which were only possible in the opitcal  domain at one point in
time.  The Dveous is considered by many as the leading  high-end DVE

                                       10
<PAGE>

product and is used by many well-known  broadcasters  through out the world. The
Dveous video processing  system is based around  four-field  video  framestores.
Video  information  is upsampled  vertically  to create a full frame of data for
every field. The Dveous also contains  23x12-point  video filters and four-point
store output interpolators to provide superb image quality for picture expansion
and  compression.  All picture  transform  information  is  calculated  to 1.2nS
spatial precision with full 10 bits per pixel precision.

         Brutus Digital Video Effects

Brutus is a solution built on the  established  benchmark of Dveous(TM) . Brutus
offers  multi-channels  of Dveous DVE combined  throught the Brutus  combiner to
create complex effects and manipulate  multiple images in real-time.  Any Dveous
can easily  upgrade  to Brutus.  The  primary  application  of Brutus is in live
sports  production  where  effects  have  to be  applied  to  multiple  pictures
simultaneously in a coordinated fashion.


Digital Video Editors

         The Company  currently  offers two product lines in the digital editing
area,  the Axial and the Sphere  family of editors.  On December  10, 1998 Accom
acquired  substantially  all the  assets of Scitex  Digital  Video.  The  Sphere
product line was a part of this acquisition.

         On-Line  Editors

         The Company's  Axial(R) line of digital  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,
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) 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  offers an enhanced  visual
interface  that  enables the video  editor to edit  information  by working with
pictures  and video clips  instead of only  timecode  numbers.  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 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.

                                       11
<PAGE>

         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  Accom's  WSD(R)  or  APR(TM)
uncompressed  digital disk recorders (DDRs). These DDRs provide 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.

         Nonlinear Editing

         The Company's Sphere family of digital nonlinear editing systems offers
a complete  range of solutions  for simple to complex  applications.  The Sphere
family   consists  of  four  main  products,   MicroSphere(R),   VideoSphere(R),
StrataSphere(R) and DigiSphere(R).

         MicroSphere(R) offers dual stream,  realtime video editing with effects
for multimedia and graphics production. Files are stored in native QuickTime(TM)
format for up and downstream  compatibility  throughout the Sphere line, and for
compatibility with all QuickTime-capable  graphics applications.  MicroSphere(R)
may be  used as a  stand-alone  platform,  or may be  integrated  into a  Sphere
collaborative workgroup.

         VideoSphere(R)   is  a   finishing   platform   featuring   dual-stream
broadcast-quality  video,  four internal  stereo pair audio,  realtime  effects,
wipes,  and  transitions.  In  addition to the  standard 3D DVE the  DveousFX(R)
option adds Abekas(R) caliber effects  capabilities  including  SurfaceFX(TM) 3D
light sourcing and texturing that fully interact with the UltraWarp(R)  palette.
VideoSphere(R)   also  features   sophisticated   picture  correction   controls
originally developed for the Abekas(R) 8150.

         StrataSphere(R)  offers all the features of the VideoSphere(R) with the
addition of full motion alpha channel.  The  StrataSphere(R)  combines Abekas(R)
8150  Production  Switcher  keying  power and the  brilliant  3D  effects of the
Abekas(R)  Dveous(TM)  DVE to allow  composition of up to fifty layers of video,
each with full key signal integrity in real time.

         DigiSphere(R)  was  designed to perform the tasks of media  acquisition
and  distribution  without the  expensive  need to tie up a  full-blown  editing
workstation.


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 are 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 began in the second quarter of calendar 1998. The
APR(TM)  enables the digital  recording  and playback of D1 quality video onto a
real  time,  random  access  redundant  arrays  of  individual  disks  ("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

                                       12
<PAGE>

speeds  ranging  from  1/100th to 100 times  normal play  speed.  The APR(TM) is
configured to offer storage of 30 minutes and 60 minutes of  uncompressed  video
recording  times.  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 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.

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 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.

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
Co.  Ltd.,  a  distributor,  accounted  for 16% and 13% of the  Company's  total
revenues in fiscal 1998 and 1997,  respectively.  No customer accounted for more
than 10% of the Company's total revenues during fiscal 1996.

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,  Illinois,  Florida,  Texas

                                       13
<PAGE>

and California,  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.

         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.  During fiscal 1998,  1997,  and
1996 the Company  generated  45%, 42%, and 38%,  respectively,  of its net sales
from  customers  in markets  outside of the United  States.  The Company has two
employees  based in the  United  Kingdom  to manage and  support  the  Company's
distributors  in Europe,  Africa and Middle  East.  The Company has one employee
based in Hong Kong to manage and support its  distributors in Asia Pacific.  The
Company  manages  its  distributors  in Central  and South  America  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, 1998, the
Company  employed 26 people in its research  and  development  organization,  of
which approximately 17 professionals are focused on software development.  As of
December 29, 1998,  following the  acquisition of the business of Scitex Digital
Video,   the  Company  employed  44  people  in  its  research  and  development
organization,  of which  approximately 25 professionals  are focused on software
development.  During  fiscal 1998,  1997 and 1996,  the  Company's  research and
development  expenses were  approximately $3.3 million,  $3.3 million,  and $3.9
million, respectively. 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.

                                       14
<PAGE>

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

Competition

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

         In the digital on-line video editor, nonlinear 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"), Media 100, Inc. 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 segment is an emerging
market  segment.   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).  In
addition, the Company expects that

                                       15
<PAGE>

existing vendors and new market entrants will develop products that will compete
directly with the Axess(TM) and that competition will increase  significantly as
the market for digital  news  graphics and clip  servers  develops.  Many of the
Company's  current  and  potential   competitors  have   substantially   greater
financial,  technical,  marketing, sales and customer support resources, greater
name recognition and larger installed customer bases than the Company.

         The virtual set system market is also an emerging  market.  The Company
competes with, among others,  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 owns 38 United
States  patents,  eight  foreign  patents  and has  applications  pending for 18
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 33  registered
trademarks  in the  United  States and has  several  pending  United  States and
foreign trademark applications. 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

                                       16
<PAGE>

intellectual  property rights.  Any litigation  arising out of such claims could
result in substantial  cost and diversion of resources and could have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.  Adverse  determinations in such litigation could result in the loss
of  the  Company's  proprietary  rights,  subject  the  Company  to  significant
liabilities,  require the Company to seek licenses from third parties or prevent
the Company from manufacturing or selling its products,  any of which could have
a material  adverse effect on the Company's  business,  financial  condition and
results of operations.

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

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

ELSET(R) Acquisition

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

         Although  all  title  and  rights  to the  ELSET(R)  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(R)  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(R) 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(R)
Virtual Set to ELSET GmbH would make it difficult  for a member of the Mona Lisa
Consortium to duplicate  the ELSET(R)  Virtual Set, if such sharing is required,
there can be no assurance that members of the Mona Lisa Consortium, acting alone
or in concert, would not be able to use the shared technology to develop, market
and  sell a  competitive  virtual  set  system.  In such  event,  the  Company's
business,  financial  condition  and results of  operations  would be materially

                                       17
<PAGE>

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(R)."
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,  1998,  the  Company  had  64  full-time  employees,
including 26 in research and development,  20 in marketing,  sales and technical
support, 12 in manufacturing and 6 in administration and finance. As a result of
purchasing the assests of Scitex Digital Video on December 10, 1998, the Company
currently has 134 full-time  employees including 44 in research and development,
45 in marketing,  sales and technical  support,  25 in  manufacturing  and 20 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  factors  set forth in the  sections
entitled "Manufacturing and Supplies," "Competition" and "Proprietary Rights and
Licenses,"  above, the factors set forth below, 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.  Forward  looking  statements  can be  identified  by forward
looking  words,  such  as  "may,"  "will,"  "expect,"  "anticipate,"  "believe,"
"estimate" and "continue" or similar words.

         Failure to Successfully  Integrate Newly Acquired Business. On December
10, 1998, the Company acquired substantially all of the assets of Scitex Digital
Video,   Inc.  and  certain  of  its   affiliates   (the   "Acquisition").   See
"Business--Overview."   The  Company  entered  into  the  Acquisition  with  the
expectation  that the  Acquisition  would  result in  certain  benefits  for the
combined businesses.  Achieving the anticipated benefits of the Acquisition will
depend in part upon whether certain of the two companies business operations and
their product  offerings can be integrated in an efficient and effective manner.
This will require the dedication of management  resources  which may temporarily
distract attention from day-to-day business of the Company.  The integration may
not be accomplished  smoothly or successfully and may not result in cost savings
in  operations,  in which case the failure to do so could have an adverse effect
on the Company's results of operations and financial condition.

         Potential Fluctuations in Operating Results. The Company incurred a net
loss of $2.9  million in fiscal 1998.  The Company  also  incurred a net loss of
$4.5 million in fiscal 1997 and a net loss of $916,000 in fiscal 1996. 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 in the past have
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

                                       18
<PAGE>

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(R)  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.

         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(R)
Virtual Set will  positively  impact the Company's net sales but may  negatively
impact its gross margins if a significant  portion of ELSET(R) 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(R) Virtual Set. The Company may therefore be required to incur significant
expenses to support continuing development and marketing of the ELSET(R) 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.

