UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    Form 10-K

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

                      For the Fiscal Year Ended _______ or

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

      For the Transition period from October 1, 1998 to December 31, 1998.

                         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 ___ NO _X_

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

         The aggregate  market value of the voting stock held by  non-affiliates
of the Registrant was approximately  $3,240,113 as of March 23, 1999, 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 10,123,247  shares of  Registrant's  Common Stock issued and
outstanding as of March 23, 1999.


                       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

         In the fourth  quarter of calendar  1998,  the  Registrant  changed its
fiscal year end from September 30 to December 31. This Transition Report on Form
10-K is for the  three-month  period from October 1, 1998  through  December 31,
1998 (the "Transition Period").


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 Suppliers,"  "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 Form 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(R), 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, integrated non-linear editing workstations, on-line video editing systems,
digital  video  effects  systems,  digital  switchers  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.

                                       2

<PAGE>


<TABLE>
         The following table summarizes the Company's key products:

<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                                          Digital switcher for on-line post production editing
                                                              for commercials and long form television programs
  ------------------------------------------------------------------------------------------------------------------
    Digital Editors
  ------------------------------------------------------------------------------------------------------------------
       Axial(R) 3000                                          Edit controller for on-line post production editing
                                                              for commercials and long form television programs
       Sphere(TM)                                             Integrated non-linear editing workstation 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 leverage its established  position in the
professional segment of the video  post-production  market to develop innovative
products  and  market  them to  production,  post-production,  and  distribution
segments.  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  editing  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 more than a million  dollars due to the cost and variety
of equipment  required,  and professional  post-production  services can cost in
excess of $1,000 per hour.

         Over the past  several  years,  a number  of  personal  computer-based,
off-line  editing  systems have been  introduced  to enable more  efficient  and
cost-effective  editing.  However,  these off-line systems rely upon compression
algorithms to convert raw video content to signals capable of being  manipulated
on personal  computers.  This use of highly  compressed video  compromises video
fidelity.  Currently, video effects and compositing,  as well as two-dimensional
("2D") and  three-dimensional  ("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

                                       4

<PAGE>


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

Distribution

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

The Accom Approach

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

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

         Accom's systems offer the following benefits:

                                       5

<PAGE>


         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;

o    Non-linear editing workstations 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  tools 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:

         Leverage Market and Technical  Position.  The Company has established a
reputation for meeting the exacting  needs of the high-end  segment of the video
post-production  market.  The  Company's  strategy is to leverage its market and
technical  position  to  continue  to  offer  innovative  new  products  to  the
post-production  market  segment  and to expand its product  offerings  into the
production and distribution market segments.

                                       6

<PAGE>


         Broaden  Lower-Priced  Product  Line.  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.  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.

           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  Scitex Digital Video, the Company obtained access to
digital switchers, digital video effects and non-linear editing technologies.

         Enhance  Distribution  Channels.  The  Company  intends to enhance  its
distribution  channels on an ongoing  basis to improve  market  penetration  and
increase sales.

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
  ------------------------------------------------------------------------------------------------------------------
  PRODUCTION:
  ------------------------------------------------------------------------------------------------------------------
<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
  ------------------------------------------------------------------------------------------------------------------
  POST PRODUCTION:
  ------------------------------------------------------------------------------------------------------------------
    Digital Signal Processors
  ------------------------------------------------------------------------------------------------------------------
       8150 Digital Switcher                                  Digital switcher for on-line post production
                                                              editing for commercials and long form television
                                                              programs
  ------------------------------------------------------------------------------------------------------------------
    Digital Editors
  ------------------------------------------------------------------------------------------------------------------
       Axial(R) 3000                                          Edit controller for on-line post production editing
                                                              for commercials and long form television programs
       Sphere(TM)                                             Integrated non-linear editing workstation 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>

                                                 7

<PAGE>


The following table  summarizes the Company's net sales,  in thousands,  for the
three months ended December 31, 1998, by market segment:


                                                       For Three Months Ended
                                                         December 31, 1998
                                                      -------------------------
          Market                                      Amount             Percent
                                                      ------              -----
Production                                            $1,113               33.1%
Post Production                                        1,493               44.4%
Distribution                                             424               12.6%
Other                                                    333                9.9%
                                                      ------              -----
                                                      $3,363              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 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 currently offers three ELSET(R) Virtual Set products:

         ELSET(R)  LIVE  software  operates  on  the  Silicon  Graphics  ("SGI")
Onyx2(TM) 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(TM) 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  and MAYA 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(TM) 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(TM)
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.

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

                                       8

<PAGE>


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. 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)/2Xtreme also provides both Ethernet and SCSI
connections,  thereby enabling it to interface with applications running on SGI,
Windows-NT(TM) and Apple Macintosh computer platforms.

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 product. 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 optical domain at one point
in time.  The Dveous is considered  by many as the leading  high-end DVE 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  through 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.

                                       9

<PAGE>


         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 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.

         Nonlinear Editing

         The Company's Sphere family of digital nonlinear  editing  workstations
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).   The  key  features  of  the  higher-end
VideoSphere(R) and the StrataSphere(R)  models are, simple and easy to use human
interface,   speed  of  editing  and  high  quality   real-time  video  effects.
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)

         APR(TM)/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 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

                                       10

<PAGE>


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 14%, 16% and 13% of the Company's  total
revenues  for the three months ended  December 31, 1998,  and the twelve  months
ended September 30, 1998 and 1997, respectively.  No customer accounted for more
than  10% of the  Company's  total  revenues  during  the  twelve  months  ended
September 30, 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 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 computer graphics and animation  content creators.  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 the three months  ended  December 31, 1998 and the twelve
months ended September 30, 1998, 1997, and 1996, the Company generated 45%, 45%,
42%, and 38%,  respectively,  of its net sales from customers in

                                       11

<PAGE>


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 March 31,  1999,  the
Company  employed 44 people in its research  and  development  organization,  of
which approximately 24 professionals are focused on software development. During
the three months ended December 31, 1998, and the twelve months ended  September
30, 1998, 1997 and 1996, the Company's  research and  development  expenses were
approximately  $1.2  million,  $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.

         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.

                                       12

<PAGE>


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,  The Grass  Valley  Group (a  subsidiary  of
Tektronix, Inc.), Media 100, Inc. and Avid Technology, Inc. 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), Leitch Technology Corporation and Pinnacle Systems, Inc. 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  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., 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

                                       13

<PAGE>


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 29 United States patents,  16 foreign patents and has  applications
pending for nine additional United States patents and eight foreign patents. 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 29  registered  trademarks  in the  United  States,  16
registered  foreign trademarks 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 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

                                       14

<PAGE>


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  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 March 31, 1999, the Company had 127 full-time  employees,  including
44 in research and development, 43 in marketing, sales and technical support, 24
in manufacturing  and 16 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 Suppliers,"  "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 the day-to-day  business of the Company. As
of March 31, 1999,  integration of facilities as well as the various  functional
departments  has been  accomplished.  Although most of the  integration has been
accomplished, the full extent of the cost savings in operations is not known. If
the integration  does not result in the anticipated  cost savings in operations,
there may be 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 $3.9 million for the three-month  Transition  Period ending December 31,
1998.  The Company also  incurred net losses of $2.9  million,  $4.5 million and
$916,000,  respectively, in the twelve months ended September 30, 1998, 1997 and
1996.  There  can

                                       15

<PAGE>


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  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,  digital  switchers  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. 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 SGI
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.  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 a significant backlog as of any particular date.

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

         Rapid Technological  Change;  Product  Development.  The market for the
Company's  products is characterized by rapidly  changing  technology,  evolving
industry standards and frequent new product introductions. The Company's success
will  depend in part upon its ability to enhance its  existing  products  and to
develop and introduce new products and features to incorporate new  technologies
and meet changing  customer  requirements and emerging  industry  standards in a
timely and  cost-effective  manner.  The  Company is  currently  developing  new
products  and  product  enhancements  for its  product  lines.  There  can be no
assurance that the Company will be successful in developing,  manufacturing  and
marketing  new  products  and product  enhancements,  that the Company  will not
experience  difficulties  that delay or prevent the successful  development  and
introduction  of these  products  and  enhancements  or that the  Company's  new
products and product enhancements will achieve market acceptance.  The Company's
business,  financial condition and results of operations would be materially and

                                       16

<PAGE>


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,  the  Company  experienced  technical
problems  with the  introduction  of Axess(TM),  including  delays in delivering
additional functionality when originally requested by certain initial 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 predict.

         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

                                       17

<PAGE>


attracting  and retaining the  personnel it requires for continued  growth.  The
Company  has key  person  life  insurance  covering  certain  of its  management
personnel.

         Management of Growth.  Although the Company  streamlined its operations
during fiscal 1997, the Company's  long-term  success will depend in part on its
ability to manage growth,  both domestically and  internationally.  In addition,
the Company will be required to enhance its operational,  management information
and  financial  control  systems.  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 Senior Vice President
and Chief Financial Officer.  To support growth, the Company will be required to
increase the personnel in its sales, marketing and customer support departments.
If the  Company  is unable to hire a  sufficient  number of  employees  with the
appropriate  levels of experience to increase the capacity of these  departments
in a timely  manner,  or if the  Company  is unable to  effectively  manage  its
growth, the Company's  business,  financial  condition and results of operations
could be materially and adversely affected.

         International  Operations.  In the three-month  Transition Period ended
December 31, 1998 and in the twelve months ended  September  30, 1998,  1997 and
1996, international sales accounted for 45%, 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 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

                                       18

<PAGE>


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 11.3, an upgrade of this software, is
Year 2000  compliant  and has been  procured  by the  Company  by renewal of its
Man-Man  license at a cost of $67,000.  Total cost to implement  this upgrade is
estimated to be less than $100,000. As of December 31, 1998, at least $20,000 of
expected  costs had been  identified  which related to  replacement  of software
applications and operating  systems (which  currently are readily  available for
licensing by the Company) which the Company  anticipates  will take place in the
third quarter of 1999. Related to these software  upgrades,  hardware on certain
computers may also need to be replaced to make them compatible with the upgraded
software.  The estimated cost of replacing such hardware is $50,000. If required
modifications to existing  software and hardware and conversions to new software
are not made,  or are not  completed  in a timely way, 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.

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

                                       19

<PAGE>


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 June,  1999,  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 third quarter 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 third
quarter 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.

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.  The
amount incurred to date was not material.