                                       19
<PAGE>

         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 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(R)  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(R) Virtual
Set. The ELSET(R)  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(R) Virtual Set in a timely
manner.  The failure to complete the  development  of the  ELSET(R)  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(R)  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(R)  Virtual Set will depend on many factors that are difficult to

                                       20
<PAGE>

predict.  For example, the ELSET(R) 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(R)  Virtual Set,  especially  for  mission-critical  functions,  until the
ELSET(R) Virtual Set's  reliability in real time use has been  demonstrated.  In
addition,  a potential end user's decision to purchase the ELSET(R)  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(R)  Virtual  Set.  Although the Company  currently  anticipates  that
broadcasters  and  post-production  facilities  will be the primary end users of
virtual set systems,  the Company has not conducted any formal market surveys to
determine the potential  market for and acceptance of the ELSET(R)  Virtual Set.
The Company expects that sales of the ELSET(R)  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(R) 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(R)
Virtual Set over time. If this market  development does not occur or occurs over
an extended  period,  or if the  ELSET(R)  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(R) 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(R)  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

                                       21
<PAGE>

operational, management information and financial control systems. To manage the
growth  resulting from the acquisition of Scitex Digital Video in December 1998,
the  Company  brought  on board  the  following  three  senior  level  managers:
Executive Vice President of Technology and Engineering, Vice President of Sales,
and Vice President of Finance and Chief  Financial  Officer.  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(R)  Virtual Set and other
products.  To support  growth,  the Company  will be  required  to increase  the
personnel in its sales,  marketing  and  customer  support  departments.  If the
Company is unable to hire a sufficient  number of employees with the appropriate
levels of experience to increase the capacity of these  departments  in a timely
manner,  or if the  Company  is unable to  effectively  manage its  growth,  the
Company's  business,  financial  condition  and results of  operations  could be
materially and adversely affected.

         International  Operations. In fiscal 1998, 1997 and 1996, international
sales accounted for 45%, 42%, and 38%, 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(R)  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

                                       22
<PAGE>

able to  effectively  market and  support  these  lower  priced  products  or to
continue to market the  Company's  existing  products.  In  connection  with the
acquisition of Scitex Digital Video (SDV) in December 1998, the Company  assumed
certain contracts and relationships with SDV's distributors. Because the Company
does not have a historical working  relationship with many of such distributors,
there can be no assurance  that such  distributors  will continue to do business
with the Company. 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.

         Impact of Year 2000.  The "Year 2000 Issue" is typically  the result of
software  being  written  using  two  digits  rather  than  four to  define  the
applicable year. If the Company's software with date-sensitive functions are not
Year 2000  compliant,  they may  recognize  a date  using  "00" as the year 1900
rather  than  the  year  2000.   This  could  result  in  a  system  failure  or
miscalculations  causing  disruptions  of  operations,  including,  among  other
things,  interruptions in  manufacturing  operations,  a temporary  inability to
process  transactions,  send  invoices,  or engage in  similar  normal  business
activities.

Status of  Progress  in Becoming  Year 2000  Compatible:  The Company has made a
preliminary  review of the most  pertinent  Year  2000  issues  which  have been
identified as potentially  having a material impact on the Company's  operations
and financial  condition.  More comprehensive study in certain areas is still to
be undertaken.

The Company has  identified  three areas  relating to Year 2000 issues which may
materially affect the Company's business: 1) Information Technology,  addressing
internal software and business systems; 2) the Company's Products;  and 3) Third
Party, addressing the preparedness of suppliers.

Information Technology Program:  Internal applications systems such as inventory
and financial accounting software,  computer network hardware and software,  and
software  applications  programs may have Year 2000 problems. As a result of the
acquisition  of Scitex  Digital  Video (SDV) on December 10,  1998,  the Company
decided to use the Man-Man  software already in use at SDV as its main inventory
and accounting  software.  The Man-Man software currently in use is version 10.2
which is not Year 2000  compliant.  Version  11.0 of this  software is Year 2000
compliant and currently is readily  available for licensing by the Company.  The
Company intends to procure this version as soon as practical. Total cost of this
upgrade is estimated to be less than  $100,000.  As of  September  30, 1998,  at
least $11,000 of expected costs had been identified which related to replacement
of Microsoft Office software (which currently is readily available for licensing
by the Company) which the Company  anticipates will take place in the first half
of 1999.  Related to these  software  upgrades,  hardware  on  certain  personal
computers may also need to be replaced to make them  compatible with the upgrade
software.  The estimated cost of replacing such hardware is $25,000. If required
modifications to existing  software and hardware and conversions to new software
are not made,  or are not  completed  timely,  the Year 2000 Issue  could have a
material  impact  on the  operations  of the  Company  due to the  inability  to
accurately and effectively track inventory and other financial results.

                                       23
<PAGE>

Product  Readiness  Program:  Certain  products  the  Company  sells  have  been
identified to have Year 2000  problems  which must be corrected to permit smooth
operation by the user. The Year 2000 solution consists of software changes which
will be transmitted to customers by way of CD-ROMs and floppy diskettes. Certain
of these changes have been completed and  transmitted to customers;  others have
been completed but not yet  transmitted to customers,  but should be transmitted
in the first half of 1999. The Company  believes the costs associated with these
activities  will be immaterial  given the  relatively  low cost of the media and
small amount of internal  labor that will be utilized.  The Company is currently
assessing its exposure to  contingencies  related to the Year 2000 Issue for the
products  it has sold;  however,  it does not  expect  these to have a  material
impact on the operations of the Company.

Third Party  Program:  The Company  relies on numerous  vendors in the course of
operating the business.  If these vendors  encountered  Year 2000 problems which
impacted  their  ability to  deliver  goods and  services  to the  Company,  the
Company's business might be materially and adversely  affected.  The Company has
not to date conducted a  comprehensive  survey of its vendors to determine their
Year 2000  readiness,  but  anticipates  doing so in the first half of 1999. The
Company has not yet determined the extent to which the Company's  operations are
vulnerable  to those third  parties'  failure to  remediate  their own Year 2000
issues. In order to protect against the acquisition of additional  non-compliant
products,  the Company will require that certain hardware and software suppliers
providing goods and services to the Company after January, 1999, to warrant that
products sold or licensed to the Company are Year 2000 compliant.  Finally,  the
Company is also  vulnerable  to  external  forces  that might  generally  affect
industry  and  commerce,  such as utility or  transportation  company  Year 2000
compliance failures and related service interruptions.

The Company  anticipates  addressing and remedying the critical Year 2000 issues
by the  first  half of 1999,  which is prior to any  anticipated  impact  on its
operating  systems and expects the Year 2000 project to continue beyond the year
2000  with  respect  to  resolution  of  non-critical  issues.  These  dates are
contingent  upon the timeliness  and accuracy of software and hardware  upgrades
from vendors,  adequacy and quality of resources available to work on completion
of the project and any other unforeseen factors.  There can be no assurance that
the Company  will be  successful  in its efforts to resolve any Year 2000 issues
and to  continue  operations  in the year 2000.  The  failure of the  Company to
successfully  resolve  such issues could result in a shut-down of some or all of
the  Company's  operations,  which would have a material  adverse  effect on the
Company.

Contingency Plans.

The Company has not yet developed a contingency plan to address  situations that
may  result if the  Company  is unable to  achieve  Year 2000  readiness  of its
critical  operations,  but  anticipates  developing such a plan during the first
half of 1999. There can be no assurance that the Company will be able to develop
a contingency  plan that will  adequately  address  issues that may arise in the
year 2000. The failure of the Company to develop and implement, if necessary, an
appropriate  contingency  plan could have a material impact on the operations of
the Company.

                                       24
<PAGE>

Costs.

The total  expense of the Year 2000  project is  currently  estimated to be less
than  approximately  $200,000  which is not material to the  Company's  business
operations or financial  condition.  The Company has not yet fully estimated all
the Year 2000 costs,  in particular  those  associated  with the  replacement of
software running on personal  computers and the costs of modifying,  testing and
distributing updates to ensure its own products are Year 2000 compliant.

There can be no  assurance  that these costs will not be material to the Company
or that the Company  will be able to resolve in a timely  manner any issues that
may arise in these areas. The expenses of the Year 2000 project are being funded
through operating cash flows.

The costs of the  project  and the date on which the  Company  believes  it will
complete the Year 2000  modifications  are based on management's best estimates,
which were derived utilizing  numerous  assumptions of future events,  including
the continued availability of certain resources,  third-party modification plans
and other  factors.  There can be no  assurance  that  these  estimates  will be
achieved and actual results could differ materially from those anticipated.

         Substantial  Control  by  Existing  Stockholders;   Effect  of  Certain
Anti-Takeover  Provisions.  As of December 29,  1998,  the  Company's  executive
officers and directors,  and their  affiliates,  beneficially own  approximately
21.4% 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,  a  stockholder  of the  Company  who  owns  33.8% of the
Company's  outstanding  stock has the right to become a director 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  affected 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; Decreased Liquidity.  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

                                       25
<PAGE>

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. On July 20, 1998, the Company's Common Stock was
delisted  from the  Nasdaq  National  Market  System and it is now quoted on the
Over-the-Counter  (OTC)  Bulletin  Board under the symbol ACMM. The OTC Bulletin
Board may not provide as much  liquidity for the  Company's  Common Stock as the
Nasdaq National Market.  Finally,  the Company  participates in a highly dynamic
industry,  which may result in  significant  volatility of the Company's  common
stock price.