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 March 23, 1999, the Company's executive officers
and directors, and their affiliates, beneficially own approximately 19.2% 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

                                       20

<PAGE>


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.
Also,  a current  director  of the  Company was  appointed  by American  Bankers
Insurance Group,  which holds 6% Senior  Subordinated  Convertible  Notes of the
Company  which are  convertible  into up to  2,307,692  shares of the  Company's
common stock.

         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 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.  Also, the aggregate  market value of the voting
stock  held  by   non-affiliates   ("public  float")  of  the  Company  is  only
approximately  $3,240,000  which  affects  the  liquidity  of the Common  Stock.
Finally, the Company participates in a highly dynamic industry, which may result
in significant volatility of the Company's common stock price.


Item 2.  Properties

         The Company's principal offices are located in Menlo Park,  California,
and consist of  approximately  30,000  square feet under a lease that expires in
February,   2000.  In  addition,  the  Company  has  offices  in  Grass  Valley,
California,  consisting of approximately  15,000 square feet, under a lease that
expires in April, 2004. The Company also leases work space in Hong Kong under an
operating  lease which expires in January,  2001. 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 Transition  Period,  the three months ended December 31,
1998.

                                       21

<PAGE>


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

         None.

Executive Officers of the Company

         The executive  officers of the Company,  and their ages as of March 31,
1999, are as follows:

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

Junaid Sheikh....................   45     Chairman of the Board, President and
                                           Chief Executive Officer
Phillip Bennett..................   45     Executive Vice President, Technology
                                           and Engineering
Donald K. McCauley...............   58     Senior Vice President, Finance, and
                                           Chief Financial Officer
Ian Craven.......................   44     Senior Vice President, Engineering
William T. Ludwig................   51     Vice President, Sales
William Harris Rogers............   51     Vice President, Marketing
Donald W. Petersen...............   54     Vice President, Manufacturing


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

         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  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 Senior
Vice  President,  Finance,  and Chief  Financial  Officer.  Prior to joining the
Company,  Mr.  McCauley served as the Senior Vice President of Finance and Chief
Financial  Officer of Scitex  Digital  Video from 1994.  Prior to that, he was a
founder and Chief  Financial  Officer 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,  as Vice
President,  Sales. 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 1995,  he served in  various  sales  capacities  for  Abekas  Video
Systems.

         William  Harris Rogers served as Vice  President,  Sales and Marketing,
for the Company from May, 1998, to December,  1998.  From July,  1995, to April,
1998, he served as Vice-President,  Marketing,  of the Company.  He attended the
Stanford  University  Graduate  School of Business  from August,  1994, to June,
1995,  earning  a Master of  Science  Degree in  Business  Management.  He was a
consultant  from November,  1993, to July,  1994.  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.

                                       22

<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.


                                                             High         Low
                                                           --------    --------
Fiscal Year ended September 30, 1997:
    First Quarter ......................................   $   2.63    $   0.91
    Second Quarter .....................................   $   2.00    $   1.00
    Third Quarter ......................................   $   2.25    $   1.00
    Fourth Quarter .....................................   $   2.88    $   1.56
Fiscal Year ended September 30, 1998:
    First Quarter ......................................   $   2.63    $   1.06
    Second Quarter .....................................   $   1.44    $   0.81
    Third Quarter ......................................   $   1.16    $   0.50
    Fourth Quarter .....................................   $   0.69    $   0.22
For the Three Months ended December 31, 1998: ..........   $   0.86    $   0.19


         The  Company  had 99  stockholders  of  record  as of March  23,  1999,
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

         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.

                                       23

<PAGE>


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

<CAPTION>
                                                                                                               For Three Months
                                                               Fiscal Year Ended September 30,                Ended December 31,
                                                  -------------------------------------------------------    --------------------
                                                    1994       1995        1996        1997        1998        1997        1998
                                                  --------   --------    --------    --------    --------    --------    --------
                                                                                                            (unaudited)
<S>                                               <C>        <C>         <C>         <C>         <C>         <C>         <C>     
Consolidated Statement of Operations Data:
     Net sales ................................   $ 18,034   $ 21,312    $ 21,408    $ 17,627    $ 12,617    $  4,133    $  3,363
     Gross profit .............................      9,591     11,175      10,398       6,593       6,439       2,387       1,389
     Operating income (loss) ..................      1,428    (10,792)     (1,621)     (4,657)     (3,042)         90      (3,882)
     Net income (loss) ........................        918    (10,840)       (916)     (4,490)     (2,881)        142      (3,896)
     Basic net income (loss) per share(1) .....       0.24      (2.47)      (0.14)      (0.68)      (0.43)       0.02       (0.52)
     Diluted net income (loss) per share (1) ..       0.20      (2.47)      (0.14)      (0.68)      (0.43)       0.02       (0.52)
Shares used in computing:
     Basic net income (loss) per share(1) .....      3,818      4,397       6,439       6,587       6,662       6,638       7,552
     Diluted net income (loss) per share(1) ...      4,660      4,397       6,439       6,587       6,662       7,034       7,552
</TABLE>



<TABLE>
<CAPTION>
                                                                                                           For Three Months Ended
                                                           Fiscal Year Ended September 30,                        December 31,
                                             ------------------------------------------------------------     ---------------------
                                               1994         1995         1996         1997         1998         1997         1998
                                             --------     --------     --------     --------     --------     --------     --------
                                                                                                             (unaudited)
<S>                                          <C>          <C>          <C>          <C>          <C>          <C>          <C>
Balance Sheet Data:

     Working capital (deficit) ..........    $  4,522     $ 12,220     $ 11,171     $  7,550     $  4,633     $  7,492     $ (2,661)
     Total assets .......................      10,111       19,712       17,279       11,545        8,093       12,447       17,213
     Long-term notes payable ............        --             83           24         --           --           --          1,165
     Total stockholders' equity .........    $  5,650     $ 13,679     $ 12,952     $  8,566     $  5,720     $  8,734     $  3,929

<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>


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 December 31, 1998 and as of
September 30, 1998 and 1997 and for the three months ended December 31, 1998 and
1997 and for the three fiscal  years ended  September  30,  1998,  1997 and 1996
included  elsewhere  in this  Report on Form  10-K.  In the  fourth  quarter  of
calendar  1998,  the Company  changed its fiscal year end from  September  30 to
December 31.

         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 Suppliers,"  "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.

                                       24

<PAGE>


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 editor
             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
--------------------------------------------------------------------------------


         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, as costs incurred  subsequent to the
establishment   of  technical   feasibility  for  each  product  have  not  been
significant.

                                       25

<PAGE>
Results of Operations

Three Months Ended December 31, 1998 vs. Three Months Ended December 31, 1997

<TABLE>
         The following table presents the Company's  Consolidated  Statements of
Operations (dollar amounts in thousands) for the three months ended December 31,
1998 and December 31, 1997:
<CAPTION>
                                                                           For Three      For Three
                                                                             Months         Months
                                                                             Ending         Ending         Increase (Decrease)
                                                                          December 31,   December 31,     ------------------------
                                                                              1998           1997         Amount          Percent
                                                                             -------        -------       -------         --------
                                                                                          (unaudited)
<S>                                                                          <C>            <C>           <C>              <C>
Net sales                                                                    $ 3,363        $ 4,133       $  (770)         (18.6)%
Cost of sales                                                                  1,974          1,746           228           13.1%
                                                                             -------        -------       -------         --------
Gross profit                                                                   1,389          2,387          (998)         (41.8)%
                                                                             -------        -------       -------         --------
Operating expenses:
  Research and development                                                     1,210            784           426           54.3%
  Marketing and sales                                                          1,163          1,214           (51)          (4.2)%
  General and administrative                                                     703            299           404          135.1%
  Charge for acquired in-process technology                                    2,195           --           2,195          N/A
                                                                             -------        -------       -------         --------
  Total operating expenses                                                     5,271          2,297         2,974          129.5%
                                                                             -------        -------       -------         --------
Operating income (loss)                                                       (3,882)            90        (3,972)        (4,413.3)%
Interest and other income (expense), net                                         (13)            53           (66)          (124.5)%
                                                                             -------        -------       -------         --------
Income (loss) before provision for income taxes                               (3,895)           143        (4,038)        (2,823.8)%
Provision for income taxes                                                         1              1          --             --
                                                                             -------        -------       -------         --------
Net income (loss)                                                            $(3,896)       $   142       $(4,038)        (2,823.8)%
                                                                             =======        =======       =======         =========
</TABLE>
<TABLE>
         The following table presents the Company's  Consolidated  Statements of
Operations as a percentage of net sales for the three months ended  December 31,
1998 and December 31, 1997:
<CAPTION>
                                                                                                For the      For the
                                                                                                 Three        Three
                                                                                                 Months       Months
                                                                                                 Ending       Ending
                                                                                               December 31, December 31,  Increase
                                                                                                   1998         1997      (Decrease)
                                                                                                  -----         -----        -----
                                                                                                            (unaudited)
<S>                                                                                               <C>           <C>          <C>
Net sales                                                                                         100.0%        100.0%        --
Cost of sales                                                                                      58.7%         42.2%        16.5%
                                                                                                  -----         -----        -----
  Gross margin                                                                                     41.3%         57.8%       (16.5)%
                                                                                                  -----         -----        -----
Operating expenses:
     Research and development                                                                      36.0%         19.0%        17.0%
     Marketing and sales                                                                           34.6%         29.4%         5.2%
     General and administrative                                                                    20.9%          7.2%        13.7%
     Charge for acquired in-process technology                                                     65.2%          --          65.2%
                                                                                                  -----         -----        -----
     Total operating expenses                                                                     156.7%         55.6%       101.1%
                                                                                                  -----         -----        -----
Operating income (loss)                                                                          (115.4)%         2.2%      (117.6)%
Interest and other income (loss), net                                                              (0.4)%         1.3%        (1.7)%
                                                                                                  -----         -----        -----
Income (loss) before provision for income taxes                                                  (115.8)%         3.5%      (119.3)%
Provision for income taxes                                                                         --            --           --
                                                                                                  =====         =====        =====
Net income (loss)                                                                                (115.8)%         3.5%      (119.3)%
                                                                                                  =====         =====        =====
</TABLE>
         The following is a discussion  comparing the results of operations  for
the three months ending December 31, 1998, and December 31, 1997:

         Net sales.  The  decrease in net sales  during the three  months  ended
December 31, 1998, from levels for the three months ended December 31, 1997, was
primarily due to decreased sales in the production and distribution marketplaces
partially offset by increased sales in the post production marketplace.

                                       26

<PAGE>
         International  sales in the three  months  ended  December 31, 1998 and
1997,  represented  45% and 49% of net sales,  respectively,  as export sales to
Europe  decreased,  as a percentage  of total sales,  to 17% from 31% and export
sales to the Pacific Rim increased,  as a percentage of total sales, from 16% to
21%.

         The  following  table  presents net sales dollar  volumes by market and
related  percentages  of total net sales (dollar  amounts in thousands)  for the
three months ended December 31, 1998 and 1997:


                       For the Three Months Ending   For the Three Months Ending
                            December 31, 1998              December 31, 1997
                          --------------------            --------------------
        Market            Amount       Percent            Amount       Percent
        ------            ------       -------            ------       -------
Production                $1,113         33.1%            $2,389         57.8%
Post Production            1,493         44.4%             1,040         25.2%
Distribution                 424         12.6%               631         15.3%
Other                        333          9.9%                73          1.7%
                          ------        -----              ------        -----
                          $3,363        100.0%            $4,133        100.0%
                          ======        =====              ======        =====


         Cost of sales.  Cost of sales, as a percentage of sales,  for the three
months ended  December 31,  1998,  increased  from levels for the same period in
1997 due to lower  overall  sales,  the absence in 1998 of higher  margin  ELSET
software sales,  and added overhead created by the acquisition of Scitex Digital
Video in December, 1998.

         Research and  development.  The  increase in research  and  development
expenses in the three months ended  December 31, 1998,  from levels for the same
period in 1997 was due to increases in headcount  resulting from the acquisition
of Scitex Digital Video,  increased material and consulting expenses relating to
specific   development   projects,   and  expenses   relating  to  consolidating
facilities.

         Marketing and sales.  The decrease in marketing  and sales  expenses in
the three  months ended  December  31, 1998,  from levels for the same period in
1997 was due primarily to decreases in sales commissions and trade show expenses
partially  offset by increases in headcount  resulting  from the  acquisition of
Scitex Digital Video and the consolidation of facilities.

         General and administrative.  The increase in general and administrative
expenses in the three months ended  December 31, 1998,  from levels for the same
period in 1997 was due primarily to increases in travel  expenses,  professional
fees, bad debt expense,  amortization of goodwill,  and  facilities costs.

         Interest  and other  income,  net.  The  decrease in interest and other
income, net, during the three months ended December 31, 1998, as compared to the
three months ended  December 31, 1997,  was primarily  due to reduced  levels of
interest-paying  investments as well as an increase in debt taken on to fund the
acquisition of the SDV assets and business.

         Provision  for income  taxes.  In the three months  ended  December 31,
1998,  the  provision  for income  taxes  represents  an estimate of the current
foreign tax liability.  No benefit  related to U.S. losses incurred in the three
months ended  December 31, 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 the three months ended December 31, 1997, the provision for income
taxes represented an estimate of the foreign tax liability. No provision related
to U.S.  income in the three months ended December 31, 1997 had been  recognized
by the Company due to the expected loss for the fiscal year ended  Setpember 30,
1997.

                                       27

<PAGE>
Twelve months ended  September  30, 1998 vs.  Twelve months ended  September 30,
1997


<TABLE>
         The following table presents the Company's  Consolidated  Statements of
Operations  for the twelve  months  ended  September  30, 1998 and 1997  (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 profit                                                           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:  In the twelve months ended  September 30, 1997,  charges of $4.0
million  pretax were incurred to  streamline  operations  and provide  valuation
reserves against inventories, receivables and fixed assets.

         The following table presents the Company's  Consolidated  Statements of
Operations as a percentage  of net sales for the twelve  months ended  September
30, 1998 and 1997:

                                                                       Increase
                                                   1998        1997   (Decrease)
                                                  -----       -----   ----------
Net sales                                         100.0%      100.0%       0.0%
Cost of sales                                      49.0%       62.6%     (13.6)%
                                                  -----       -----       ----
  Gross profit                                     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%
                                                  =====       =====       ====


         Note:  In the twelve months ended  September 30, 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
the twelve months ended September 30, 1998 and 1997:

         Net sales.  The  decrease in net sales  during the twelve  months ended
September 30, 1998, from levels for the same period in 1997 was primarily due to
decreased sales in the video post  production,  video  broadcasting and computer
graphics production marketplaces.

                                       28

<PAGE>


         International  sales in the twelve months ended  September 30, 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%.

         The  following  table  presents net sales dollar  volumes by market and
related  percentages  of total net sales (dollar  amounts in thousands)  for the
twelve months ended September 30, 1998 and 1997:


                                         1998                        1997
                                 --------------------       --------------------
        Market                   Amount       Percent       Amount       Percent
        ------                   ------       -------       ------       -------
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%
                                 =======       =====       =======       ======


         Cost of sales.  Cost of sales in the twelve months ended  September 30,
1998,  decreased from levels for the same period in 1997 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  levels  for the  twelve  months  ended  September  30,  1997 was
primarily a result of decreases in headcount, bonuses earned, and depreciation.

         Marketing and sales.  The decrease in marketing and sales expenses from
levels for the twelve  months  ended  September  30,  1997,  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 levels for the twelve months ended  September 30, 1997, 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 the twelve months ended  September 30, 1998, was primarily
due to reduced levels of debt.

         Provision for income taxes.  For the twelve months ended  September 30,
1998,  the  provision  for income  taxes  represents  an estimate of the current
foreign  tax  liability.  No benefit  related to U.S.  losses  incurred in those
twelve  months  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.  For
the twelve  months ended  September  30,  1997,  no further net  operating  loss
carrybacks  were  available  and  the  Company  was  in  a  net  operating  loss
carryforward position.

         Net  loss.  As a  result  of the  factors  noted  above,  the net  loss
decreased in the twelve months ended  September  30, 1998,  from the net loss in
the twelve months ended September 30, 1997.

                                       29

<PAGE>
Twelve months ended  September  30, 1997 vs.  Twelve months ended  September 30,
1996

<TABLE>
         The following table presents the Company's  Consolidated  Statements of
Operations  (dollar amounts in thousands,  except per share data) for the twelve
months ended September 30, 1997 and 1996:
<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 profit                                                                 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 the twelve months ended  September 30, 1997,  charges of $4.0
million  pretax were incurred to  streamline  operations  and provide  valuation
reserves against inventories, receivables and fixed assets. In the twelve months
ended   September  30,  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  Consolidated  Statements of
Operations as a percentage  of net sales for the twelve  months ended  September
30, 1997 and 1996:
<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 profit                                                                          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 the twelve months ended  September 30, 1997,  charges of $4.0
million  pretax were incurred to  streamline  operations  and provide  valuation
reserves against inventories, receivables and fixed assets. In the twelve months
ended   September  30,  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.

                                       30

<PAGE>


         The following is a discussion  comparing the results of operations  for
the twelve months ended September 30, 1997 and 1996:

         Net sales.  The  decrease in net sales  during the twelve  months ended
September  30, 1997 from levels for the same period in 1996 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 the twelve months ended  September 30, 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%.

         The  following  table  presents net sales dollar  volumes by market and
related  percentages  of total net sales (dollar  amounts in thousands)  for the
twelve months ended September 30, 1997 and 1996:

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


         Cost of sales.  Cost of sales,  as a percentage of sales,  increased in
the twelve months ended  September 30, 1997,  over levels for the same period in
1996  due to the  special  charge  incurred  in 1997  for  increasing  inventory
reserves.

         Research and  development.  The  decrease in research  and  development
expenses for the twelve months ended  September 30, 1997, was primarily a result
of decreases in headcount  and related  overhead  expenses  after the  Company's
streamlining of operations.

         Marketing and sales.  The decrease in marketing and sales  expenses for
the twelve months ended  September  30, 1997,  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 the
twelve  months  ended  September  30, 1997,  increased  over levels for the same
period  in 1996 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 the twelve months ended September 30, 1997, was primarily due
to reduced average interest bearing cash and cash equivalent balances.

         Provision for (benefit from) income taxes.  For the twelve months ended
September  30,  1997,  the benefit  from income  taxes was due to the  Company's
ability to carry back federal and state net operating  losses to prior  periods.
For the twelve months ended  September  30, 1997, no further net operating  loss
carrybacks  were  available  and  the  Company  was  in  a  net  operating  loss
carryforward position.

                                       31

<PAGE>


         Net  loss.  As a  result  of the  factors  noted  above,  the net  loss
increased in the twelve  months ended  September  30, 1997,  from levels for the
same period in 1996.

Liquidity and Capital Resources

         Since   inception,   the  Company  has  financed  its   operations  and
expenditures  for property and equipment  through the issuance 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 December  31, 1998,  the Company had $1.1  million of  restricted
cash.  Operating  activities  provided  $376,000 in net cash in the three months
ended December 31, 1998,  and provided  $655,000 in net cash in the three months
ended December 31, 1997. Net cash provided by operating  activities in the three
months  ended  December  31,  1998,  was due  primarily to decreases in accounts
receivable and inventories partially offset by the net loss. Additional net cash
was used in investing  activities  for the  acquisition  of Scitex Digital Video
while  additional net cash was provided in financing  activities  resulting from
increases in notes payable and an increase in common stock. Net cash provided by
operating  activities  in the three  months ended  December  31,  1997,  was due
primarily to income tax refunds and  increases  in accounts  payable and accrued
liabilities   partially   offset  by  increases  in  accounts   receivable   and
inventories.  In  addition,  net cash was used in investing  activities  for the
acquisition of property and equipment.

         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  agreement  was amended on March 11,  1999.  The
credit line is secured by all the assets of the Company.  The availability under
this line is primarily  calculated  based on eligible  accounts  receivable  and
inventory.  Borrowings under the line are subject to certain financial covenants
and,  as of  December  31,  1998,  the  Company  was in  compliance  with  these
covenants.  As of December  31,  1998,  the Company had an  outstanding  balance
borrowed under the line of $3.9 million.

         On March 12, 1999,  the Company  completed a private  placement of $3.5
million in senior subordinated  convertible notes with a group of investors. The
notes have a coupon  rate of 6% per year,  mature in 2004,  and are  convertible
into shares of Accom common stock at a price of $1.30 per share.  Proceeds  from
the private placement were used to partially repay the revolving line of credit.

         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

         Interest Rate Risk.

         The  Company's  exposure  to interest  risk  relates  primarily  to the
Company's short and long-term debt.