Item 2.  Properties

         The Company's  principal offices are located in Menlo Park,  California
and consist of  approximately  30,000  square feet under a lease that expires in
February,  2000. 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, 1998.

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

         None.

Executive Officers of the Company

<TABLE>
         The  executive  officers of the Company,  and their ages as of December
29, 1998, are as follows:

<CAPTION>
Name                                     Age                            Position(s)
----                                     ---                            -----------
<S>                                       <C>    <C>
Junaid Sheikh....................         45     Chairman of the Board, President and Chief Executive
                                                 Officer
Phillip Bennett..................         44     Executive Vice President, Technology and Engineering
Donald K. McCauley...............         58     Vice President, Finance and Chief Financial Officer
Ian Craven.......................         44     Senior Vice President, Engineering
William T. Ludwig................         51     Vice President, Sales
William Harris Rogers............         50     Vice President, Marketing
Donald W. Petersen...............         53     Vice President, Manufacturing
</TABLE>

         Junaid  Sheikh has served as the  Chairman  of the  Company's  Board of
Directors  since June 1988 and as the Company's  President  and Chief  Executive
Officer since November 1991.

         Phillip  Bennett  joined the Company on December  11, 1998 as Executive
Vice President,  Technology and Engineering.  Since 1993, Mr. Bennett has been a
private  investor  and  active  in

                                       26
<PAGE>

image  processing  and  television  systems  development.  From 1982 to 1993 Mr.
Bennett was a founder and Vice President of Engineering of Abekas Video Systems.

         Donald K.  McCauley  joined the  Company on  December  11, 1998 as Vice
President of Finance and Chief Financial Officer.  Prior to joining the Company,
Mr.  McCauley  served as the Vice President of Finance and CFO of Scitex Digital
Video from 1994. Prior to that he was a founder and CFO of ImMix, a manufacturer
of non-linear editors.

         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.

         William T. Ludwig  joined the Company on December 21,  1998.  From July
1996 to  December  1998,  Mr.  Ludwig  served  as Vice  President  of Sales  for
Americas/Far East (AMFE) for Pinnacle Systems. From January 1996 to July 1996 he
was the Director of Sales for FAST  Electronics.  From 1985 to 1993 he served in
various sales capacities at Abekas Video Systems.

         William Harris Rogers has served as Vice President, Sales and Marketing
since May,  1998.  From July 1995 to April  1998,  he served as  Vice-President,
Marketing  of the  Company.  He attended  the  Stanford  University  Graduate of
Business from September 1994 to June 1995, earning a Master of Science Degree in
Business  Management.  From July 1991 to October  1993, he was Director of Sales
for Dynatech Video Group.

         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.

                                       27
<PAGE>

                                     PART II

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

         Prior to July 20, 1998,  the  Company's  Common Stock was traded on the
NASDAQ  National  Market under the symbol ACMM since the  effective  date of the
Company's  initial public  offering on September 26, 1995.  Prior to the initial
public  offering,  no public market  existed for the Common  Stock.  On July 20,
1998, the Company's  Common Stock was delisted from the NASDAQ  National  Market
System.  The Common Stock is now quoted on the  Over-the-Counter  (OTC) Bulletin
Board under the symbol  ACMM.  The price per share  reflected in the table below
represents,  with respect to the period prior to July 20, 1998, the range of low
and high closing sale prices for the  Company's  Common Stock as reported in the
Nasdaq Stock Market for the quarters  indicated  and, with respect to the period
after July 20, 1998,  the range of low and high bid quotations for the Company's
Common Stock as reported on the OTC Bulletin  Board for the quarters  indicated.
The OTC Bulletin Board quotations reflect  inter-dealer  prices,  without retail
mark-up,  mark-down  or  commission  and may not  necessarily  represent  actual
transactions.

<TABLE>
<CAPTION>
                                                                                           High          Low
                                                                                           ----          ---
        <S>                                                                                <C>          <C>  
        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, 1998:
            First Quarter.............................................................     $2.63        $1.06
            Second Quarter............................................................     $1.44        $0.81
            Third Quarter.............................................................     $1.16        $0.50
            Fourth Quarter............................................................     $0.69        $0.35
</TABLE>

         The Company had  approximately 99 stockholders of record as of December
16, 1998 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.

Item 6.  Selected Consolidated Financial Data

<TABLE>
         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.

                                       28
<PAGE>

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

<CAPTION>
                                                             Fiscal Year Ended September 30,
                                                  -------------------------------------------------
                                                  1994        1995       1996       1997       1998
                                                  ----        ----       ----       ----       ----
<S>                                               <C>        <C>        <C>        <C>        <C>
Consolidated Statement of Operations Data:
  Net sales...........................            $18,034    $21,312    $21,408    $17,627    $12,617
  Gross margin........................              9,591     11,175     10,398      6,593      6,439
  Operating income (loss).............              1,428    (10,792)    (1,621)    (4,657)    (3,042)
  Net income (loss)...................                918    (10,840)      (916)    (4,490)    (2,881)
  Basic and diluted net income        
    (loss) per share(1) ..............               0.20      (2.47)     (0.14)     (0.68)     (0.43)
  Shares used in computing
    basic and diluted net income
    (loss) per share(1) ..............              4,660      4,397      6,439      6,587      6,662


                                                           Fiscal Year Ended September 30,
                                                  -------------------------------------------------
                                                  1994        1995       1996       1997       1998
                                                  ----        ----       ----       ----       ----
Balance Sheet Data:
  Working capital.....................            $ 4,522    $12,220    $11,171    $ 7,550     $4,633
  Total assets........................             10,111     19,712     17,279     11,545      8,094
  Long-term obligations...............                  -         83         24          -          -
  Total stockholders' equity..........            $ 5,650    $13,679    $12,952    $ 8,566     $5,720

<FN>
(1) Computed  on  the  basis  described  in  Note  1 of  Notes  to  Consolidated
    Financial  Statements.  All share  amounts have been adjusted to reflect the
    implementation of Financial Accounting Standards Board Statement No. 128 and
    Staff Accounting Bulletin No. 98.
</FN>
</TABLE>

                                       29
<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, 1998 and 1997
and for the three fiscal years ended  September 30, 1998, 1997 and 1996 included
herein this Report on Form 10-K for the fiscal year ended
September 30, 1998.

         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 the sections
entitled  "Manufacturing and Supplies,"  "Competition,"  "Proprietary Rights and
Licenses"  and"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. Forward looking statements can be identified
by  forward  looking  words,  such as  "may,"  "will,"  "expect,"  "anticipate,"
"believe," "estimate" and "continue" or similar words.

Overview

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

         The following table  summarizes the Company's  products and the primary
markets they address.

--------------------------------------------------------------------------------
                           Primary Markets / Products
                           --------------------------

      Production:
           ELSET(R) Virtual Set
           Work Station Disk ("WSD(R)") 2Xtreme(TM)  Computer Graphics Digital
                Disk Recorder
      Post Production:
           Editing:
               Digital Video Editors:
                    Axial(R) 3000 on-line eeditor
                    Sphere non-linear editor
               Digital Disk Recorders:
                    Accom Professional Recorder ("APR(TM) ") Attache(TM)
               Digital Switcher:
                    8150 switcher
      Distribution:
           Axess(TM) Digital News Graphic and Clip Server
           Dveous and Brutus digital video effects systems
--------------------------------------------------------------------------------

                                       30
<PAGE>

         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(R)
Acquisition").  The  ELSET(R)  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(R)
software.  In the fourth  quarter of 1996,  revenues also included the resale of
SGI  workstations.  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(R)  Virtual Set, gross margins may decline.  In
the  future,  gross  margins  will  be  dependent  on  the  mix  of  higher  and
lower-priced  products  and the  percentage  of sales  made  through  direct and
indirect distribution channels.

         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 1998 vs. 1997

<TABLE>
         The  following  table  presents  the  Company's  fiscal  1998  and 1997
Consolidated  Statements of Operations (dollar amounts in thousands,  except per
share data).

<CAPTION>
                                                                                             Increase (Decrease)
                                                                                             -------------------
                                                                   1998         1997         Amount       Percent
                                                                   ----         ----         ------       -------
<S>                                                             <C>           <C>           <C>           <C>    
Net sales                                                      $  12,617     $  17,627      $(5,010)      (28.4)%
Cost of sales                                                      6,178        11,034       (4,856)      (44.0)%
                                                               ------------- ------------ ------------- ------------
Gross margin                                                       6,439         6,593         (154)       (2.3)%
                                                               ------------- ------------ ------------- ------------
Operating expenses:
  Research and development                                         3,295         3,344          (49)       (1.5)%
  Marketing and sales                                              4,967         5,981       (1,014)      (17.0)%
  General and administrative                                       1,219         1,925         (706)      (36.7)%
                                                               ------------- ------------ ------------- ------------
  Total operating expenses                                         9,481        11,250       (1,769)      (15.7)%
                                                               ------------- ------------ ------------- ------------
Operating loss                                                    (3,042)       (4,657)      (1,615)      (34.7)%
Interest and other income (expense), net                             180           176            4         2.3%
                                                               ------------- ------------ ------------- ------------
Loss before provision for income taxes                            (2,862)       (4,481)       1,619        36.1%
Provision for  income taxes                                           19             9           10       111.1%
                                                               ------------- ------------ ------------- ------------
Net loss                                                       $  (2,881)    $  (4,490)     $ 1,609        35.8%
                                                               ============= ============ ============= ============
Basic and diluted net loss per share                           $   (0.43)    $   (0.68)     $  0.25        36.8%
                                                               ============= ============ ============= ============
</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.