         The interest  rate on certain of the  Company's  debt is tied to market
interest  rates which  fluctuate with market  changes.  The interest rate on the
revolving loan with LaSalle  Business Credit is equal to the Prime Rate plus 125
basis points.  The interest  rate on a $750,000  note payable to Scitex  Digital
Video is equal to the Merrill

                                       32

<PAGE>


Lynch Money  Market Rate.  As the Prime Rate or Merrill  Lynch Money Market Rate
fluctuate,  the interest expense  incurred by the Company on the  aforementioned
debt will  fluctuate.  If the Prime Rate and the Merrill Lynch Money Market Rate
both increased by 100 basis points,  the  additional,  annual  interest  expense
incurred by the Company would be $48,000 (based on debt balances at December 31,
1998).

         The Company does not currently hold interest bearing  investments which
would be affected by interest rate fluctuations.


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 Transition Period 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
Transition Period 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  Transition  Period 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 Transition Period 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 Transition Period 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 Transition Period covered by this Form 10-K.

                                       33

<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  Sheets as  of  December  31,  1998  and
                  September 30, 1998 and 1997.

                  Consolidated  Statements  of Operations - For the three months
                  ended  December  31,  1998 and 1997 and for the  Fiscal  Years
                  ended September 30, 1998, 1997 and 1996.

                  Consolidated Statement of Shareholders' Equity - For the three
                  months ended  December 31, 1998 and for the Fiscal Years ended
                  September 30, 1998, 1997 and 1996.

                  Consolidated  Statements  of Cash Flows - For the three months
                  ended  December  31,  1998 and 1997 and 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.

         (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.

                                       34

<PAGE>


  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.
  4.5(6)           Amendment No. 3 to Preferred Shares Right Agreement, dated as
                   of March 12, 1999 between the Company and U.S. Stock Transfer
                   Corporation.
 10.1(7)           Lease  Extension  dated October 25, 1996 by and between Menlo
                   Business Park and Partician Associates, Inc. and the Company.
 10.2(8)           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(9)           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(10)          Loan and Security Agreement, dated December 10, 1998, between
                   the Company and LaSalle Business Credit, Inc.
 10.5.1(11)        First Amendment to Loan and Security  Agreement,  dated March
                   11, 1999,  between the Company and LaSalle  Business  Credit,
                   Inc.
 10.6(12)          Restricted   Stock   Purchase   Agreement  and   Non-Recourse
                   Promissory Note, each dated December 4, 1998, between Phillip
                   Bennett and the Company.
 10.7(12)          Restricted   Stock   Purchase   Agreement  and   Non-Recourse
                   Promissory Note, each dated December 7, 1998,  between Lionel
                   M. Allan and the Company.
 10.8(12)          Restricted  Stock  Purchase,  dated  December 7, 1998,  among
                   David A.  Lahar,  EOS  Capital  Profit  Sharing  Plan and the
                   Company;  Non-Recourse  Promissory  Note,  EOS Capital Profit
                   Sharing Plan of David A. Lahar in favor of the Company.
 10.9(12)          Stock Purchase  Agreement,  dated December 10, 1998,  between
                   Michael Luckwell and the Company.
 10.10(12)         Investor's Rights Agreement, dated December 10, 1998, between
                   Michael Luckwell and the Company.
 10.11(11)         Note Purchase  Agreement,  dated as of March 12, 1999,  among
                   the  Company,  American  Bankers  Insurance  Group,  Inc. and
                   certain other parties.
 10.12(11)         Form of 6% Senior Subordinated Convertible Notes due 2004.
 10.13(11)         Investor Rights Agreement,  dated as of March 12, 1999, among
                   the  Company,  American  Bankers  Insurance  Group,  Inc. and
                   certain other parties.
 21.1              Subsidiaries of the Company
 23.1              Consent of Ernst & Young LLP, Independent Auditors.
 24.1              Power  of  Attorney  (reference  is  made  to page 38 of this
                   Report).
 27.1              Financial Data Schedule.

                                       35

<PAGE>


 (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.
 (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
         Amendment  No. 2 to  Registration  Statement  on Form  8-A/A  (File No.
         0-26620), filed on March 26, 1999.
 (7)     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).
 (8)     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.
 (9)     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
(10)     Incorporated  by  reference  from an exhibit  filed with the  Company's
         Annual Report on Form 10-K for the fiscal year ended September 30, 1998
         (File No. 0-26620).
(11)     Incorporated  by  reference  from an exhibit  filed with the  Company's
         Current Report on Form 8-K (File No. 0-26620), filed on March 26, 1999.
(12)     Incorporated by reference from an exhibit filed with Amendment No. 1 to
         the  Company's  Annual  Report on Form 10-K/A for the fiscal year ended
         September 30, 1998, filed on January 28, 1999 (File No. 0-26620).
*        Management Compensatory Plan


(b)      Reports on Form 8-K

         On December 23, 1998, the Company filed a Current Report on Form 8-K to
report the Company's  acquisition of the assets of Scitex  Digital  Video,  Inc.
("Scitex")  and  certain of  Scitex's  affiliates  as well as the details of the
financing the Company  obtained  related to such  acquisition,  including a loan
agreement  and a sale of common  stock.  The  Company  did not file the  audited
historical  financial  statements  of the  acquired  business  and the pro forma
financial  statements  of the  combined  businesses  required  to be filed as an
amendment  to the Form 8-K  within 60 days  after the  original  filing due date
because  the audited  financial  statements  for SDV did not exist.  The Company
currently  is in the process of  arranging  for the  preparation  of the audited
financials of SDV and will file the financial  statements  required by such Form
8-K as soon as practicable after the audit is complete.

         On March 12, 1999, the Company issued Senior  Subordinated  Convertible
Notes in the aggregate  principal  amount of $3,500,000 (the "Notes") to a group
of six investors led by American Bankers  Insurance Group, Inc. The Notes mature
on March  12,  2004  and bear  interest  at the  rate of 6% per  annum,  payable
quarterly  beginning  on June 30, 1999.  The Company used the proceeds  from the
issuance  of the  Notes  for  the  repayment  of  indebtedness.  The  Notes  are
convertible  into shares of the Company's common stock at any time at the option
of the  holders.  The  number  of  shares of the  Company's  common  stock to be
received upon  conversion is  calculated by dividing the  outstanding  principal
amount  of the  Notes  by a  conversion  price  of  $1.30,  subject  to  certain
adjustments.

                                       36

<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 14th day of April, 1999.


                                                 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,            April 14, 1999
             -----------------               President and Chief Executive Officer
              (Junaid Sheikh)                (Principal Executive Officer)

          /s/ DONALD K. MCCAULEY             Senior Vice President and Chief                April 14, 1999
          ----------------------             Financial Officer (Principal Financial
           (Donald K. McCauley)              and Accounting Officer)

            /s/ LIONEL M. ALLAN              Director                                       April 14, 1999
            -------------------
             (Lionel M. Allan)

                                             Director                                       April 14, 1999
           ---------------------
            (Thomas E. Fanella)

            /s/ DAVID A. LAHAR               Director                                       April 14, 1999
            ------------------
             (David A. Lahar)

                                             Director                                       April 14, 1999
        --------------------------
         (Eugene M. Matalene, Jr.)
</TABLE>

                                                    37

<PAGE>


<TABLE>
                                                             SCHEDULE II


                                                             ACCOM, INC.

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

<CAPTION>
                                                                Balance at      Charges to
                                                              Beginning of        Cost and                           Balance at
                                                                  Period          Expenses         Deductions**     End of 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
Three Months ended December 31, 1998 ..........................      237               29              --                266

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

                                                                 38
<PAGE>



                                   Accom, Inc.
                        Consolidated Financial Statements
                           As of December 31, 1998 and
                           September 30, 1998 and 1997
                                       And
                     For the three months ended December 31,
                  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 December 31, 1998 and
                           September 30, 1998 and 1997
                                       And
                     For the three months ended December 31,
                  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-2

Consolidated Financial Statements:

         Consolidated Balance Sheets ...................................... F-3

         Consolidated Statements of Operations ............................ F-4

         Consolidated Statement of Stockholders' Equity ................... F-5

         Consolidated Statements of Cash Flows ............................ F-6

         Notes to Consolidated Financial Statements ....................... F-8

                                      F-1

<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  December  31,  1998 and  September  30,  1998 and 1997,  and the  related
consolidated  statements of operations,  stockholders' equity and cash flows for
the three months ended  December 31, 1998 and 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  December  31,  1998  and  September  30,  1998  and  1997,  and the
consolidated  results of its  operations and its cash flows for the three months
ended  December  31, 1998 and 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
February 23, 1999,  except for Notes 3 and 12, 
as to which the date is April 14, 1999.

                                      F-2

<PAGE>


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

<CAPTION>
                                                                                              As of           As of September 30,
                                                                                           December 31,     -----------------------
                                                                                              1998            1998           1997
                                                                                             --------       --------       --------
<S>                                                                                          <C>            <C>            <C>
                                     Assets
Current assets:
   Cash and cash equivalents                                                                 $   --         $  3,231       $  5,317
   Accounts receivable, net of allowance for doubtful accounts of
     $266 as of December 31, 1998 and $237 and $401 as of
     September 30, 1998 and 1997, respectively                                                  3,578          1,903          3,123
   Inventories                                                                                  5,345          1,527            980
   Income tax refunds receivable                                                                 --             --              621
   Prepaid expenses and other current assets                                                      535            345            488
                                                                                             --------       --------       --------
         Total current assets                                                                   9,458          7,006         10,529
Property and equipment, net                                                                     3,299          1,038            967
Intangibles assets                                                                              3,247           --             --
Restricted cash                                                                                 1,132           --             --
Other assets                                                                                       77             49             49
                                                                                             --------       --------       --------
                                                                                             $ 17,213       $  8,093       $ 11,545
                                                                                             ========       ========       ========

           Liabilities and Stockholders' Equity
   Current liabilities:
   Bank borrowings-line of credit                                                            $  3,916       $   --         $   --
   Current portion of notes payable                                                               900           --               24
   Accounts payable                                                                             2,108          1,276          1,476
   Accrued liabilities                                                                          3,823            973          1,313
   Customer Deposits                                                                            1,285             37             25
   Deferred revenue                                                                                87             87            141
                                                                                             --------       --------       --------
         Total current liabilities                                                             12,119          2,373          2,979
Long-term portion of notes payable                                                              1,165           --             --