<TABLE>
         The  following  table  presents  the  Company's  fiscal  1998  and 1997
Consolidated Statements of Operations as a percentage of net sales.

                                       31
<PAGE>

<CAPTION>
                                                                                                          Increase
                                                                                      1998       1997    (Decrease)
                                                                                      ----       ----    ----------
<S>                                                                                    <C>        <C>          <C> 
Net sales                                                                              100.0%     100.0%        0.0%
Cost of sales                                                                           49.0%      62.6%      (13.6)%
                                                                                   ---------------------------------
  Gross margin                                                                          51.0%      37.4%       13.6%
                                                                                   ---------------------------------
Operating expenses:
     Research and development                                                           26.1%      19.0%        7.1%
     Marketing and sales                                                                39.3%      33.9%        5.4%
     General and administrative                                                          9.7%      10.9%       (1.2)%
                                                                                   ---------------------------------
     Total operating expenses                                                           75.1%      63.8%       11.3%
                                                                                   ---------------------------------
Operating loss                                                                         (24.1)%    (26.4)%       2.3%
Interest and other income (loss), net                                                    1.4%       1.0%        0.4%
                                                                                   ---------------------------------
Loss before provision for income taxes                                                 (22.7)%    (25.4)%       2.7%
Provision for income taxes                                                               0.1%       0.1%         --
                                                                                   ---------------------------------
Net loss                                                                               (22.8)%    (25.5)%       2.7%
                                                                                   =================================
</TABLE>

         Note: In fiscal 1997,  charges of $4.0 million  pretax were incurred to
streamline  operations  and  provide  valuation  reserves  against  inventories,
receivables and fixed assets.

         The following is a discussion  comparing the results of operations  for
fiscal 1998 and fiscal 1997:

         Net sales.  The  decrease in net sales  during  fiscal 1998 from fiscal
1997 levels was primarily due to decreased  sales in the video post  production,
video broadcasting and computer graphics production marketplaces.

         International  sales in fiscal 1998 and 1997 represented 45% and 42% of
net sales, respectively, as export sales to Europe increased, as a percentage of
total sales, to 19% from 10% and export sales to the Pacific Rim decreased, as a
percentage of total sales, from 27% to 22%.

<TABLE>
         The  following  table  presents  fiscal 1998 and 1997 net sales  dollar
volumes by market and related  percentages of total net sales (dollar amounts in
thousands).

<CAPTION>
                                                                  1998                             1997
                                                                  ----                             ----
                       Market                            Amount        Percent             Amount        Percent
                       ------                            ------        -------             ------        -------
                         <S>                            <C>             <C>               <C>             <C>  
                         Production                     $ 6,551         51.9%             $ 8,259         46.9%
                         Post Production                  3,593         28.5%               6,534         37.1%
                         Distribution                     1,847         14.6%               2,408         13.7%
                         Other                              626          5.0%                 426          2.4%
                                                      -----------------------------    -----------------------------
                                                        $12,617        100.0%             $17,627        100.0%
                                                      =============================    =============================
</TABLE>

         Cost of sales.  Cost of sales in fiscal 1998 decreased from fiscal 1997
levels due to the 1997  results  including a special  charge of $2.5 million for
increasing inventory reserves and due to the lower level of sales in 1998.

         Research and  development.  The  decrease in research  and  development
expenses  from  fiscal  1997  levels  was  primarily  a result of  decreases  in
headcount, bonuses earned, and depreciation.

                                       32
<PAGE>

         Marketing and sales.  The decrease in marketing and sales expenses from
fiscal 1997  levels was due to the 1997  results  including a special  charge of
$0.8 million for  streamlining  operations and providing  reserves against fixed
assets and due to  decreases  in  commissions  partially  offset by increases in
expenses  relating to  advertising,  trade shows,  and the  marketing of virtual
sets.

         General and administrative.  The decrease in general and administrative
expenses from fiscal 1997 levels was due to the 1997 results including a special
charge of $0.7  million  for  streamlining  operations  and  providing  reserves
against receivables and due to reduced expenses for professional services.

         Interest  and other  income,  net.  The  increase in interest and other
income, net during fiscal 1998, was primarily due to reduced levels of debt.

         Provision  for income taxes.  In fiscal 1998,  the provision for income
taxes  represents an estimate of the current  foreign tax liability.  No benefit
related  to U.S.  losses  incurred  in fiscal  1998 has been  recognized  by the
Company due to the  inability to carryback  net  operating  losses and a lack of
earnings  history.  The deferred  tax asset on the balance  sheet has been fully
offset by a valuation  allowance.  In fiscal 1997, no further net operating loss
carrybacks  were  available  and  the  Company  was  in  a  net  operating  loss
carryforward position.

         Net loss. As result of the factors noted above,  the net loss decreased
in fiscal 1998 from the net loss in fiscal 1997.

Fiscal Years 1997 vs. 1996

<TABLE>
         The  following  table  presents  the  Company's  fiscal  1997  and 1996
Consolidated  Statements of Operations (dollar amounts in thousands,  except per
share data).


<CAPTION>
                                                                                                   Increase (Decrease)
                                                                                                   -------------------
                                                                   1997           1996           Amount            Percent
                                                                   ----           ----           ------            -------
<S>                                                              <C>             <C>             <C>                <C>    
Net sales                                                        $ 17,627        $ 21,408        $ (3,781)         (17.7)%
Cost of sales                                                      11,034          11,010              24            0.2%
                                                                 --------        --------        --------        -------
Gross margin                                                        6,593          10,398          (3,805)         (36.6)%
                                                                 --------        --------        --------        -------
Operating expenses:
  Research and development                                          3,344           3,926            (582)         (14.8)%
  Marketing and sales                                               5,981           7,356          (1,375)         (18.7)%
  General and administrative                                        1,925           1,487             438           29.5%
  Credit for acquired in-process technology                          --              (750)            750          100.0%
                                                                 --------        --------        --------        -------
  Total operating expenses                                         11,250          12,019            (769)          (6.4)%
                                                                 --------        --------        --------        -------
Operating loss                                                     (4,657)         (1,621)         (3,036)         187.3%
Interest and other income (expense), net                              176             209             (33)         (15.8)%
                                                                 --------        --------        --------        -------
Loss before provision for (benefit from) income taxes              (4,481)         (1,412)         (3,069)        (217.4)%
Provision for (benefit from) income taxes                               9            (496)            505         (101.8)%
                                                                 --------        --------        --------        -------
Net loss                                                         $ (4,490)       $   (916)       $ (3,574)        (390.2)%
                                                                 ========        ========        ========        =======
Basic and diluted net loss per share                             $  (0.68)       $  (0.14)       $  (0.54)        (385.7)%
                                                                 ========        ========        ========        =======
</TABLE>


         Note: In fiscal 1997,  charges of $4.0 million  pretax were incurred to
streamline  operations  and  provide  valuation  reserves  against  inventories,
receivables  and fixed assets.  In

                                       33
<PAGE>

fiscal 1996, a $1.2 million pretax charge to write down demonstration  inventory
was offset by $0.8  million  pretax  reversal of acquired in process  technology
charges.

<TABLE>
         The  following  table  presents  the  Company's  fiscal  1997  and 1996
Consolidated Statements of Operations as a percentage of net sales.

<CAPTION>
                                                                                                          Increase
                                                                                    1997        1996     (Decrease)
                                                                                    ----        ----     ----------
<S>                                                                                <C>          <C>           <C> 
Net sales                                                                          100.0%       100.0%        0.0%
Cost of sales                                                                       62.6%        51.4%       11.2%
                                                                                ------------------------------------
           Gross margin                                                             37.4%        48.6%      (11.2)%
                                                                                ------------------------------------
Operating expenses:
     Research and development                                                       19.0%        18.3%        0.6%
     Marketing and sales                                                            33.9%        34.4%       (0.4)%
     General and administrative                                                     10.9%         6.9%        4.0%
     Credit for acquired in-process technology                                      --           (3.5)%      (3.5)%
                                                                                ------------------------------------
     Total operating expenses                                                       63.8%        56.1%        7.7%
                                                                                ------------------------------------
Operating loss                                                                     (26.4)%       (7.6)%     (18.8)%
Interest and other income (expense), net                                             1.0%         1.0%        --
                                                                                ------------------------------------
Loss before (benefit from) income taxes                                            (25.4)%       (6.6)%     (18.8)%
Provision for (benefit from) income taxes                                            0.1%        (2.3)%       2.4%
                                                                                ====================================
Net loss                                                                           (25.5)%       (4.3)%     (21.2)%
                                                                                ====================================
</TABLE>


         Note: In fiscal 1997,  charges of $4.0 million  pretax were incurred to
streamline  operations  and  provide  valuation  reserves  against  inventories,
receivables  and fixed assets.  In fiscal 1996, a $1.2 million  pretax charge to
write down demonstration inventory was offset by $0.8 million pretax reversal of
acquired in process technology charges.