Commitments

Stockholders' equity:
   Preferred stock, $0.001 par value; 2,000 shares authorized;  no shares issued
     and outstanding                                                                             --             --             --
   Common stock, $0.001 par value, at amount paid in; 20,233
     shares  authorized as of December 31, 1998 and September 30, 1998 and 1997;
     10,121 shares issued and  outstanding as of December 31, 1998 and 6,671 and
     6,627 shares  issued and  outstanding  as of  September  30, 1998 and 1997,
     respectively
                                                                                               24,197         21,462         21,427
    Notes receivable from stockholders                                                           (630)          --             --
   Accumulated deficit                                                                        (19,638)       (15,742)       (12,861)
                                                                                             --------       --------       --------
     Total stockholders' equity                                                                 3,929          5,720          8,566
                                                                                             --------       --------       --------
                                                                                             $ 17,213       $  8,093       $ 11,545
                                                                                             ========       ========       ========

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

                                                                F-3

<PAGE>


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

<CAPTION>
                                                             Three Months Ended
                                                                  December 31,                Fiscal Years Ended September 30,
                                                            ------------------------       ----------------------------------------
                                                              1998            1997           1998            1997           1996
                                                            --------        --------       --------        --------        --------
                                                                          (Unaudited)
<S>                                                         <C>             <C>            <C>             <C>             <C>
Sales                                                       $  3,363        $  4,133       $ 12,617        $ 17,627        $ 21,408

Cost of sales                                                  1,974           1,746          6,178          11,034          11,010
                                                            --------        --------       --------        --------        --------

  Gross profit                                                 1,389           2,387          6,439           6,593          10,398
                                                            --------        --------       --------        --------        --------

Operating expenses:
  Research and development                                     1,210             784          3,295           3,344           3,926
  Marketing and sales                                          1,163           1,214          4,967           5,981           7,356
  General and administrative                                     703             299          1,219           1,925           1,487
  Charge (credit) for acquired in-process
     technology                                                2,195            --             --              --              (750)
                                                            --------        --------       --------        --------        --------

  Total operating expenses                                     5,271           2,297          9,481          11,250          12,019
                                                            --------        --------       --------        --------        --------

Operating income (loss)                                       (3,882)             90         (3,042)         (4,657)         (1,621)

  Interest and other income, net                                 (13)             53            180             176             209
                                                            --------        --------       --------        --------        --------

Income (loss) before provision for
  (benefit from) income taxes                                 (3,895)            143         (2,862)         (4,481)         (1,412)

Provision for (benefit from) income taxes                          1               1             19               9            (496)
                                                            --------        --------       --------        --------        --------

Net income (loss)                                           $ (3,896)            142       $ (2,881)       $ (4,490)       $   (916)
                                                            ========        ========       ========        ========        ========

Basic  net income (loss) per share                          $  (0.52)       $   0.02       $  (0.43)       $  (0.68)       $  (0.14)
                                                            ========        ========       ========        ========        ========
Diluted net income (loss) per share                         $  (0.52)       $   0.02       $  (0.43)       $  (0.68)       $  (0.14)
                                                            ========        ========       ========        ========        ========

Shares used in computing basic net  income
  (loss) per share                                             7,552           6,638          6,662           6,587           6,439
                                                            ========        ========       ========        ========        ========
Shares used in computing diluted net
  income (loss) per share                                      7,552           7,034          6,662           6,587           6,439
                                                            ========        ========       ========        ========        ========

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

                                                                F-4

<PAGE>


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

<CAPTION>
                                                                                          Notes                             Total
                                                             Common Stock               Receivable                          Stock-
                                                       -------------------------           From          Accumulated       Holders'
                                                        Shares           Amount        Stockholders        Deficit          Equity
                                                       --------         --------       ------------       --------         --------
<S>                                                       <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 and comprehensive
     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 and comprehensive
     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 and comprehensive
     loss                                                  --               --               --             (2,881)          (2,881)
                                                       --------         --------         --------         --------         --------
Balances, September 30, 1998                              6,671           21,462             --            (15,742)           5,720
  Issuance of common stock
     through private sales
     for cash and notes receivable                        3,450            2,180             (630)            --              1,550
  Issuance of warrants for
     common stock                                          --                555             --               --                555
  Net loss and comprehensive
     loss                                                  --               --                              (3,896)          (3,896)
                                                       --------         --------         --------         --------         --------
Balances, December 31, 1998                              10,121         $ 24,197         $   (630)        $(19,638)        $  3,929
                                                       ========         ========         ========         ========         ========

<FN>
                       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
                                                           (in thousands)

<CAPTION>
                                                                           Three Months               Fiscal Years Ended
                                                                         Ended December 31,                September 30,
                                                                        --------------------      ---------------------------------
                                                                          1998        1997         1998         1997         1996
                                                                        -------      -------      -------      -------      -------
                                                                                   (Unaudited)
<S>                                                                     <C>          <C>          <C>          <C>          <C>
                      Cash Flows From Operating Activities
Net income (loss)                                                       $(3,896)     $   142      $(2,881)     $(4,490)     $  (916)
Adjustments to reconcile net income (loss) to net cash provided by
     (used in) operating activities:
   Charge for acquired in-process technology                              2,195         --           --           --           (750)
   Depreciation and amortization                                            275          118          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                                                    950         (325)       1,219       (1,300)        (595)
     Inventories                                                            799         (309)        (547)       1,967         (711)
     Income tax refunds receivable                                         --            378          621         (426)        (145)
     Prepaid expenses and other current assets                               36          (97)         144          410         (357)
     Accounts payable                                                      (114)         570         (200)        (766)         303
     Accrued liabilities and customer deposits                              131          187         (327)        (611)      (1,524)
     Deferred revenue                                                      --             (9)         (54)        (387)         192
                                                                        -------      -------      -------      -------      -------
   Net cash provided by (used in) operating activities                      376          655       (1,475)       1,520       (3,743)
                                                                        -------      -------      -------      -------      -------

             Cash Flows From Investing Activities
Expenditures for property and equipment                                     (48)        (344)        (622)        (563)        (847)
Acquisition of Scitex Digital Video business                             (7,893)        --           --           --           --
Increase (decrease) in other assets                                        --           --           --             93          (88)
                                                                        -------      -------      -------      -------      -------
       Net cash used in investing activities                             (7,941)        (344)        (622)        (470)        (935)
                                                                        -------      -------      -------      -------      -------

             Cash Flows from Financing Activities
Borrowings and payments on line of credit, net                            3,916         --           --           --           --
Repayments on notes payable                                                --            (14)         (24)         (58)         (59)
Issuance of common stock                                                  1,550           26           39          104          189
Repurchase of common stock                                                 --           --             (4)        --           --
Restricted cash                                                          (1,132)        --           --           --           -- 
                                                                        -------      -------      -------      -------      -------
       Net cash provided by financing activities                          4,334           12           11           46          130
                                                                        -------      -------      -------      -------      -------

Net increase (decrease) in cash and cash equivalents                     (3,231)         323       (2,086)      (1,096)      (4,548)
Cash and cash equivalents at beginning of the period                      3,231        5,317        5,317        4,221        8,769
                                                                        -------      -------      -------      -------      -------
       Cash and cash equivalents at end of the period                   $  --        $ 5,640      $ 3,231      $ 5,317      $ 4,221
                                                                        =======      =======      =======      =======      =======


                                                             -Continued-

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

                                                                F-6

<PAGE>


<TABLE>
                                                             Accom, Inc.
                                          Consolidated Statements of Cash Flows (Continued)
                                                           (in thousands)

<CAPTION>
                                                                       Three Months Ended             Fiscal Years Ended
                                                                             December 31,                   September 30,
                                                                        --------------------       --------------------------------
                                                                         1998          1997         1998         1997         1996
                                                                        -------       ------       ------       -------       -----
                                                                                    (Unaudited)
                      Supplemental Disclosure of Cash Flow
                                   Information
<S>                                                                     <C>           <C>          <C>          <C>           <C>
Interest paid                                                           $    22       $    1       $    1       $     6       $  11
                                                                        =======       ======       ======       =======       =====

Income taxes paid                                                       $     1       $    1       $   17       $     2       $   2
                                                                        =======       ======       ======       =======       =====

Noncash investing and financing activities:
  Accrued acquisition costs                                             $  --           --           --            --         $(354)
                                                                        =======       ======       ======       =======       =====
  Accrued initial public offering costs                                    --           --           --            --         $(819)
                                                                        =======       ======       ======       =======       =====
  Issuance of common stock in exchange for notes
     receivable                                                         $   630         --           --            --          --
                                                                        =======       ======       ======       =======       =====
  Issuance of warrants as partial consideration for
     acquisition of Scitex Digital Video business                       $   555         --           --            --          --
                                                                        =======       ======       ======       =======       =====
  Issuance of notes payable as partial consideration
     for Scitex Digital Video business                                  $ 2,065         --           --            --          --
                                                                        =======       ======       ======       =======       =====
<FN>
                       The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>

                                                                F-7

<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.

In conjunction  with the acquisition of Scitex Digital Video,  Inc. ("SDV") (see
Note 3), the Company  changed its fiscal year end from  September 30 to December
31. SDV had operated using a fiscal year ending December 31.

The Company  incurred a net loss of $3.9  million loss in the three months ended
December 31, 1998.  The Company also incurred a net loss of $2.9  million,  $4.5
million,  and $916,000 in the twelve months ended September 30, 1998,  1997, and
1996,  respectively.  There  can  be no  assurance  that  the  Company  will  be
profitable  on a quarterly or annual basis in the future.  Management  believes,
based on its current  operating plan, and after  considering the acquisition and
financing  executed in  December  1998 (see note 3) and a private  placement  of
securities  completed  in March 1999 (see note 12),  that the Company  will have
sufficient  financial  resources to continue its operations through December 31,
1999. In the event that the Company's  results from its operations do not attain
management's  plans,  management  will  adjust the  operating  plan and delay or
reduce the Company's  expenditures  and the scope of its operations so as not to
require additional cash resources.

One  customer  accounted  for 14%,  16% and 13% of net sales in the three months
ended December 31, 1998,  and in the twelve months ended  September 30, 1998 and
1997,  respectively.  No customers accounted for 10% or more of net sales in the
twelve  months ended  September  30,  1996.  Export sales for three months ended
December 31, 1998 and for the twelve months ended September 30, 1998,  1997, and
1996, were approximately 45%, 45%, 42%, and 38%,  respectively.  Export sales to
Europe and the  Pacific  Rim as a  percentage  of total  sales were 17% and 21%,
respectively  for the  three  months  ended  December  31,  1998,  19% and  22%,
respectively  for the twelve  months  ended  September  30,  1998,  10% and 27%,
respectively,  for the twelve months ended  September 30, 1997, and 14% and 19%,
respectively, for the twelve months ended September 30, 1996.


2.  Summary of Significant Accounting Policies

Reclassifications

Certain amounts in the prior years' financial  statements have been reclassified
to conform with the presentation for the three months ended December 31, 1998.

                                      F-8

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies (continued)

Basis of Consolidation

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

Cash and Cash Equivalents

Cash equivalents  consist of financial  instruments having maturities of 90 days
or less at the time of acquisition  that are readily  convertible  into cash and
have  insignificant  interest  rate  risk.  

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.  In the ordinary  course of business,  the Company may be
liable to purchase from such suppliers  certain  inventories in excess of normal
operating requirements.

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.

Financial  instruments:  Financial  instruments,  which potentially  subject the
Company to  concentrations  of credit  risk,  consist of cash  investments,  and
accounts  receivable.  Other financial  instruments include short term borrowing
under a bank line of credit.  The carrying amount of such financial  instruments
represent their fair value. The Company's cash investments  generally consist of
money market  funds.  All cash  balances are pledged under the short term credit
line with  LaSalle  Business  Credit (See Note 7) and are subject to  withdrawal
restrictions.

                                      F-9

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies (continued)

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."  Based on the  Company's  product  development
process,  technological  feasibility  is  established  upon the  completion of a
working  model.  Costs  incurred by the Company  between the  completion  of the
working  model and the point at which the product is ready for  general  release
have been insignificant.  Therefore,  through December 31, 1998, the Company has
charged  all such  costs to  research  and  development  expense  in the  period
incurred.

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.

The Company periodically evaluates the carrying value of long-lived assets to be
held and used when events and circumstances indicate that the carrying amount of
an asset may not be recovered.  Recoverability  of assets to be held and used is
measured by a comparison  of the carrying  amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets.  Assets to be
disposed of are reported at the lower of the carrying  amount or fair value less
disposal costs.

Revenue Recognition

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

                                      F-10

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies (continued)

Certain  of the  Company's  products  include a  significant  software  portion.
Software  revenues  are  recognized  when  persuasive  evidence of an  agreement
exists,  delivery of the product has occurred,  no significant  obligations with
regard  to  implementation  remain,  the  fee  is  fixed  or  determinable,  and
collection is probable.  Services software  revenues,  primarily  warranty,  are
deferred and recognized on a  straight-line  basis as services  revenue over the
life of the related agreement, which is typically one year. Effective October 1,
1998, the Company adopted Statement of Position ("SOP") 97-2,  "Software Revenue
Recognition"  ("SOP 97-2"),  and SOP 98-4,  "Deferral of the Effective Date of a
Provision of SOP 97-2, Software Revenue  Recognition" ("SOP 98-4"). SOP 97-2 and
SOP 98-4 provide guidance for recognizing  revenue on software  transactions and
superseded  SOP  91-1.  The  adoption  of SOP  97-2  and SOP 98-4 did not have a
material impact on the Company's financial results.

In December, 1998, the American Institute of Certified Public Accountants issued
SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition,  With Respect
to Certain  Transactions"  ("SOP 98-9").  SOP 98-9 amends SOP 98-4 to extend the
deferral of the application of certain passages of SOP 97-2 provided by SOP 98-4
through fiscal years beginning on or before March 15, 1999. All other provisions
of SOP  98-9  are  effective  for  transactions  entered  into in  fiscal  years
beginning after March 15, 1999. The Company has not yet determined the effect of
the  final  adoption  of SOP  98-9 on its  financial  condition  or  results  of
operations.

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.

Intangible Assets

Intangible  assets  were  acquired  in  the  acquisition  of the  SDV  business.
Intangibles  are being  amortized  on a straight  line basis.  The Company  will
regularly  perform  reviews to determine if the carrying value of the assets  is

                                      F-11

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

2.  Summary of Significant Accounting Policies (continued)

impaired.  The reviews look for the existence of facts or circumstances,  either
internal or external,  which  indicate the carrying value of the asset cannot be
recovered. No such impairment has been indicated to date. If there is impairment
in the  future,  the  Company  will  measure  the  amount  of the loss  based on
undiscounted  expected future cash flows from the impaired assets. The cash flow
calculations  would be based on management's  best estimates,  using appropriate
assumptions  and  projections  at the time.  Intangible  assets  consist  of the
following:

                                                    Estimated
                                                      Useful        December 31,
                                                       Life             1998
                                                       ----             ----
                                                    (In years)    (In thousands)

               Core Technology                          8        $         869
               Developed technology                     5                1,732
               Other intangibles                      3-15                 692
                                                                    -----------
                                                                         3,293
               Less: Accumulated amortization                               46
                                                                    -----------
                                                                 $       3,247
                                                                    ===========


Acquired In-Process Technology

In-process  technology  acquired  in an  acquisition  accounted  for  under  the
purchase method was 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.

Net Income (Loss) Per Share

Basic and diluted  net income  (loss) per share have been  calculated  using the
weighted average common shares outstanding during the periods in accordance with
Statements of Financial Accounting Standard No. 128 ("SFAS 128"),  "Earnings Per
Share," issued by

                                      F-12

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies (continued)

the  Financial  Accounting  Standards  Board  and the  Securities  and  Exchange
Commission Staff Accounting Bulletin No. 98 ("SAB 98").

The total number of shares related to outstanding  options and warrants excluded
from the  calculations  of diluted  net loss per share were 12,000 for the three
months ended December 31, 1998 and 77,000,  268,000,  and 351,000 for the fiscal
years ended September 30, 1998, 1997, and 1996, respectively.

<TABLE>
The following  table sets forth the  computation of basic and diluted net income
(loss) (in thousands, except for per share amounts):

<CAPTION>
                                                           For the        For the
                                                        Three Months   Three Months    Fiscal Year     Fiscal Year     Fiscal Year
                                                            Ended          Ended          Ended           Ended           Ended
                                                         December 31    December 31,   September 30,  September 30,    September 30,
                                                            1998            1997           1998            1997            1996
                                                           -------         -------        -------         -------         -------
<S>                                                        <C>             <C>            <C>             <C>             <C>     
Net income (loss) ...................................      $(3,896)        $   142        $(2,881)        $(4,490)        $  (916)
                                                           =======         =======        =======         =======         ======= 
Shares used in computing basic
net income (loss) per share .........................        7,552           6,638          6,662           6,587           6,439
                                                           =======         =======        =======         =======         ======= 
Basic net income (loss) per share ...................      $ (0.52)        $  0.02        $ (0.43)        $ (0.68)        $ (0.14)
                                                           =======         =======        =======         =======         ======= 
Calculation of shares outstanding
for computing diluted net income
(loss) per share:

  Shares used in computing basic
  net income (loss) per share .......................        7,552           6,638          6,662           6,587           6,439

  Shares used to reflect the
  effect of the assumed
  conversion of:

       Employee stock options .......................         --               396           --              --              --
                                                           -------         -------        -------         -------         ------- 
Shares used in computing
fully-diluted net income (loss)
per share ...........................................        7,552           7,034          6,662           6,587           6,439
                                                           =======         =======        =======         =======         ======= 
Diluted net income (loss) per share .................      $ (0.52)        $  0.02        $ (0.43)        $ (0.68)        $ (0.14)
                                                           =======         =======        =======         =======         =======
</TABLE>


Comprehensive Income

Effective  October  1,  1998,  the  Company  adopted  SFAS No.  130,  "Reporting
Comprehensive  Income." There are no material  components of other comprehensive
income (loss) and,  accordingly,  the comprehensive income (loss) is the same as
net income (loss) for all periods presented.

Segment Information

Effective  October  1,  1998,  the  Company  became  subject  to SFAS  No.  131,
"Disclosures  about  Segments of an Enterprise and Related  Information,"  which
establishes  standards  for the way  that  public  business  enterprises  report
information about operating segments in annual financial statements and requires
that those  enterprises  report  selected

                                      F-13

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Polices (continued)

information  about operating  segments interim financial  reports.  SFAS No. 131
also establishes  standards for related disclosures about products and services,
geographic areas, and major customers.
<TABLE>
Management  has  organized  the business in four market  sub-segments  under one
industry   segment   which   includes   activities   relating  to   development,
manufacturing  and marketing of digital  video  equipment.  The chief  operating
decision maker relies primarily on revenue to assess market segment performance.
The following table presents revenues by market.
<CAPTION>
                             For the Three Months Ending      For the Years Ending
                             ---------------------------      --------------------
                                    December 31,                  September 30,         
                                   --------------                 -------------         
       Market                      1998      1997         1998        1997     1998
       ------                      ----      ----         ----        ----     ----
                                         (unaudited)
<S>                             <C>       <C>          <C>         <C>       <C> 
     Production                 $ 1,113   $ 2,389      $ 6,551     $ 8,259   $ 7,806
     Post Production              1,493     1,040        3,593       6,534    11,608
     Distribution                   424       631        1,847       2,408     1,681
     Other                          333        73          626         426       313
                                -------   -------      -------     -------   -------
                                $ 3,363   $ 4,133      $12,617     $17,626   $21,408
                                =======   =======      =======     =======   ========
</TABLE>

Substantially  all of the Company's  assets are in the United States.  All sales
are accepted and approved in the United States.


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. Business Combinations

On December 10, 1998, the Company  acquired  substantially  all of the assets of
Scitex Digital Video,  Inc., a Massachusetts  corporation,  Scitex Digital Video
(Europe)  Limited,  a private  company  incorporated  in England and Wales,  and
Scitex Digital Video (Asia Pacific),  Inc., a California  corporation  (together
"SDV"). In addition,  the Company acquired certain intangible  personal property
of Scitex  Corporation Ltd., an Israeli corporation,  related to SDV's business.
SDV  developed,  manufactured,  marketed  and sold  digital  video  manipulation
equipment  and  non-linear  video  workstations  that  are used  throughout  the
professional video and multimedia industry.

The  acquisition  was  accounted  for under the purchase  method of  accounting.
Accordingly, the assets and liabilities of the acquired business are included in
the  consolidated  balance  sheet  as of  December  31,  1998.  The  results  of
operations of SDV are included in the consolidated  statement of operations from
December 10, 1998.