         The following is a discussion  comparing the results of operations  for
fiscal 1997 and fiscal 1996:

         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% and 38% of
net sales,  respectively,  as export sales to Europe  decreased to 10% from 14%,
respectively, and export sales to the Pacific Rim increased to 27% from 19%.

<TABLE>
         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).

                                       34
<PAGE>

<CAPTION>
                                                                  1997                             1996
                                                                  ----                             ----
                           Market                        Amount        Percent             Amount        Percent
                           ------                        ------        -------             ------        -------
                         <S>                             <C>            <C>               <C>             <C>  
                         Production                      $ 8,259         46.9%            $ 7,806         36.5%
                         Post Production                   6,534         37.1%             11,608         54.2%
                         Distribution                      2,408         13.7%              1,681          7.9%
                         Other                               426          2.4%                313          1.5%
                                                      -----------------------------    -----------------------------
                                                         $17,627        100.0%            $21,408        100.0%
                                                      =============================    =============================
</TABLE>

         Cost of sales.  Cost of sales,  as a percentage of sales,  increased in
fiscal 1997 over levels in fiscal  1996 due to the  special  charge  incurred in
fiscal 1997 for increasing inventory reserves.

         Research  and  development.  Fiscal  1997's  decrease in  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 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.  General and  administrative  expenses in
fiscal 1997 increased over fiscal 1996 leveles due to the 1997 results including
a special charge of $0.7 million for  streamlining  operations and providing for
reserves against  receivables  partially offset by a decrease 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,  the net loss increased
in fiscal 1997 from fiscal 1996 levels.


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, 1998, the Company had $3.2 million of cash and
cash equivalents.

                                       35
<PAGE>

         Operating  activities  used $1.5 million in net cash in fiscal 1998 and
provided  $1.5 million in net cash in fiscal 1997.  Net cash used in fiscal 1998
was  due  primarily  to the net  loss  and to an  increase  in  inventories  and
decreases  in  accounts  payable  and accrued  liabilities  partially  offset by
decreases in accounts receivable and income tax refunds  receivable.  Additional
net cash was used in investing  activities  for the  acquisition of property and
equipment.  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.  Additional  net cash was used in  investing
activities for the acquisition of property and equipment.

         There were no bank borrowings outstanding and the Company had no credit
facilities available as of September 30, 1998. On December 10, 1998, the Company
signed an agreement with LaSalle Business Credit, Inc., a member of the ABN AMRO
group, for a $7.5 million  revolving line of credit.  The credit line is secured
by all the assets of the Company.  The availability under this line is primarily
calculated  based on the accounts  receivable and inventory.  As of December 23,
the Company had an outstanding balance borrowed under the line of $4.2 million.

         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
and will be filed as an  amendment  to this Form  10-K not  later  than 120 days
after the end of the fiscal year covered by this Form 10-K.

Item 10. Directors and Executive Officers of the Registrant

         Information  with  respect to directors of the Company will be filed as
an  amendment  to this Form 10-K not  later  than 120 days  after the end of the
fiscal year covered by this Form 10-K.

         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 will be filed as an amendment to this Form 10-K
not later than 120 days after the end of the  fiscal  year  covered by this Form
10-K.

Item 11. Executive Compensation

         Information   with  respect  to  executive   compensation  and  related
information  will be filed as an  amendment to this Form 10-K not later than 120
days after the end of the fiscal year covered by this Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management

         Information  with respect to security  ownership of certain  beneficial
owners and management  will be filed as an amendment to this Form 10-K not later
than 120 days after the end of the fiscal year covered by this Form 10-K.

Item 13. Certain Relationships and Related Transactions

         Information   with  respect  to  certain   relationships   and  related
transactions  will be filed as an amendment to this Form 10-K not later than 120
days after the end of the fiscal year covered by this Form 10-K.

<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, 1998 and 1997.

                  Consolidated  Statements  of Operations - For the Fiscal Years
                  ended September 30, 1998, 1997 and 1996.

                  Consolidated Statement of Shareholders' Equity - For the three
                  Fiscal Years ended September 30, 1998.

                  Consolidated  Statements  of Cash Flows - For the Fiscal Years
                  ended September 30, 1998, 1997 and 1996.

                  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.

<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 Exhibits
         4.3, 4.4 and 4.5.

 4.1     Reference is made to Exhibits 3.1, 3.2, 3.3, 4.3, 4.4 and 4.5.

 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.

 4.4(4)  Amendment No. 1 to Preferred Shares Rights Agreement,  dated as of July
         14, 1998, between the Company and U.S. Stock Transfer Corporation.

 4.5(5)  Amendment  No. 2 to  Preferred  Shares  Rights  Agreement,  dated as of
         December  10,  1998,  between  the  Company  and  U.S.  Stock  Transfer
         Corporation.

10.1(6)  Lease  Extension  dated October 25, 1996 by and between Menlo  Business
         Park and Partician Associates, Inc. and the Company.

10.2(7)  1997 Non-Executive Stock Option Plan and Form of Option Agreement.

10.3(1)* 1995 Stock Option/Stock Issuance Plan and Form of Option Agreement.

10.4(8)  Asset Purchase  Agreement,  dated as of December 10, 1998, by and among
         the Company, Scitex Digital Video, Inc., Scitex Digital Video (Europe),
         Inc.,  Scitex Digital Video (Asia Pacific),  Inc.,  Scitex  Development
         Corp. and Scitex Corporation Ltd.

10.5     Loan and Security  Agreement,  dated  December  10,  1998,  between the
         Company and LaSalle Business Credit, Inc.

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
         Amendment  No. 1 to  Registration  Statement  on Form  8-A/A  (File No.
         0-26620), filed on September 21, 1998.

<PAGE>

(5)      Incorporated  by  reference  from an exhibit  filed with the  Company's
         Amendment  No. 2 to  Registration  Statement  on Form  8-A/A  (File No.
         0-26620), filed on December 23, 1998.

(6)      Incorporated  by  reference  from an exhibit  filed with the  Company's
         Annual  Report on 10-K for the fiscal  year ended  September  30,  1997
         (File No. 0-26620).

(7)      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

(8)      Incorporated  by  reference  from an exhibit  filed with the  Company's
         Current  Report on Form 8-K (File No.  0-26620),  filed on December 23,
         1998.

*        Management Compensatory Plan

(b)      Reports on Form 8-K

No reports  on Form 8-K were  filed by the  Company  during  the  quarter  ended
September 30, 1998.

<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 29th day of December 1998.

                                ACCOM, INC.


                                By: /s/                JUNAID SHEIKH
                                   ---------------------------------------------
                                                       Junaid Sheikh
                                            Chairman of the Board of Directors,
                                           President and Chief Executive Officer


                                        POWER OF ATTORNEY

         KNOW ALL PERSONS BY THESE  PRESENTS,  that each person whose  signature
appears below  constitutes  and appoints  Junaid Sheikh and Donald K.  McCauley,
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 29, 1998
  -----------------             President and Chief Executive Officer
   (Junaid Sheikh)              (Principal Executive Officer)

/s/ DONALD K. MCCAULEY          Vice President, Finance and Chief             December 29, 1998
----------------------          Financial Officer (Principal Financial
 (Donald K. McCauley)           Officer)

  /s/ JAMES CUNNIFFE            Controller (Principal Accounting Officer)     December 29, 1998
  ------------------
   (James Cunniffe)

 /s/ LIONEL M. ALLAN            Director                                      December 29, 1998
 -------------------
  (Lionel M. Allan)

/s/ THOMAS E. FANELLA           Director                                      December 29, 1998
---------------------
 (Thomas E. Fanella)

  /s/ DAVID A. LAHAR            Director                                      December 29, 1998
  ------------------
   (David A. Lahar)
</TABLE>

<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, 1996...............           221                67                 65                223
Year ended September 30, 1997...............           223               256                 78                401
Year ended September 30, 1998...............           401                 -                164                237
* All deductions represent write-offs of bad debt.
</TABLE>

<PAGE>

                                   Accom, Inc.
                        Consolidated Financial Statements
                        As of September 30, 1998 and 1997
                                       and
       For the three fiscal years ended September 30, 1998, 1997 and 1996
                       with Report of Independent Auditors



<PAGE>

                                   Accom, Inc.
                        Consolidated Financial Statements
                        As of September 30, 1998 and 1997
                                       and
       For the three fiscal years ended September 30, 1998, 1997 and 1996
                       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 Statement of Stockholders' Equity ..................   F-4

         Consolidated Statements of Cash Flows ...........................   F-5

         Notes to Consolidated Financial Statements ......................   F-7

<PAGE>


                Report of Ernst & Young LLP, Independent Auditors

The Board of Directors and Stockholders
Accom, Inc.