                                      F-14

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

3. Business Combinations (continued)

Under the terms of the agreement,  the total purchase consideration included the
following:

                                                                  (in thousands)

Cash payment                                                         $ 7,893
Fair value of Warrants (1)                                               555
Subordinated promissory notes (2)                                      2,065
Liabilities assumed                                                    3,324
Other transaction costs                                                1,589
                                                                     -------
                                                                     $15,426
                                                                     =======


(1)  Warrants  for 250,000  shares and 750,000  shares of the  Company's  common
     stock,  at $1 and $3  per  share,  respectively,  exercisable  through  the
     earlier of December 10, 2009, or a consummation of a corporate  transaction
     in which 50% or more of the Company's voting power will be sold. In lieu of
     payment,  the holder has an option to exchange his warrants (or any portion
     thereof) for shares of common stock equal to the value of the amount of the
     warrant being  exchanged on the date of exchange  (calculated  based on the
     excess of the fair value of the share over the exercise  price,  divided by
     the fair value - and then multiplied by the applicable number of shares the
     warrant is exercisable  into). If the Company's  common stock were to trade
     for  over 20 days at a price of 140% of the  exercise  price,  the  Company
     shall have the right to call the warrant for redemption at a price of $0.01
     per share then outstanding.

(2)  Two  subordinated  promissory  notes of $750,000 and $1,315,000.  The first
     note is due in April, 2000.  Principal is to be paid together with interest
     in arrears on the unpaid principal  balance at a variable rate equal to the
     Merrill  Lynch Money Market Rate.  The second note consists of $900,000 due
     in 1999 and  $415,000  due in 2000.  Payments are to be made on a quarterly
     basis  starting on March 31, 1999.  Principal is to be paid  together  with
     interest  in arrears on the unpaid  principal  balance at an annual rate of
     10%,  increasing  by 1% at the beginning of every fiscal  quarter  starting
     with July 1, 1999.

In addition,  during the first five years  following the  acquisition  date, the
Company is to pay  scaled  percentages  of gross  revenues  and gross  margin on
revenues from a specific sale  contract.  As there is no assurance that revenues
from the contract will be generated,  no liability has been established for such
payments.

                                      F-15

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

3. Business Combinations (continued)

The purchase  price was  allocated  based upon the  estimated  fair value of the
assets acquired. The Purchase Price was allocated as follows (in thousands):

             Acquired core technology                              $    869
             Acquired developed technology                            1,732
             Acquired in-process technology                           2,195
             Acquired other identifiable intangible assets              692
             Tangible assets acquired                                 9,938
                                                                    --------
                                                                   $ 15,426
                                                                    ========


The Company  allocated  SDV's purchase price based on the relative fair value of
the net tangible and intangible assets acquired.  In performing this allocation,
the Company  considered,  among  other  factors,  the  technology  research  and
development  projects in process at the date of  acquisition.  SDV's  in-process
research and development  program consisted of the development of future digital
editing and digital  video  effects  products.  At the date of the  acquisition,
SDV's research and  development  programs were  approximately  52% completed and
total continuing  research and development  commitments to complete the projects
were expected to be approximately $3.3 million, and be successfully completed by
early 2000.  The value  assigned to purchased  in-process  R&D was determined by
estimating  the  costs  to  develop  SDV's  purchased  in-process  research  and
development into commercially viable products, estimating the resulting net cash
flows from the  projects  and  discounting  the net cash flows to their  present
value.  The rates utilized to discount the net cash flows to their present value
were based on the Company's weighted average cost of capital. A discount rate of
35% was used for valuing the in-process research and development and is intended
to be commensurate with the Company's corporate maturity,  the risks involved in
R&D  projects of this type,  and the  uncertainties  in the  economic  estimates
described  above.   Additionally,   these  projects  will  require   maintenance
expenditures  when and if they  reach a state of  technological  and  commercial
feasibility.  Management  believes the Company has positioned itself to complete
the research and development program. However, there is risk associated with the
completion  of  the  project,   which  include  the  inherent  difficulties  and
uncertainties  in completing  each project and thereby  achieving  technological
feasibility  and risks  related  to the  impact of  potential  changes in future
target  markets  and there is no  assurance  that the  project  will meet either
technological  or commercial  success.  Failure to complete the  development  of
either the  digital  editing or the  digital  video  effects  projects  in their
entirety,  or in a timely  manner,  could have a material  adverse impact on the
Company's financial condition and results of operations.

The estimates used by the Company in valuing in-process research and development
were

                                      F-16

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

3. Business Combinations (continued)

based upon  assumptions  the  Company  believes to be  reasonable  but which are
inherently  uncertain  and  unpredictable.  The  Company's  assumptions  may  be
incomplete  or  inaccurate,  and no  assurance  can be given that  unanticipated
events and circumstances  will not occur.  Accordingly,  actual results may vary
from the projected  results.  Any such variance may result in a material adverse
effect on the financial condition and results of operations of the Company.

Associated  risks  include  the  inherent   difficulties  and  uncertainties  in
completing  each project and thereby  achieving  technological  feasibility  and
risks related to the impact of potential changes in future target markets.

Financing

On December 10,  1998,  the Company  entered into a Loan and Security  Agreement
(the "Loan  Agreement") with LaSalle Business Credit,  Inc. The Company borrowed
approximately $3,340,000 under the Loan Agreement which constituted a portion of
the cash consideration for the SDV business.  

Unaudited Proforma

The  following  summary  unaudited  pro forma  information  shows  the  proforma
combined  results of Accom and SDV for the three months ended  December 31, 1998
and for the twelve  months ended  September  30, 1998,  and 1997,  as if the SDV
acquisition had occurred on October 1, 1996 at the purchase price established in
December,  1998.  The proforma  information  has been  prepared  from  unaudited
information  and is subject to change as a result of additional  procedures that
are currently  being performed by management.  Accordingly,  the results are not
necessarily  indicative  of those which would have  occured had the  acquisition
actually  been made on October 1, 1996 or of future  operations  of the combined
companies. The pro forma results for 1997 combine with the Company's results for
the twelve  months ended  September  30, 1997 with SDV's  results for the twelve
months  ended  December 31, 1997.  The pro forma  results for the twelve  months
ended  September  30, 1998 combine the  Company's  results for the twelve months
ended  September  30, 1998 with SDV's results for the twelve months from October
1, 1997 through September 30, 1998. As a consequence of this presentation, SDV's
results for the twelve  months of October 1, 1997 through  December 31, 1997 are
included, in the results for both the twelve months ended September 30, 1998 and
1997.  The  following   unaudited  pro  forma  results   include   straight-line
amortization of intangible assets:

                                                              Twelve months
                                       Three Months Ended        ended
                                        ------------------    -----------
                                          December 31,        September 30,
                                          ------------     ---------------------
(In Thousands, Except Per Share Data)        1998           1998        1997
                                             ----           ----        ----
Revenue                                      9,768          44,679       75,645
Net loss                                    (8,571)        (18,529)     (15,681)
Basic and diluted loss per share             (0.85)          (1.83)       (1.56)
                                                           
                                                          
The purchase price  allocation for SDV is tentative and may be adjusted based on
certain  factors,   including  the  value  received  for  certain   inventories.
Accordingly, the purchase price allocation may be adjusted during 1999.



                                      F-17

<PAGE>


4. Inventories

Inventories consist of the following:


                                                                    As of
                                                As of           September 30,
                                             December 31,    -------------------
                                                 1998         1998         1997
                                                ------       ------       ------
                                                        (In thousands)
Purchased parts and materials                   $2,399       $  256       $  225
Work-in-process                                    394          445          204
Finished goods                                     151          181          182
Demonstration inventory                          2,401          645          369
                                                ------       ------       ------
                                                $5,345       $1,527       $  980
                                                ======       ======       ======


5. Property and Equipment

<TABLE>
Property and equipment consist of the following:

<CAPTION>
                                                                                                          As of September 30,
                                                                        As of December 31,          -------------------------------
                                                                               1998                  1998                   1997
                                                                             --------               --------               --------
                                                                                                (In thousands)
<S>                                                                          <C>                    <C>                    <C>     
Machinery and equipment                                                      $  2,488               $  2,038               $  1,768
Furniture and fixtures                                                            505                    219                    207
Computer equipment                                                              1,661                  1,409                  1,070
Service inventory                                                               1,505                   --                     --
                                                                             --------               --------               --------
                                                                                6,159                  3,666                  3,045
Less: accumulated depreciation                                                 (2,860)                (2,628)                (2,078)
                                                                             --------               --------               --------
Net property and equipment                                                   $  3,299               $  1,038               $    967
                                                                             ========               ========               ========
</TABLE>

                                                                F-18

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

6. Accrued Liabilities

Accrued liabilities consist of the following:


                                                                    As of
                                                   As of         September 30,
                                               December 31,   ------------------
                                                   1998        1998        1997
                                                  ------      ------      ------
                                                          (In thousands)
Accrued compensation                              $  167      $  150      $  228
Accrued outside sales commissions                    655         149          90
Accrued acquisition liabilities                    1,589         126         208
Accrued streamlining expenses                       --           305         379
Other                                              1,412         243         408
                                                  ------      ------      ------
                                                  $3,823      $  973     $ 1,313
                                                  ======      ======      ======


7. Bank Borrowings

On December  10,  1998,  the Company  entered  into an  agreement  with  LaSalle
Business Credit,  Inc. ("LBC") whereby LBC agreed to make revolving loans to the
Company  to a  maximum  of  $7,500,000.  The  funds  available  at any  time are
determined by levels of eligible  accounts  receivable  and by levels of certain
inventory  items.  The Company's  ability to borrow is based on compliance  with
certain financial covenants.  At December 31, 1998, the Company had $3,916,00 in
borrowings outstanding,  due on December 10, 2001, and approximately $50,000 was
available for additional borrowings.

The rate of interest  charged on the loans is the bank's  prime rate plus 1.25%.
The term of the  original  agreement is three years and is renewable on a yearly
basis thereafter. The loans are secured by all assets of the Company.

As part of its  agreement  with LBC, the Company  agreed to turn all of its cash
deposits  over to LBC. As deposits are  received by the  Company,  the funds are
"swept" into bank  accounts  controlled  by LBC. The deposits are used to reduce
outstanding  balances with LBC. To fund  operations,  the Company  requests cash
advances  by LBC,  the  availability  of  which  is  determined  by the  factors
discussed above.

To the extent that the Company does not fully utilize the credit  facility,  LBC
charges an "unused line fee" which is equal to less than one percent per year of
the "unused" amount.

                                      F-19

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

8.  Commitments

Leasing Arrangements

The  Company  leases its  primary  office and  manufacturing  facility  under an
operating  lease which expires in February,  2000.  The Company  leases  another
office under an operating  lease which expires in April,  2004. Rent expense for
the three  months ended  December  31, 1998 and for fiscal years 1998,  1997 and
1996  was   approximately,   $131,000,   $465,000,   $448,000   and  $  424,000,
respectively.

Future minimum rental payments under noncancelable  leases at December 31, 1998,
are as follows (in thousands):

                    1999                     $     901
                    2000                           385
                    2001                           240
                    2002                           165
                    2003                           170
                    Thereafter                      57
                                             ---------
                    Total                    $   1,918
                                             =========


The Company is sublessor for a portion of its primary  office and  manufacturing
facility.  Sublease  rental income for the three months ended  December 31, 1998
and for  fiscal  1998,  1997,  and 1996 was  approximately  $ 27,000,  $175,000,
$84,000, and $0, respectively.


9. Stockholders' Equity

Stock Options

The 1995 Stock Option/Stock Issuance 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 the 12 months  ended  September  30, 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.

                                      F-20

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

9.  Stockholders' Equity (continued)

Stock Options (continued)

<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
   Shares authorized                                            --                    --                   --
   Options granted                                          (804,000)              804,000            $0.31-$0.65
   Options exercised                                            --                    --                   --            $   0.85
                                                                                                                         ========
   Options canceled                                           40,615               (40,615)           $0.81-$1.03
                                                          ----------             ---------            -----------
Balances at December 31, 1998                                497,963             2,014,718            $0.31-$5.88
                                                           =========            ==========            ===========
</TABLE>


During the twelve months ended September 30, 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. 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.

                                      F-21

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

9. Stockholders' Equity (continued)

Stock Options (continued)

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 December 31, 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>  
    $0.31 - $0.48            114,877           6.55              $0.40              59,877        $0.48
        $0.65                749,000           9.95              $0.65                --           --
    $0.84 - $1.00            179,400           9.11              $0.88              12,500        $0.88
        $1.03                953,938           7.52              $1.03             598,865        $1.03
    $1.25 - $5.88             17,500           7.88              $2.58              17,500        $2.58
                           ---------           ----              -----              ------        -----
    $0.31 - $5.88          2,014,715           8.51              $0.85             688,742        $1.02
                           =========           ====              =====             =======        =====
</TABLE>


As of December 31, 1998,  the Company has  reserved  2,512,681  shares of common
stock for issuance upon the exercise of stock options under all of its plans.

Employee Stock Purchase Plan

Under the Company's  Employee Stock Purchase Plan (the "Purchase  Plan") 250,000
shares are authorized for the issuance 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

<TABLE>
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

                                      F-22

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

9. Stockholders' Equity (continued)

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

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:

<CAPTION>
                                            For the Three              Fiscal Year Ended
                                             Months Ended                 September 30,
                                             December 31,   ----------------------------------------
                                                1998           1998           1997           1996
                                             ----------     ----------     ----------     ----------
<S>                                          <C>            <C>            <C>            <C>       
Risk-free interest rates                        5.1%           4.7%          6.0%            6.0%
Dividends paid                                   --             --            --              --
Volatility factors - Company's common
  stock expected market price                   0.80           0.80          0.80            0.80
Expected option life                         4.00 years     4.00 years     4.83 years     4.83 years
</TABLE>


The weighted  average "fair value" of stock options granted for the three months
ended December 31, 1998 and for the fiscal years ended September 30, 1998, 1997,
and 1996 was $0.87, $0.55, $0.56, and $2.30, respectively.

                                      F-23

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

9. Stockholders' Equity (continued)

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

<TABLE>
The fair value of employee  purchase  rights under the Employee  Stock  Purchase
Plan was estimated at the date of grant using the  Black-Scholes  option pricing
model. The following weighted-average assumptions were used:

<CAPTION>
                                                                 Twelve Months Ended
                                                                    September 30,
                                                            -----------------------------
          1998                                              1998         1997        1996
          ----                                              ----         ----        ----
<S>                                                      <C>          <C>         <C>       
  Risk-free interest rates                                  4.7%         6.0%        6.0%
  Dividends paid                                             --           --          --
  Volatility factors - Company's common
       stock expected market price                          0.80         0.80        0.80
  Expected option life                                   0.50 years   0.50 years  0.50 years
</TABLE>


The weighted  average "fair value" of employee  purchase rights issued under the
Employee Stock  Purchase Plan during the fiscal years ended  September 30, 1998,
1997, and 1996 was $1.47,  $0.85,  and $4.06,  respectively.  No purchase rights
were issued under the Employee Stock Purchase Plan during the three months ended
December 31, 1998.

<TABLE>
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:

<CAPTION>
                                                            Three                            Twelve Months Ended
                                                         Months Ended                           September 30,
                                                         December 31,          ------------------------------------------------- 
                                                             1998                1998                1997               1996
                                                           ---------           ---------           ---------           --------- 
<S>                                                        <C>                 <C>                 <C>                 <C>       
Pro forma net loss (in thousands):                         $  (3,979)          $  (3,477)          $  (5,753)          $  (2,379)
Pro forma net loss per share:                              $   (0.53)          $   (0.14)          $   (0.87)          $   (0.33)
</TABLE>


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.

                                      F-24

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

9. Stockholders' Equity (continued)

Stockholder Rights Plan

Under the  Company's  stockholder  rights  plan,  existing  stockholders  of the
Company are entitled 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.


10. Income Taxes

As of December 31, 1998, the Company had federal net operating loss carryforward
of  approximately  $5,200,000.   The  Company  also  had  federal  research  and
development tax credit carryforwards of approximately $250,000.

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes.

<TABLE>
Significant components of the Company's deferred tax assets and liabilities are:

<CAPTION>
                                                                                                          As of September 30,
                                                                          As of December 31,          -----------------------------
                                                                                 1998                  1998                  1997
                                                                                -------               -------               -------
                                                                                                  (In thousands)
<S>                                                                             <C>                   <C>                   <C>    
Deferred tax assets:
   Net operating losses                                                         $ 1,804               $ 1,747               $   735
   R&D credits                                                                      373                   334                   186
   Acquired intangibles                                                             988                  --                    -- 
   Capitalized R&D                                                                3,152                 2,801                 2,711
   Nondeductible reserves and accruals                                              900                   683                   354
   Inventory valuation                                                            1,108                   913                 1,055
   Other individually immaterial items                                               55                    92                   437
                                                                                -------               -------               -------
                                                                                  8,380                 6,570                 5,478
Valuation allowance                                                              (8,380)               (6,570)               (5,440)
                                                                                -------               -------               -------
Net deferred tax assets                                                         $  --                 $  --                 $    38
                                                                                =======               =======               =======
</TABLE>


The net valuation allowance  increased by $1,810,000,  $1,130,000 and $5,241,000
during the three months ended  December  31, 1998,  and the twelve  months ended
September 30, 1998 and 1997, respectively.

                                      F-25

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

10. Income Taxes (continued)

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

                                    Ended               For Three Months
                                 December 31,    Fiscal Year Ended September 30,
                                 ------------    ------------------------------
                                    1998          1998        1997         1996
                                    -----        -----       -----        -----
                                                (In thousands)
Federal:
   Current                          $--          $--         $(705)       $(231)
   Deferred                          --           --           705         (231)
                                    -----        -----       -----        -----
                                     --           --          --           (462)
                                    -----        -----       -----        -----
State:
   Current                           --           --          --             11
   Deferred                          --           --          --            (45)
                                    -----        -----       -----        -----
                                     --           --          --            (34)
                                    -----        -----       -----        -----
Foreign:
   Current                              1           19           9         --
                                    -----        -----       -----        -----
Total                               $   1        $  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:

                                    Ended               For Three Months
                                  December 31,   Fiscal Year Ended September 30,
                                     1998         1998       1997        1996
                                    -------      -----------------------------
                                                  (In thousands)
Income taxes computed at the        $(1,324)     $(1,033)   $(1,524)   $  (480)
   federal statutory rate
State taxes (net of federal
   benefit)                             (88)        (125)      (370)       (23)
Foreign taxes                             1           19          9       --
Research and development tax
   credit                               (23)         (71)      (123)       (18)
Technology basis step-up               (468)        --       (2,867)      (204)
Foreign losses not currently
   benefited                             41          163       --         --
Valuation allowance                   1,810        1,130      5,440        199
Other                                    52          (64)      (556)        30
                                    -------      -------    -------    -------
Total                               $     1      $    19    $     9    $  (496)
                                    =======      =======    =======    =======

                                      F-26

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

11. Related Party Transactions

In  December,  1998,  shares of common  stock of the Company  were issued to two
members of the Company's Board of Directors,  Lionel Allen and David Lahar,  and
an officer of the Company , Phillip Bennett,  in exchange for promissory  notes.
300,000  shares were issued at a price of $0.50 per share,  200,000  shares were
issued at a price of $0.65 per  share,  and  350,000  were  issued at a price of
$1.00 per  share.  The shares  were  issued in  exchange  for  promissory  notes
totaling  $630,000.  No payments  had been made on the notes as of December  31,
1998.

In March,  1999,  $300,000 was paid to a company associated with a member of the
Company's  Board  of  Directors,  David  Lahar,  for  services  provided  in the
acquisition  of SDV.  Such  amount is  included  in  accrued  liabilities  as of
December 31, 1998.

12.  Subsequent Event

On March 12, 1999, the Company  completed a private placement of $3.5 million in
senior subordinated  convertible notes with a group of investors. The notes have
a coupon rate of 6% per year,  mature in the year 2004, and are convertible into
shares of Accom common stock at a price of $1.30 per share.

In conjunction with the sale of convertible notes, the Company and the investors
entered into an Investors Rights Agreement. The Investors Right Agreement grants
the  investors,  among other things,  certain  rights with respect to the common
stock of the Company issuable upon conversion of the notes.

Subsequent  to the  completion  of the  placement,  one  of  the  investors  was
appointed to the Board of Directors of the Company.

In March,  1999,  $88,000 was paid to a company  associated with a member of the
Company's Board of Directors for services provided in the private placement.

                                      F-27