     We have audited the accompanying consolidated balance sheets of Accom, Inc.
as of September 30, 1998 and 1997,  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,  1998.  Our audits also  included the
consolidated  financial  statement schedule listed in the Index at Item 14(a) in
Form  10-K.  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, 1998 and 1997, and the  consolidated  results of its operations
and its cash  flows  for each of the  three  fiscal  years in the  period  ended
September 30, 1998, 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 30, 1998, except for Note 9, as to which the date is December 10, 1998


                                      F-1
<PAGE>

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

<CAPTION>
                                                                                   As of September 30,
                                                                                   1998          1997
                                                                                   ----          ----
<S>                                                                               <C>         <C>
                                Assets
Current assets:
   Cash and cash equivalents                                                      $  3,231    $  5,317
   Accounts receivable, net of allowance for doubtful accounts of
     $237 and $401 of September 30, 1998 and 1997, respectively                      2,020       3,239
   Inventories                                                                       1,527         980
   Income tax refunds receivable                                                      --           621
   Prepaid expenses and other current assets                                           228         372
                                                                                  --------   ---------
         Total current assets                                                        7,006      10,529
Property and equipment, net                                                          1,038         967
Other assets                                                                            49          49
                                                                                  --------   ---------
                                                                                  $  8,093   $  11,545
                                                                                  ========   =========

                 Liabilities and Stockholders' Equity

 Current liabilities:
   Accounts payable                                                               $  1,276    $  1,476
   Accrued liabilities and customer deposits                                         1,010       1,338
   Deferred revenue                                                                     87         141
   Notes payable                                                                      --            24
                                                                                  --------   ---------
         Total current liabilities                                                   2,373       2,979

Commitments

Stockholders' equity:
   Preferred stock, $0.001 par value; 2,000 shares authorized;
     no shares issued and outstanding as of September 30, 1998 and 1997               --          --
   Common stock,  $0.001 par value; 20,233 shares authorized as of
     September 30, 1998 and 1997; 6,671 and 6,627 shares
     issued  and  outstanding  as of September 30, 1998 and 1997,
     respectively                                                                   21,462      21,427
   Accumulated deficit                                                             (15,742)    (12,861)
                                                                                  --------   ---------
     Total stockholders' equity                                                      5,720       8,566
                                                                                  --------   ---------
                                                                                  $  8,093   $  11,545
                                                                                  ========   =========
<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,
                                                                                             --------------------------------
                                                                                     1998                1997               1996
                                                                                     ----                ----               ----

<S>                                                                                <C>                 <C>                 <C>     
Sales                                                                              $ 12,617            $ 17,627            $ 21,408

Cost of sales                                                                         6,178              11,034              11,010
                                                                                   --------            --------            --------

  Gross margin                                                                        6,439               6,593              10,398
                                                                                   --------            --------            --------

Operating expenses:
  Research and development                                                            3,295               3,344               3,926
  Marketing and sales                                                                 4,967               5,981               7,356
  General and administrative                                                          1,219               1,925               1,487
  Charge (credit) for acquired in-process technology
                                                                                       --                  --                  (750)
                                                                                   --------            --------            --------

  Total operating expenses                                                            9,481              11,250              12,019
                                                                                   --------            --------            --------

Operating loss                                                                       (3,042)             (4,657)             (1,621)

  Interest and other income, net                                                        180                 176                 209
                                                                                   --------            --------            --------

Loss before provision for (benefit from)
  income taxes                                                                       (2,862)             (4,481)             (1,412)

  Provision for (benefit from) income taxes                                              19                   9                (496)
                                                                                   --------            --------            --------

Net loss                                                                           $ (2,881)           $ (4,490)           $   (916)
                                                                                   ========            ========            ========

Basic and diluted net loss per share                                               $  (0.43)           $  (0.68)           $  (0.14)
                                                                                   ========            ========            ========

Shares used in computing basic and diluted net
  loss per share                                                                      6,662               6,587               6,439
                                                                                   ========            ========            ========

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

                                       F-3
<PAGE>

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

<CAPTION>
                                                                                                         
                                                  Preferred Stock,              Common Stock,                               Total
                                             $0.001 Per Share Par Value   $0.001 Per Share Par Value                        Stock-
                                             --------------------------   --------------------------      Accumulated       holders'
                                                 Shares     Amount           Shares         Amount         Deficit          Equity
                                                 ------     ------           ------         ------         -------          ------
<S>                                               <C>      <C>                <C>          <C>             <C>             <C>     
Balances, September 30, 1995                       --      $    --            6,404        $ 21,134        $ (7,455)       $ 13,679
  Issuance of common stock                             
     upon exercise of stock                            
     options                                       --           --               36              19            --                19
  Issuance 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
  Issuance 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
  Issuance of common stock                             
     upon exercise of stock                            
     options                                       --           --               33              25            --                25
  Issuance of common stock                             
     through Employee Stock                            
     Purchase Plan                                 --           --               15              14            --                14
  Purchase of common stock                             
     by Company                                    --           --               (4)             (4)           --                (4)
  Net loss                                         --           --             --              --            (2,881)         (2,881)
                                              ---------    ---------       --------        --------        --------        --------
Balances, September 30, 1998                       --           --            6,671        $ 21,462        $(15,742)       $  5,720
                                              =========    =========       ========        ========        ========        ========
<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,
                                                                                             -----------------------
---------
                                                                                            1998          1997           1996
                                                                                            ----          ----           ----
<S>                                                                                       <C>            <C>            <C>     
                  Cash Flows From Operating Activities
Net loss                                                                                  $(2,881)       $(4,490)       $  (916)
Adjustments to reconcile net loss to net cash provided by (used in)
     operating activities:
   Charge (credit) for acquired in-process technology                                        --             --             (750)
   Depreciation                                                                               550            528            760
   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
       reserves to streamline operations
     Accounts receivable                                                                    1,219          1,030           (815)
     Inventories                                                                             (547)         1,967           (711)
     Income tax refunds receivable                                                            621           (426)          (145)
     Prepaid expenses and other current assets                                                144            680           (357)
     Accounts payable                                                                        (200)          (766)           523
     Accrued liabilities and customer deposits                                               (327)          (611)        (1,524)
     Deferred revenue                                                                         (54)          (387)           192
                                                                                          -------        -------        -------
       Net cash provided by (used in) operating activities                                 (1,475)         1,520         (3,743)
                                                                                          -------        -------        -------

                  Cash Flows From Investing Activities
Expenditures for property and equipment                                                      (622)          (563)          (847)
Increase (decrease) in other assets                                                          --               93            (88)
                                                                                          -------        -------        -------
       Net cash used in investing activities                                                 (622)          (470)          (935)
                                                                                          -------        -------        -------

                  Cash Flows from Financing Activities
Repayments on notes payable                                                                   (24)           (58)           (59)
Issuance of common stock                                                                       39            104            189
Repurchase of common stock                                                                     (4)          --             --
                                                                                          -------        -------        -------
       Net cash provided by financing activities                                               11             46            130
                                                                                          -------        -------        -------

Net decrease in cash and cash equivalents                                                  (2,086)        (1,096)        (4,548)
Cash and cash equivalents at beginning of the year                                          5,317          4,221          8,769
                                                                                          -------        -------        -------
       Cash and cash equivalents at end of the year                                       $ 3,231        $ 5,317        $ 4,221
                                                                                          =======        =======        =======

<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 (Continued)
                                                           (in thousands)

<CAPTION>
                                                                                               Fiscal Years Ended September 30,
                                                                                               --------------------------------
                                                                                           1998              1997             1996
                                                                                           ----              ----             ----
<S>                                                                                        <C>              <C>               <C>  
            Supplemental Disclosure of Cash Flow Information

Interest paid                                                                              $    1           $     6           $  11
                                                                                           ======           =======           =====

Income taxes paid                                                                          $   17           $     2           $   2
                                                                                           ======           =======           =====

Noncash investing and financing activities:
  Accrued acquisition costs                                                                  --                --             $(354)
                                                                                           ======           =======           =====
  Accrued initial public offering costs                                                      --                --             $(819)
                                                                                           ======           =======           =====

<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


1.       Nature of the Business and Basis of Presentation

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.

The Company incurred a net loss of $2.9 million in fiscal 1998. The Company also
incurred a net loss of $4.5 million in fiscal 1997 and a net loss of $916,000 in
fiscal 1996.  There can be no assurance that the Company will be profitable on a
quarterly or annual basis in the future.  Management continues to believe, based
on its current operating plan,  including the acquisition and financing executed
subsequent to September  30, 1998 (see note 9), that the Company has  sufficient
financial resources for its operations through the next 12 months.

One  customer  accounted  for 16% and 13% of net sales in fiscal  1998 and 1997,
respectively.  No  customers  accounted  for 10% or more of net  sales in fiscal
1996. Export sales for fiscal 1998, 1997, and 1996 were  approximately 45%, 42%,
and  38%,  respectively.  Export  sales  to  Europe  and  the  Pacific  Rim as a
percentage of total sales were 19% and 22%,  respectively  for fiscal 1998,  10%
and 27%,  respectively,  for fiscal  1997,  and 14% and 19%,  respectively,  for
fiscal 1996.

2.       Summary of Significant Accounting Policies

Reclassifications

Certain amounts in the prior years' financial  statements have been reclassified
to conform with the fiscal 1998 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  accounts and municipal notes. Cash and cash equivalents are
held  primarily  by one major

                                      F-7
<PAGE>

                                   Accom, Inc.
                   Notes to Consolidated Financial Statements


2.       Summary of Significant Accounting Policies (continued)

national bank and two major investment brokerage companies.

Concentration of Credit and Other Risks

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.

Dependence on key suppliers:  The Company  purchases certain key components from
single source suppliers.  Any significant component supply delay or interruption
could require the Company to qualify new sources of supply,  if  available,  and
could have a material  adverse effect on the Company's  financial  condition and
results of operations.

Dependence on  distributors:  Currently,  a significant  amount of the Company's
revenues  from  product  sales are  derived  from sales to  distributors.  Loss,
termination  or  ineffectiveness  of  distributors  to  effectively  promote the
Company's  products  could  have a  material  adverse  effect  on the  Company's
financial condition and results of operations.

Inventories

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

Software Development Costs

Product  development  costs include costs related to software  products that are
expensed  as  incurred  until the  technological  feasibility  of the product is
established.  After  technological  feasibility is  established,  any additional
costs are  capitalized  in  accordance  with  Statement of Financial  Accounting
Standards  No. 86,  "Accounting  for the Cost of  Computer  Software to be Sold,
Leased or Otherwise  Marketed." The  establishment of technological  feasibility
and the ongoing  assessment of recoverability  of capitalized  development costs
requires  considerable  judgment by management with respect to certain  external
factors,  including, but not limited to, technological feasibility,  anticipated
future  gross  revenues,  estimated  economic  life and changes in software  and
hardware  technologies.  No software  development costs have been capitalized in
1998,  1997,  and 1996, as costs  incurred  subsequent to the  establishment  of
technical feasibility have not been significant.

                                      F-8
<PAGE>

                                   Accom, Inc.
                   Notes to Consolidated Financial Statements


2.       Summary of Significant Accounting Policies (continued)

Property and Equipment

Property  and  equipment  are  stated  at cost  and are  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.

Accounting for Stock-Based Compensation

The Company has elected to follow  Accounting  Principles  Board Opinion No. 25,
"Accounting   for  Stock   Issued  to   Employees"   ("APB   25")  and   related
interpretations  in  accounting  for its  employee  stock  options  because,  as
discussed in Note 7, the alternative  fair value  accounting  provided for under
FASB Statement No. 123, "Accounting for Stock-Based  Compensation," ("SFAS 123")
requires  use of option  valuation  models  that were not  developed  for use in
valuing employee stock options.  Under APB 25, because the exercise price of the
Company's employee stock options equals the marker price of the underlying stock
on the date of the grant, no compensation expense is recognized.

Acquired In-Process Technology

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

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.

                                      F-9
<PAGE>

                                   Accom, Inc.
                   Notes to Consolidated Financial Statements


2.       Summary of Significant Accounting Policies (continued)

Net Loss Per Share

In 1997, the FASB issued Statement No. 128,  "Earnings per Share." Statement 128
replaced the  calculation  of primary and fully diluted  earnings per share with
basic and diluted earnings per share.  Unlike primary earnings per share,  basic
earnings  per share  excludes  any dilutive  effects of options,  warrants,  and
convertible  securities.  Diluted  earnings  per  share is very  similar  to the
previously  reported  fully diluted  earnings per share.  All earnings per share
amounts for all periods have been presented, and where appropriate,  restated to
conform to the Statement 128 requirements.

The Company has  securities  outstanding  that could dilute  basic  earnings per
share in the future that were not  included in the  computation  of net loss per
share in the periods  presented as their effect is antidilutive.  For additional
disclosures  regarding  potentially  dilutive  stock  options,   warrants,   and
convertible preferred stock, see Note 8.

New Accounting Guidelines

In fiscal 1999,  the Company  will be required to adopt newly issued  accounting
guidelines  addressing the reporting of  comprehensive  income.  The adoption is
expected to have no  significant  impact on the  Company's  net income (loss) or
shareholders'  equity. The guidelines require any unrealized gains and losses on
available-for-sale  securities or foreign currency translation adjustments to be
included in other comprehensive income. Prior to adoption of the new guidelines,
such items, if present,  are reported as a separate  component of  stockholders'
equity.

Also in  fiscal  1999,  the  Company  will be  required  to adopt  newly  issued
accounting   guidelines   addressing   disclosures  about  segment  and  related
information.  As the Company  operates in one  segment,  the adoption of the new
guidelines is not expected to have a significant impact on the Company's results
of operations, financial position, or disclosure of segment information.

In October,  1997, the Accounting Standards Executive Committee issued Statement
of Position 97-2, as amended by SOP 98-4, "Software Revenue  Recognition." These
statements provide guidance on applying generally accepted accounting principles
in  recognizing  revenue on software  transactions  that are  effective  for the
Company's  transactions  entered into  subsequent to October 1, 1998.  Under the
Company's current policy,  license fees on software are recognized when customer
acceptance has been

                                      F-10
<PAGE>

                                   Accom, Inc.
                   Notes to Consolidated Financial Statements


2.       Summary of Significant Accounting Policies (continued)

achieved. However, the Company has not yet fully assessed what the impact of the
implementation  of SOP 97-2 and SOP 98-4 will be on the  recognition of revenues
in the 1999 financial statements.

Use of Estimates

The  preparation  of the  financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from those estimates.

3.       Inventories

Inventories consist of the following:
                                                     As of September 30,
                                                     -------------------
                                                  1998                  1997
                                                  ----                  ----
                                                         (In thousands)

Purchased parts and materials                  $    256               $   225
Work-in-process                                     445                   204
Finished goods                                      181                   182
Demonstration inventory                             645                   369
                                        ----------------------------------------
                                               $  1,527               $   980
                                        ========================================


4.       Property and Equipment

Property and equipment consist of the following:
                                                    As of September 30,
                                                    -------------------
                                                 1998                  1997
                                                 ----                  ----
                                                        (In thousands)

Machinery and equipment                        $  2,038             $   1,768
Furniture and fixtures                              219                   207
Computer equipment                                1,409                 1,070
                                        ----------------------------------------
                                                  3,666                 3,045
Less accumulated depreciation                    (2,628)               (2,078)
                                        ----------------------------------------
Net property and equipment                     $  1,038             $     967
                                        ========================================

                                      F-11
<PAGE>

                                   Accom, Inc.
                   Notes to Consolidated Financial Statements


5.       Accrued Liabilities and Customer Deposits

Accrued liabilities and customer deposits consist of the following:

                                                    As of September 30,
                                                    -------------------
                                                 1998                  1997
                                                 ----                  ----
                                                        (In thousands)

Accrued compensation                            $   199               $   275
Accrued acquisition liabilities                     126                   208
Accrued streamlining expenses                       305                   379
Other                                               380                   476
                                        ----------------------------------------
                                                 $1,010                $1,338
                                        ========================================

6.       Commitments

Leasing Arrangements

The Company  leases its primary  office and  manufacturing  facility an under an
operating  lease which expires in February,  2000. Rent expense for fiscal years
1998,  1997  and 1996  was  approximately,  $465,000,  $448,000  and $  424,000,
respectively.

Future minimum rental payments under noncancelable  leases at September 30, 1998
are as follows (in thousands):

1999                                                             $   504
2000                                                                 215
2001                                                                  10
                                                          ----------------------
Total                                                            $   729
                                                          ======================

The Company is sublessor for a portion of its primary  office and  manufacturing
facility.   Sublease  rental  income  for  fiscal  1998,   1997,  and  1996  was
approximately $175,000, $84,000, and $0.

                                      F-12
<PAGE>

                                   Accom, Inc.
                   Notes to Consolidated Financial Statements


7.       Stockholders' Equity

Stock Options

The 1995 Stock Option/Stock  Isuance Plan (the "1995 Plan") increased the number
of shares  available  for grant up to  2,000,000,  inclusive of options  granted
under the predecessor  plan, 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, 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
                         Shares authorized                            66,597                          -
                         Options granted                          (1,456,920)       1,456,920    $0.81-$1.63
                         Options exercised                                            (33,109)   $0.48-$1.31         $0.76
                                                                                                               ==================
                         Options canceled                          1,702,899       (1,702,899)   $0.48-$1.69
                                                             ---------------------------------------------------
                      Balances at September 30, 1998               1,261,348        1,251,333    $0.48-$5.88
                                                             ===================================================
</TABLE>

                                      F-13
<PAGE>

                                   Accom, Inc.
                   Notes to Consolidated Financial Statements


7.       Stockholders' Equity (continued)

Stock Options (continued)


During fiscal 1998,  the Company  repriced,  through  cancellation  and regrant,
options on 1,176,020  shares having original  exercise prices ranging from $1.06
to $1.88 with new options having an exercise  price of $1.03.  The vesting terms
of the repriced options were changed from five years to four years. In addition,
repriced  options vest 25% after one year and then the  remaining  75% is vested
proportionately on a monthly basis. Previously, the options vested 20% per year.
In addition,  the change in vesting terms also applied to 266,693  options which
were not  repriced  because the  original  exercise  price was less than the new
exercise  price.  There were 17,500 options  granted to Company  directors which
were not subject to repricing or the change in vesting terms.

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

<TABLE>
The  options  outstanding  as of  September  30, 1998 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 - $1.00         249,277              8.02            $0.78            59,877           $0.48
        $1.03             984,556              7.80            $1.03           558,703           $1.03
    $1.25 - $1.31          12,500              8.44            $1.26             5,000           $1.28
        $5.88               5,000              7.38            $5.88             5,000           $5.88
                      ------------------------------------------------------------------------------------
    $0.48 - $5.88       1,251,333              7.85            $1.00           628,580           $1.02
                      ====================================================================================
</TABLE>

As of September 30, 1998,  the Company has reserved  1,261,348  shares of common
stock for issuance upon the exercise of stock options under all of its plans.

                                      F-14
<PAGE>

                                   Accom, Inc.
                   Notes to Consolidated Financial Statements


7.       Stockholders' Equity (continued)

Employee Stock Purchase Plan

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

Pro Forma Disclosure of Employee Stock-Based Compensation

Pro forma information regarding net income and earnings per share is required by
FASB 123 for awards granted after March 31, 1995 as if the Company had accounted
for its stock-based awards to employees under the fair value method of FASB 123.
The fair value of the  Company's  stock-based  awards to employees was estimated
using the minimum value model for awards prior to the Company's  initial  public
offering in 1995 and the  Black-Scholes  model  subsequent to the initial public
offering.  The  Black-Scholes  option  valuation  model was developed for use in
estimating the fair value of traded  options which have no vesting  restrictions
and are fully  transferable.  In addition,  the Black-Scholes model requires the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.   Because  the  Company's   stock-based  awards  to  employees  have
characteristics  significantly  different  from  those of  traded  options,  and
because changes in the subjective  input  assumptions can materially  affect the
fair  value  estimate,  in  management's  opinion,  the  existing  models do not
necessarily  provide  a  reliable  single  measure  of  the  fair  value  of its
stock-based  awards to employees.  The fair value of the  Company's  stock-based
awards to  employees  was  estimated  assuming  the  following  weighted-average
assumptions:

                                                           Fiscal Year Ended
                                                             September 30,
                                                           1998          1997
                                                           ----          ----

Risk-free interest rates                                   4.7%          6.0%
Dividends paid                                             --            --
Volatility factors - Company's common
stock expected market price                                0.80          0.80
Expected option life                                    4.00 years    4.83 years

The weighted  average "fair value" of stock options  granted  during fiscal 1998
and 1997 was $0.55 and $0.56, respectively.

                                      F-15
<PAGE>

                                   Accom, Inc.
                   Notes to Consolidated Financial Statements


7.       Stockholders' Equity (continued)

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

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,
                                                             -------------
                                                           1998          1997
                                                           ----          ----

Risk-free interest rates                                   4.7%          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 1998 and 1997 was $1.47 and $0.85,
respectively.

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,
                                                          1998           1997
                                                          ----           ----
Pro forma net loss (in thousands):                       $(3,477)       $(5,753)
Pro forma net loss per share:                            $ (0.52)       $ (0.87)

Because FASB 123 is applicable  only to awards  granted  subsequent to March 31,
1995, its pro forma effect will not be fully reflected until approximately 1999.

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.

                                      F-16
<PAGE>

                                   Accom, Inc.
                   Notes to Consolidated Financial Statements


8.       Income Taxes

As  of  September  30,  1998,   the  Company  had  federal  net  operating  loss
carryforwards of approximately $5,000,000. The Company also had federal research
and development tax credit carryforwards of approximately  $230,000. The federal
net  operating  loss and  credit  carryforwards  will  expire at  various  dates
beginning on 2012 through 2013.

Utilization of the Company's net operating loss carryforwards and credits may be
subject to an annual  limitation due to the "change in ownership"  provisions of
the  Internal  Revenue  Code of 1986 and similar  state  provisions.  The annual
limitation  may result in the  expiration  of net  operating  losses and credits
before utilization.

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,
                                                      -------------------
                                                    1998                1997
                                                    ----                ----
                                                         (In thousands)
Deferred tax assets:
   Net operating losses                     $        1,747      $          735
   R&D Credits                                         334                 186
   Capitalized R&D                                   2,801               2,711
   Nondeductible reserves and accruals                 683                 354
   Inventory valuation                                 913               1,055
   Other individually immaterial items                  92                 437
                                            ------------------------------------
                                                     6,570               5,478
Valuation allowance                                 (6,570)             (5,440)
                                            ------------------------------------
Net deferred tax assets                     $              -    $            38
                                            ====================================

The net valuation allowance increased by $1,130,000 and $5,241,000 during fiscal
years ended September 30, 1998 and September 30, 1997, respectively.

                                      F-17
<PAGE>

                                   Accom, Inc.
                   Notes to Consolidated Financial Statements


8.       Income Taxes (continued)

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

                                             Fiscal Year Ended September 30,
                                             -------------------------------
                                          1998            1997            1996
                                          ----            ----            ----
                                                      (In thousands)
Federal:
   Current                                $ --            $(705)          $(231)
   Deferred                                 --              705            (231)
                                          -----           -----           -----
                                                           --              (462)
                                          -----           -----           -----
State:
   Current                                  --             --                11
   Deferred                                 --             --               (45)
                                          -----           -----           -----
                                                           --               (34)
                                          -----           -----           -----
Foreign:
   Current                                   19               9            --
                                          -----           -----           -----
Total                                     $  19           $   9           $(496)
                                          =====           =====           =====


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:

                                                 Fiscal Year Ended September 30,
                                                 -------------------------------
                                                    1998      1997       1996
                                                    ----      ----       ----
                                                         (In thousands)
Income taxes computed at the federal
    statutory rate                                $(1,033)   $(1,524)   $  (480)
State taxes (net of federal benefit)                 (125)      (370)       (23)
Foreign taxes                                          19          9       --
Research and development tax credit                   (71)      (123)       (18)
Technology basis step-up                             --       (2,867)      (204)
Foreign losses not currently benefitted               163       --         --
Valuation allowance                                 1,130      5,440        199
Other                                                 (64)      (556)        30
                                                  -------     ------      -----
Total                                             $    19     $    9      $(496)
                                                  =======     ======      =====

                                      F-18
<PAGE>

                                   Accom, Inc.
                   Notes to Consolidated Financial Statements


9. Events Subsequent to September 30, 1998

On December 10, 1998, Accom, Inc. (the "Company"), acquired substantially all of
the assets of Scitex Digital Video, Inc., a Massachusetts  corporation  ("SDV").
The Company  also  acquired  substantially  all of the assets of Scitex  Digital
Video (Europe)  Limited,  a private limited company  incorporated in England and
Wales  ("SDVE"),  and Scitex  Digital Video (Asia  Pacific),  Inc., a California
corporation  ("SDVAP").  In addition,  the Company acquired  certain  intangible
personal  property of Scitex  Corporation Ltd., an Israel  corporation  ("Scitex
Corporation"),  related to SDV's business.  These  acquisitions were consummated
pursuant to an Asset Purchase Agreement (the "Asset Purchase Agreement"),  dated
as of December 10, 1998,  by and among the Company,  SDV,  SDVE,  SDVAP,  Scitex
Development  Corp., a  Massachusetts  corporation  ("Scitex  Development"),  and
Scitex  Corporation.  The Company  acquired  these  assets in exchange  for: (i)
$7,893,400 in cash,  (ii) a warrant for 250,000  shares of the Company's  common
stock,  (iii) a warrant for 750,000  shares of the Company's  common stock,  and
(iv)  non-negotiable  subordinated  promissory  notes  of  the  Company  in  the
aggregate amount of $2,065,000.  As further  consideration,  the Company assumed
certain  liabilities of SDV. There were three sources for the cash consideration
paid to SDV. First, the Company entered into a Loan and Security  Agreement (the
"Loan Agreement"),  dated as of December 10, 1998, with LaSalle Business Credit,
Inc. The Company  borrowed  approximately  $3,340,000  under the Loan  Agreement
which  constituted a portion of the cash  consideration.  The obligations of the
Company under the Loan Agreement are secured by substantially  all the assets of
the  Company.  The  second  source  for the cash  consideration  paid to SDV was
approximately  $3,050,000  from the  Company's  current cash  assets.  The third
source for the cash  consideration  was $1,500,000 which the Company raised from
the private  placement of its common  stock,  on December 10, 1998, in which the
Company sold 2,500,000  unregistered  shares of common stock at a price of $0.60
per share.  The assets  acquired by the Company were used by SDV, SDVE and SDVAP
in connection  with SDV's business of developing,  manufacturing,  marketing and
selling digital video  manipulation  equipment and non-linear video workstations
for the video industry.  The Company  currently  intends to continue this use of
such assets.  The Company entered into an investor rights agreement with each of
SDV and the investor,  which,  among other things,  grants certain  registration
rights with respect to the common stock of the Company issuable upon exercise of
the warrants and the common stock held by the investor.

                                      F-19